This article, by Stephensons’ fraud and regulatory partner, Rachel Adamson, was first published in Practical Audit and Accounting in April 2013.
It is getting towards a year on from the appointment of David Green CB QC as the new Director of the Serious Fraud Office (SFO) so perhaps now is an ideal time to revisit what he set out to do. He took the appointment with a determination to keep the SFO going rather than give in to the growing pressure to amalgamate it with other prosecuting authorities. This was despite rumours to the contrary. David Green announced the SFO was ‘here to stay’ and set about declaring what his new focus was to be on. It has to be said that on occasion the new priorities seem somewhat contradictory.
Traditionally the SFO website declares its main aim to be ‘combating major fraud and corruption’. It states that its aim is to ‘protect society from extensive deliberate criminal deception which could further threaten public confidence in the financial system’. David Green’s view when he took office was that he would concentrate on top end fraud and he was determined to re-examine the type of case that was taken on. Perhaps this was in the light of the heavy criticism levelled at the SFO in the embarrassing end to the investigation into the Tchenguiz brothers. This investigation related to the failed Icelandic Bank Kaupthing. In October 2012 the SFO decided to halt the three year investigation after admitted there was insufficient evidence to justify continuing.
As well as re-examining the type of case to be taken on David Green has spoken of his determination to use new methods of investigation and new sources of intelligence. He has significantly moved away from the need to carry out dawn raids as was so highly publicised in the Tchenguiz brothers case. This type of statement underlines his desire to re-prioritise at the SFO but does it really take us anywhere new? It is easy to compare this with the London Inter Bank Offered Rate (LIBOR) scandal. There has been indirect criticism of the former SFO Director Richard Alderman’s decision not to investigate LIBOR when he handed it to the Financial Services Authority (FSA) to deal with. David Green has made it clear that he wants to take the investigation further than the regulatory investigation that has happened so far and has committed himself to the case. He may have moved away from the dawn raids but the publicity remains with announcements of this nature. David Green has been given a further £3.5 million to his annual budget in order to investigate LIBOR and he has stated that the investigation is complex with international dimensions. Won’t we be back in the same place if his American counterparts at the Department of Justice beat him to charges in this case? Another SFO failure? Perhaps time will tell but there was talk of a decision in early 2013 so maybe it is imminent.
Recently the SFO has withdrawn its earlier guidance on Bribery and Corruption. This includes the guidance that companies self reporting any corruption would face civil penalties rather than criminal prosecutions. This may be seen as the Director’s desire for the SFO to be seen as more prosecution orientated rather than their earlier reputation for being more inclined to settle than prosecute. The SFO now states that self reporting may be taken into account but each case will turn on its own facts. It does not rule out civil penalties where there is evidence of a proactive approach to complying with the legislation by management teams. This has left companies in a position where they need to closely consider their options should they find themselves in a position where bribery is discovered within their organisation. There are no guarantees that self reporting will result in civil penalties.
There has been further guidance issued on corporate hospitality too which may come as somewhat of a relief to businesses providing a clearer picture of what they can and can’t do. The SFO has stated that “Bona Fide hospitality or promotional or other legitimate business expenditure is recognised as an established and important part of doing business”. Having said that the SFO has perhaps firmed up its guidance on what they call “Facilitation payments”. These are payments made to a public official to speed up measures needed to be taken or ensure their compliance. The SFO states now simply “A facilitation payment is a type of bribe and should be seen as such”.
In somewhat contradictory terms the Director has also backed the introduction of the more American style plea bargaining with the introduction of deferred prosecution agreements (DPA’s) for economic crime. It is said that this move towards a more U.S. style of prosecuting financial crime would allow prosecutors to have an effective tool to tackle this area. This is proposed in the draft Crime and Courts Bill and it is anticipated that DPA’s may be used in Courts by 2014. The suggested format would be to allow the voluntary reporting of crime in return for an agreement that any prosecution is deferred until stringent conditions have been complied with. The DPA’s would be made in open Court and if the conditions are satisfied there will be no prosecution. Where does this sit with the aim to settle less and prosecute more? It appears that whilst there have been a number of new priorities set out at the beginning of David Green’s term of office a number of them perhaps may just be window dressing stating what is felt the public want to hear in this time of economic difficulties.
Another priority declared was the need for the SFO to be more driven towards anti-fraud strategies. David Green announced that he intended for the SFO to ‘work cooperatively with others in the emerging counter-fraud landscape’ he stated that he intended to ‘press for all the tools necessary to maximise our impact’. There was talk of re-balancing and the new methods of investigation and sources of intelligence referred to above. So far it is difficult to judge how much has been achieved in this respect and how effective this policy is proving to be. The publicised matters of revised guidance for bribery and corruption and the DPA strategy deal with after the event rather than anti-fraud measures. It is after all only a year in perhaps this priority needs more time to develop and will inevitably need close workings with the government to ensure measures are passed through Parliament to assist these measures.
Further bad press recently has highlighted criticisms that both David Green and Richard Alderman have been grilled about by the Public Accounts Committee. There have been allegations of cronyism and possible corruption with the SFO itself. There have also been allegations of misuse of public funds. Two reports have been commissioned and have recently been submitted to the Public Accounts Committee. One is by Sir Alex Allan who has cleared the SFO of any impropriety and any unlawful activity but given clear recommendations for improvements. This report dealt with allegations of inappropriate hospitality given to members of the SFO by consultants. Sir Alex Allan did however express concern at the number of consultants being used. The second comes from the Treasury Solicitors department regarding much publicised exit payments for senior members of staff.
David Green says of these payments that he did not know of them and Richard Alderman who signed them off will say he believes they had been cleared. One of these payments was an exit payment to Phillippa Williamson the former Chief Executive of the SFO who has been given a payment of over £400,000 in order to take voluntary redundancy. The National Audit Office flagged up the payment as ‘irregular’ and Margaret Hodge the Chairman of the Public Accounts Committee has labelled the payment ‘completely unacceptable’. The timing of these payments to three senior members of staff appeared to be linked to two incidents of whistleblowing involving the members of staff. There have been calls for the report into the whistleblowing incidents to be made public to reassure the public that any convictions secured are indeed safe. The main concern appears to be the use of the internal digital forensic unit. It has been said that the handling of evidence by this unit ‘could not be trusted’. The SFO has made a formal response to this and stated that the report confirms there are no concerns over completed cases. In a spectacular turn around Richard Alderman has since written to the committee making an apology and acknowledging that their criticisms were valid.
One ray of hope on the horizon during the first year in office for David Green was the long awaited conviction of Asil Nadir of the Polly Peck International. He was convicted of thefts of nearly £29 Million. This case has been notorious as Nadir fled the jurisdiction 19 years earlier leaving the SFO with yet another case where they had failed to secure a conviction. The return 19 years later and subsequent conviction was described by Green as ‘a remarkable achievement’. Nadir was later given a 10 year custodial sentence.
Even this ray of hope had a sting in its tail when the SFO conceded that they could not request the Court to make a Confiscation Order. The far reaching powers of the Courts these days did not apply to the thefts from Polly Peck International due to the fact they occurred before this legislation was brought in. The SFO did request compensation though. In a detailed hearing Nadir claimed he had no assets. Mr Justice Holroyde however dismissed this claim and called it an ‘affront to common sense’. He made an order for Nadir to pay £5 million in compensation or to serve a further six years in prison if he didn’t pay.
So as a first year it certainly came with its ups and downs but how nearer are we to the leaner re-structured department envisaged by David Green? Perhaps the LIBOR scandal may the saving grace for the SFO and David Green can finally secure a better future for the SFO. The much maligned office however does play a huge role in the investigation of serious fraud and it stands to reason that top end fraud should be separately investigated. The unique skills of the SFO should be added to and expanded to make a real impact. Lawyers are the key not administrators.
What remains clear is the fact that the SFO and other prosecution agencies are committed to the stamping out of bribery and corruption in the corporate world together with the tackling of economic crime. It is important that you protect your business from falling foul of these measures and ensure you take expert advice. If you find that your business is the subject of an enquiry it is vital that early advice is sought in order to limit the damage and to ensure the best possible outcome.