The Serious Fraud Office – Soon Falling Over?

By James Saunders and Rianne McCartney - as published in Financier Worldwide magaine

Life expectancy is on the up generally, but the forecast imminent demise of the SFO is after only 30 years of life; such early demise would mark the end of a controversial experiment in allowing investigators to take their own cases to trial.

The SFO - Serious Fraud Office

The SFO was established in 1987 by the Criminal Justice Act 1987 which gave effect to the recommendations of Lord Justice Roskill in the Fraud Trials Committee report. As its name suggests, the remit is to focus on fraud, bribery and corruption offences. It was given "Section 2 powers" under the CJA, which confer the power to compel documentary and oral evidence, although answers given under compulsion are generally not admissible in criminal proceedings against the maker because of a suspect's overriding right to silence. A S2 interviewee commits a criminal offence if evidence is falsified or concealed. As a safeguard, the SFO Director must be satisfied on reasonable grounds a case involves serious or complex fraud, is required to act proportionately and is directly answerable to the Attorney General, a member of the government.

Giving the SFO the authority to prosecute cases it investigates ran against the trend in the 1980s to separate those two functions. For traditional crime, the Prosecution of Offences Act 1985 created the Crown Prosecution Service, with the Director of Public Prosecutions as its the head, combining the office of DPP with all the existing police prosecuting solicitors. The overall CPS structure has broadly been a success with the public and government, although somewhat underfunded operationally.

Unhappily for the SFO, its history has been marred by various scandals and botched prosecutions, and failures to secure convictions in flagship cases. Even worse, the targets of failed prosecutions have struck back with civil claims against the SFO to which the High Court has on occasion been expensively accommodating.

The prosecution of the Tchenguiz brothers is arguably the SFO's most notorious debacle. The investigation started in 2009, after the collapse of the Icelandic bank, Kaupthing, during the 2008 financial crisis. Prior to this, the Tchenguiz brothers had both been the beneficiaries of large scale lending from the bank.

Both brothers, Vincent and Robert, were arrested in March 2011 and their home and offices were subject to extensive raids after the SFO obtained search warrants. The information the SFO provided to the court to obtain the warrants included allegations that the brothers had defrauded and effectively stolen money from the bank.

In the following civil claim, the High Court had to decide whether the search warrants were properly obtained and held that the SFO's application had contained such inaccuracies and lack of required disclosure that the warrants had to be quashed. The judgment heavily criticised the approach of the SFO stating "it is clear to us that the SFO was not properly resourced for this investigation". The SFO had accepted making serious errors and discontinued its prosecution of Vincent Tchenguiz a fortnight before the judgment.

The investigation against Robert was dropped some three months later, and the Tchenguizs issued claims against the SFO, pleading trespass, false imprisonment, misfeasance in public office and malicious prosecution.

After lengthy proceedings, during which the SFO accepted shredding key documents, Vincent Tchenguiz accepted a lb3m settlement with another lb3m of legal costs. As a result, the SFO had to obtain emergency funding from the UK Treasury.

Following the collapse of the Tchenguiz case, the SFO were again under fire for their conduct of the trial of Victor Dahdelah which was judicially stigmatised as "mismanagement" after there was effectively no prosecution evidence when the key witnesses refused to attend. One such witness was a partner at US law firm Akin Gump, to whom it was said the SFO had delegated part of its investigation. As Akin Gump was advising claimants in ongoing litigation against Mr Dahdaleh in the US, an obvious conflict arose, which an independent prosecutor was perhaps more likely to spot.

The history of mishap is long. The SFO admitted misplacing 32,000 pages of documents, 81 audio tapes and electronic media relating to its inquiry into BAE Systems' arms deals with Saudi Arabia. In 2010 Jared Bentley Brook and Lincoln Julian Fraser, former directors of Imperial Consolidated Group, were cleared of causing the collapse of the international investment company. In 2002 two trials costing the SFO lb40m failed to convict anyone in connection with an alleged lb20m fraud at DIY chain Wickes.

David Green, the director of the SFO, issued an apology in 2014 following the Tchenguiz settlement -

"The SFO has changed a great deal since March 2011, and I am determined that the mistakes made over three years ago will not be repeated."

Fine words, but only last year Jim Sutherland and Jack Flader were acquitted by a jury of money laundering after only 4 hours deliberation. The trial had lasted 9 weeks and the investigation by the SFO spanned 9 years. Jim Sutherland had spent 752 days on bail and incurred legal costs of over lb2m. It had been alleged Mr Sutherland had laundered $120m of the proceeds of crime, although it became clear from the SFO's own paperwork that such payment had never been made.

In addition to failed prosecutions, the SFO is now under sustained criticism from defence lawyers for claiming the right to exclude defence solicitors from S 2 interviews. Their new guidance only permits a lawyer to accompany an interviewee if-

'the SFO believes it likely they will assist the purpose of the interview and/or the investigation, or that they will provide essential assistance to the interviewee by way of legal advice or pastoral support'.

Were this to survive the inevitable legal challenges, a lawyer would only admitted if the SFO case controller condescends to allow it and the test depends on the "purpose of the interview" which may be uniquely known to them. The right to exclude a solicitor would lie with the case controller who is potentially the subject's prosecutor, even though the interviewee does not have a right to silence and it is under compulsion. It is even in doubt whether the subject's lawyer will have any right to a copy of the transcript of the interview. An impending, yawning own goal is visible to all except the SFO!

In the financial year 2015-2016, the SFO opened 12 new criminal investigations, a figure which had dropped from the previous year's 16. The conviction rate was an incredibly low 32% if calculated by defendant rather than by case, although the results from this year may be skewed slightly as for the previous few years the rate has been over 70%. The SFO spent lb60.3m on their investigations and prosecutions in this year and some consider that a unit cost rate of lb5m with a low conviction rate points to a need for root and branch change.

NCA - National Command Authorities

Amongst them is Theresa May and the Conservative Party who have pledged, as a matter of policy to scrap the SFO and incorporate its work into the National Crime Agency. Ms May promoted the creation of the NCA as Home Secretary to deal with serious and organised crime, and is still its fan. As Home Secretary, she appointed the NCA to re-investigate a number of historic criminal law fiascos, such as the Stephen Lawrence case; the results are awaited.

Bringing in the NCA would separate investigation from prosecution and bring in welcome checks and balances. Having the CPS take prosecuting decisions, as they do in traditional crime, makes much sense. However, a number of senior lawyers have questioned whether the NCA has the capability or culture to investigate complex and serious fraud, bearing in mind its mission, as set out on its creation in 2013 -

"Through its four commands, the NCA will tackle organised crime, strengthen border defences, accelerate efforts against economic crime, and ramp up the fight against child sex abuse and exploitation. It will also consolidate expertise on cyber crime to form the first National Cyber Crime Unit"

What is not in doubt is that the Serious Fraud Office's future is very precarious.

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