Thomas Alan assesses the fresh controversy around SFO tactics
It claims it is a public service hamstrung by archaic laws and deserves more sympathy; its critics make unfavourable comparisons to the civil service and question the competency of its lawyers.
Suffice to say, the Serious Fraud Office (SFO) is dividing opinion after an expensive nine-year prosecution – the only case so far where bankers ended up in the dock for alleged fraud arising from the financial crisis – ended in a complete acquittal on 28 February.
It took the jury five hours to decide Barclays’ former investment banking chief Roger Jenkins, one-time European financial institutions head Richard Boath and the ex-head of its wealth division, Thomas Kalaris, were not guilty. The trio were charged with conspiracy to commit fraud over fees paid to Qatar when it invested £4bn to rescue the bank at the height of the financial crisis. The alternative was being part of the government’s £500bn rescue package, which bailed out Lloyds Bank and The Royal Bank of Scotland.
‘I will never understand how the SFO thought it would win like that.’
Confidence and hindsight often go hand in hand, but many believe the SFO’s prosecution was doomed from the start due to a series of tactical errors. To demonstrate an organisation is liable, a so-called ‘directing mind’ must be proven to have been involved in the alleged fraudulent activity. Lisa Osofsky, director of the SFO, has been critical of the directing mind concept, maintaining it is an antiquated piece of law that makes it too difficult to prosecute companies.
Few are convinced. The SFO seemingly made little attempt to prove the trio were operating effectively as board members, instead taking it as a given the accused were bound to the bank and their actions were relevant to Barclays’ liability. In effect, the SFO was asking for a broadening of the law that was unlikely to be granted. ‘In all my years thinking tactically on cases, I will never understand how the SFO thought it would win like that,’ says one City corporate crime veteran. ‘It was crass stupidity. Chances were missed, the tactics misaligned. To have it returned, not in two weeks, but in five hours, is utterly shocking.’
One particular source of opprobrium has been the SFO’s decision not to call live witnesses before the jury, despite interviewing board members and the lawyers involved. Says Hickman & Rose Solicitors criminal litigator Ross Dixon: ‘It’s a difficult way to win a trial in front of a jury, just relying on the documents when witnesses are available. It suggests a nervousness about the strength of the case and raises a further question mark about the decision to prosecute.’
The oversight has not been completely explained. Some suggest the SFO’s focus on overseas corruption cases creates difficulties in calling witnesses from abroad; others go further and claim the SFO creates a hostile environment for its witnesses and needs to treat them better.
Unfortunately for the watchdog, the Barclays prosecution is just the latest high-profile setback. In 2018, the SFO suffered its first major reverse under Osofsky’s leadership, when its fraud and false accounting prosecution of two former Tesco executives was quashed at half time. The failure to prosecute meant the SFO could publish the deferred prosecution agreement (DPA) it reached with Tesco the year before, which resulted in Tesco paying out £129m. Then, in February 2019, the SFO scrapped its bribery and corruption probe into Rolls-Royce, having previously agreed a £497.3m DPA in 2017.
The SFO’s use of DPAs has prompted scepticism from white-collar crime specialists, though it has given the agency some prominent results. In January, it was revealed the SFO had struck a €991m DPA with global aerospace company Airbus. The watchdog had been investigating the company for roughly four years over allegations that it had used external consultants to bribe customers to buy its civilian and military aircraft.
‘It highlights the focus at the SFO is getting the DPA,’ says Norton Rose Fulbright white-collar crime partner Neil O’May. ‘The narrative is getting the DPA and not necessarily following the evidence. It’s a trophy on the wall with a huge sum of money. ’
The SFO frames DPAs as a significant success and it is easy to understand why. They secure significant sums for the exchequer, they ensure a degree of co-operation from corporates and in some cases result in obvious reform. But it remains unclear how the Airbus DPA will unfold. There are different considerations between securing a court-approved DPA and a prosecution of individuals, with the latter by no means an inevitable consequence of the former, as proved in the Tesco case. The conclusion of a number of investigations raises pertinent questions about the purpose of DPAs, and whether companies will be likely to co-operate in the future with an increasingly poor SFO prosecution rate.
There are also questions around how the SFO is treating individuals in some of its DPAs, some of whom are being identified as wrongdoers despite not being convicted. The mismatch between the outcomes for corporates and individuals creates an inconsistency many white-collar lawyers believe needs addressing. For now, only companies and not individuals can secure DPAs, having first been introduced to the UK through the Crime and Courts Act 2013. However, the introduction of DPAs for individuals (as is the case in the US) would likely result in an increased success rate against individuals for the SFO. Osofsky remains eager to import many of the systems that were deployed during her stint as deputy general counsel at the FBI.
Meanwhile, the ramifications of the Barclays case will likely include increased calls for legislative change to make companies criminally liable for failure to prevent economic crime – a precedent set in instances of bribery since the introduction of the Bribery Act in 2010. Whether the current government has the appetite for such a change is another question, with a pivot from the SFO towards bribery work a more likely consequence in the short term.
Sympathisers will say the SFO needs a thick skin, with such barbed criticism inevitable from taking on the most complex, public-interest cases. But as things stand, its detractors have been handed a load of ammunition.