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GAIN 2016 – The Serious Fraud Office’s Current Direction and Enforcement Priorities

27 October, 2016 | Speeches

Hannah von Dadelszen, Joint Head of Fraud, delivered a speech on the SFO’s priorities and its direction, at the TRACE Global Anti-Bribery In-House Network (GAIN) Conference.

Thank you for inviting me to speak to today.  It is a pleasure to address you today on the matter of the Serious Fraud Office’s current direction and enforcement priorities.

Who we are and our core direction

Firstly, who is the SFO? Many of you will be familiar with the SFO, and some of you will have represented clients on the other side of litigation we are, or have been, involved in.  Even so, I think it is worth reiterating the basis of the SFO.  The SFO was established pursuant to the Criminal Justice Act 1987 to tackle the most serious or complex cases of fraud, bribery and corruption.  Our role is to investigate, and where appropriate, prosecute cases that fall within that remit.

We are a law enforcement agency and not a regulator – and I think it is important to stress this early on as to a large extent that defines our relationship with industry.  You may have heard the Director of the SFO say previously that we are not in the business of telling people how not to rob a bank.  We are of the view that it is not for us to tell those who work in industry – yourselves – what to do.  You are the experts in this field and for us to take on an advisory role would be to assume functions which simply aren’t in our enabling legislation.  We are investigators and prosecutors.

You may have heard of the Roskill model.  Lord Roskill was the chairman of the Fraud trials committee in 1983.  That committee considered options for more effective ways to fight fraud through changes to criminal procedure law enforcement.  The SFO emerged from the report as an investigation and prosecution agency which combined the skills of investigators and lawyers and forensic accountants to combat the most serious and complex fraud.  Nowadays we are also joined by an intelligence unit, a digital forensic unit, a graphics unit, a proceeds of crime division and whole host of other specialists who support and enhance the basic “investigate and prosecute” mantra.

Shortly after he took over as Director in April 2012, David Green made clear that he wanted to focus the SFO on the work for which the Roskill model had been designed.  Robust case work is at the heart of what we do.  The Director is clear that we will focus on those cases which risk the UK’s reputation as a safe place to do business.  The SFO is here to take on the most serious or complex fraud and/or bribery and/or corruption cases that that UK is facing today.  We believe we are best placed to deal with those cases.

This remains the core direction for the SFO.

However, it is not as simple as that.  We work in a complex environment where dynamics of casework and outcomes are constantly evolving.  I will talk a little about the current dynamics of our case work shortly.

But first I want to speak about out some recent case activity.

The SFO’s recent activity

We currently have about 60 active investigations as well as Proceeds of Crime cases, civil recovery cases and strategic intelligence projects.  For obvious reasons we do not announce all of our cases.  Over the last year or so there are a number of outcomes that help illustrate what we seek to achieve.  The convictions in our LIBOR cases have perhaps generated the most media attention – with five people currently serving prison sentences for their part in it.  Equally we have had acquittals on the broker trial in the LIBOR series of trials – I will talk about our losses a little later on.

There have also been examples from our bribery and corruption caseload which you may have heard of.

We’ve had our first conviction of a corporate, after trial, for offences involving foreign bribery of foreign officials, in the case of Smith and Ouzman.

The end of last year saw our first ever conviction by guilty plea of a corporate, Sweett Group plc, for an offence under section 7 of the Bribery Act – which is the corporate offence of failing to prevent bribery.

And in a significant development for the office, we’ve concluded two Deferred Prosecution Agreements – the first in the UK – for Standard Bank in 2015 and another application which is currently subject to reporting restrictions but known for the time being as XYZ.  I’ll come back to the theme of Deferred Prosecution Agreements.

The amount of work coming through our doors, whether through whistleblowers, disgruntle business rivals, leads developed by our excellent intelligence unit, or companies themselves reporting suspicious conduct, is as busy as it has ever been, and we are getting through it.

Of course, there have been knocks along the way.  The papers tend to report the outcomes of our cases in black and white terms.  Either a famous victory or a devastating defeat.  In reality, life behind the doors of the SFO simply doesn’t work like that.  We investigate our cases and we prosecute our cases; we carry on our daily business in a manner that fulfils our duties as independent agent of the Crown.  However good a job we do, there is no certainty in taking criminal cases to court.  Juries are the final arbiter of our cases.  Our job is to get the case past half time so that it can go to a jury for a decision.  The people who work at our office know this.

It is the job of the SFO to take on the most difficult cases, and inherently these will often involve complex legal issues which may be without close precedent.  We don’t shy away from those cases.  And I do not consider our losses in those cases to be failures.  What I suggest to you is that as a society you want and need an agency that is geared up to tackle these matters in spite of the risk involved.  If you do not have the SFO, other agencies which are dealing with regulatory matters or with broader criminal justice mandates, will be required to deal with it, and they won’t have the capacity to do so.

On that note, it is worth just mentioning some of the live cases we are still handling.  At the moment we have live cases in the following sectors – pharmaceuticals, financial services, defence, aerospace, transport, construction, retail, commodities, natural resources, professional services and others.  They may be sectors that you currently work with.  The SFO is currently looking at ways we ventilate bribery and corruption issues across business sectors – so if you are involved those areas, don’t think that we are finished in that area simply because we have already handled one case.  What it in fact means is that we know more, we have better intelligence and we will be less sympathetic to those businesses who sit back and wait for us to come knocking.

The international element of the SFO’s work

We are a UK agency, but we work in an international arena.  The UK Bribery Act, which came into force in July 2011, has extra-territorial application. It extends to UK companies operating overseas and overseas companies carrying on some business in the UK.  That means our focus goes way beyond this island’s shores.  We have the resources and appetite to run cases all over the world, going wherever the investigation takes us and working with international partners to secure evidence for use in our cases.

One of things I hear most frequently in terms of job satisfaction from case controllers and lawyers and investigators at the office is that they enjoy the international aspects of their jobs.  And there’s a lot of it.  The scope of our powers is extensive, and on top of that we have built effective relationships with a significant number of overseas law enforcement agencies.  We can, and regularly do, cooperate with overseas law enforcement agencies.

The purpose behind the Bribery Act was to give the UK power to tackle corruption not only inside its borders but also far beyond them – to play its full role in the global fight against corruption.  We may be navigating unchartered territory in the UK after the vote to leave the European Union – but the desire remains firmly in place.  I suspect most of you would agree that if any real progress is to be made in the fight against corruption, the UK must be part of the global picture.  That is why we place such importance on international cooperation.

Prosecutions and DPAs

If I could discuss now the position as regards prosecutions and Deferred prosecution agreements.  The SFO’s mission is to confront fraud and corruption.  Corruption is merely a typology of fraud, and the two often go hand in hand.

As I have discussed, the way the SFO sets out to tackle the issues is through investigation and prosecution.  With traditional prosecution there is a well established role between us and defendants and their advisers. Often companies sit on unreported conduct, playing the odds game, reasoning that the SFO won’t find out.  That seems to me to be a risky and unpredictable analysis given the world today.  There is all to often a disgruntled former employee who is more than happy to talk to the SFO.  It might be a generalist comment, but the mood across civil society is one of transparency and lack of tolerance for powerful companies and individuals who break the law.

However, cases which are not self referred are the majority of the work we do.  As I mentioned earlier, we have a very strong intelligence unit which develops that workstream for us.

There is now a second way we tackle fraudulent or corrupt offending.  For those companies who engage with us properly and approach us before we come to them, there is an opportunity to deal with a problem in something other than the traditional adversarial way: the deferred prosecution agreement.

The way a DPA works is that criminal proceedings are commenced against the company but immediately suspended pending compliance with the terms of the agreement.  The agreement itself must canvass the breadth of the offending to which the company is susceptible.  The DPA provides a structure for companies to control their criminal risk quickly and with a degree of control absent from traditional prosecution.

The DPA is not, as some would have it, a mechanism for companies to buy themselves out of trouble.  It’s no backroom deal; the process is scrutinised by a senior Judge who must satisfy him or herself that the DPA is in the interests of justice, and its terms are fair reasonable and proportionate.  The terms of the agreement can pack a punch; a fine sufficient to act as a deterrent, compensation and in some cases, a monitor.

It is not the appropriate outcome for every case, but it is most likely to be suitable for a company that has self reported wrong-doing, cooperated with the investigation and made the necessary improvement to its compliance practices.  Where a company enters a DPA, individuals may still be prosecuted if the evidence is there and it is in the public interest to do so.

What the DPA is designed to avoid is complex.  It avoids a long and expensive trial against a corporate.  It reduces relying on victims to come forward and give evidence in that trial.  It reduces the lack of certainty in the marketplace that can flow from a long prosecution. It can “cleanse” a repentant company and give that company an ability to continue to trade.   It is justice; and a speedy and effective justice at that.

Our second DPA, agreed in July this year, included a 50% discount on the sentencing guidelines financial penalty starting point, together with further discount to recognise the precarious financial position of the company.  The Judge in that case said that the significant discount was “appropriate not least to encourage others how to conduct themselves when confronting criminality”, as the company in question had.  That level of discount won’t be appropriate in every case, but it is certainly a welcome development as I see it.

Confronting criminality appropriately is vital for companies seeking a negotiated resolution to the risks they face.  And what we mean by this is that companies cooperate with us early on when they become aware of an issue.

From where we sit, there are three responses to requests for cooperation.

  • Firstly, there is an outright refusal.
  • Secondly, there is initial apparent acceptance, but it becomes obvious that the company gives the impression of cooperation but in fact hopes that the SFO investigation will give up and go away when things get difficult. That scenario effectively means that the relationship between the company and the SFO changes back to a more traditional adversarial relationship.
  • Thirdly, there is a response where the company says yes, and means it. This will inevitably means the company will sometimes be uncomfortable with the questions being asked by the SFO.  But it responds to them in a genuine manner.  The SFO is given the information it needs and the company doesn’t spend years with a major investigation hanging over it, with all the uncertainty that entails.

The third option is the proper response of a responsible company that wants to confront these issues and move forward.

I hope that that has given you a flavour of the SFO’s current direction and its enforcement priorities.  You should know that if you are ever sitting across the table from us, there are options available to you but you need to be proactive and come and talk to us if you want to avail yourselves of them.  The DPA process is not there for a company who leaves it to us to find them.  My hope is that we can utilise these new techniques to stamp out fraud and corruption and help make the UK the best place in the world to do business.  Thank you for listening.