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FINANCIAL CRIME: An Introduction

With the doldrums of LIBOR and EURIBOR behind us, the central storm this year has been the six month ‘trial of the century’, pitting the SFO against three former senior executives at Barclays Bank. That monster trial ended with unanimous acquittals across the board delivered in under a day. Coupling that loss on the facts with the SFO’s earlier loss on the law in the same proceedings on the location of the corporate’s directing mind might bring to mind Lord Thomas’s clarion call of nearly a decade ago: “The investigation and prosecution of serious fraud in the financial markets requires proper resources, both human and financial.” Or is it the law itself which is “the problem”, as the current Director of the SFO has repeatedly claimed? Whatever the reason, the resounding success for all the defendants in the Barclays case is set to have a profound impact on the landscape of financial crime in general.

One significant reason for that is not that which has launched a thousand articles in law journals –how to identify corporate liability– but the closely linked and over-arching strategic issue of when should a corporate identify its own liability? For we are now firmly in the age of the deferred prosecution agreement (DPA).

The DPA option is becoming ever more nuanced for the corporate invited into it. No one at Barclays will be lamenting the lack of a DPA outcome in their case. Even Alstom, the French engineering giant, which chose to plead not guilty in the criminal courts in the UK, suffered a sentence last year (£16.4m), which was modest compared to the eye-watering sums it paid out under a DPA in the US ($772m). Furthermore, the trial which resulted in that modest fine also saw Alstom acquitted of two of the three bribery allegations it faced. For the corporate prepared to dispense with the certainty offered by a DPA and live with the risk of trial, the net-gain can be significant.

A flotilla of corporates which sailed headlong into early DPAs might have paused for thought when the criminal courts concluded that their directing minds were not, in fact, guilty. 2019 saw the top executives of both Guralp Systems Ltd and Sarclad Ltd all acquitted, despite their companies agreeing their guilt in DPAs with the SFO. Tesco endured an even starker disparity when the Court of Appeal confirmed that all three directing minds upon which its DPA was explicitly based could not be guilty of the false accounting agreed within it. Within the last few months, the FRC, the accountants’ regulator, concluded their investigation against the Tesco accountants with no action whatsoever. Around the same time, the team of civil lawyers representing Tesco in an action brought by shareholders on that same false accounting were left trying to un-admit that an accounting fraud had in fact taken place – i.e. the very admission upon which the original DPA had been based. Those advising corporates and individuals need to take careful account of the very different factors influencing the decision to admit guilt or not and, in particular when advising corporates, the rather more opaque long term consequences of that decision.

The year’s big splash for DPAs was the record breaking EUR3.6 billion settlement reached by Airbus. That settlement announced the arrival into the global anti-bribery arena of France, which split those proceeds with the US and the UK. With the novice French wielding their brand new legislation (Sapin II, based on the UK’s Bribery Act of 2010) and having joined an SFO investigation which was already up and running in 2017, the case saw unprecedented levels of cooperation between the investigators and, indeed, the company. And so the requirement to reach consistent results in highly complex cases across multiple jurisdictions is becoming an ever more prevalent feature of DPAs, one requiring particularly sensitive handling and coordination from the enormous, multinational teams of lawyers dealing with them.

Airbus, with its heavy reliance on public procurement contracts, was always going to find a DPA attractive. With the company also facing what could only be described as overwhelming evidence on the gravest of offences, a DPA was no doubt irresistible. From the SFO’s side of the fence, that same strength of evidence might have militated against a DPA: for the more egregious the offence, the more the public interest demands a full prosecution, not a DPA. The Airbus DPA, detailing a “massive scheme to offer and pay bribes” followed the Rolls-Royce DPA in 2017, which also saw commentators wondering just how grave an allegation had to be to warrant a full prosecution. The SFO’s willingness to accommodate even the most serious of crimes within a DPA is perhaps a mark of how attractive they are to a law enforcement agency operating within limited resources.

We wait to see whether the fallout from the Airbus DPA follows a similar trajectory to that of the Rolls-Royce DPA, which, curiously, featured not a single prosecution of any individual, directing mind or otherwise. The SFO is expected to pursue charges in relation to Airbus subsidiary GPT, which has been under investigation for an astonishing eight years. That investigation carries its own sensitivities, GPT having been endorsed by the Ministry of Defence to provide support services to the Saudi National Guard. This year saw questions in Parliament of the Attorney General regarding his delay in granting consent to prosecute. Whether the case proves as explosive as the SFO’s ending of its probe a decade ago into BAE Systems (also centred on a Saudi contract) may be decided by whether any prosecutions materialise. If they do, it will be the experts within these pages who will address disclosure issues which promise to be on the lively side.

This year has also seen a strong tack by the SFO into the mining sector, with probes into corporate giants Rio Tinto and Glencore. ENRC may not be as large a mining company as those two, but the litigation surrounding the SFO’s probe into its activities is positively hydra-headed, now involving the law firm which was previously representing it with the SFO.

In short, financial crime remains an area which is developing at enormous speed. The implications for companies and individuals are profound. The influence of these cases and, most importantly, key decisions made in them, travels over borders and across legal disciplines. It is vital that those decisions benefit from the wealth of experience and skill now becoming ever more concentrated in the relatively small cadre of lawyers recommended here.

Jonathan Barnard QC
Cloth Fair Chambers