The Serious Fraud Office – soon falling over

July 2017  |  SPECIAL REPORT: WHITE-COLLAR CRIME

Financier Worldwide Magazine

July 2017 Issue


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

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 £3m settlement with another £3m 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 was again under fire for its 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 £40m failed to convict anyone in connection with an alleged £20m 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 in 2016 Jim Sutherland and Jack Flader were acquitted by a jury of money laundering after only four hours deliberation. The trial had lasted nine weeks and the investigation by the SFO spanned nine years. Jim Sutherland had spent 752 days on bail and incurred legal costs of over £2m. 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 a payment had never been made.

In addition to failed prosecutions, the SFO is now facing sustained criticism from defence lawyers for claiming the right to exclude defence solicitors from S2 interviews. Its 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 be 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 percent if calculated by defendant rather than by case, though the results from this year may be skewed slightly as for the previous few years the rate has been over 70 percent. The SFO spent £60.3m on its investigations and prosecutions in this year and some consider that a unit cost rate of £5m with a low conviction rate points to a need for root and branch change.

Among 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 (NCA). 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 reinvestigate a number of historic criminal law fiascos, such as the Stephen Lawrence case; the results are awaited.

The SFO’s future is very precarious.

 

James Saunders is a partner and Rianne McCartney is an assistant solicitor at Saunders Law. Mr Saunders can be contacted on +44 (0)207 632 4337 or by email: james@saunders.co.uk. Ms McCartney can be contacted on +44 (0)207 632 4325 or by email: rianne.mccartney@saunders.co.uk.

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