FINANCIAL CRIME: An Introduction

Christmas came early for the SFO this year with the publication in June of the Law Commission’s much-anticipated proposals to overhaul the law on corporate criminal liability. To supplement the common law 'identification doctrine', the proposals include specifying that CEOs and CFOs should also be considered as the company’s directing mind. That route to corporate liability is similar to that of the 'high managerial agent' under the Australian Criminal Code, and one for which the SFO has been lobbying since its case against Barclays, pinned to the conduct of the bank’s CEO, was thrown out four years ago by a High Court judge at first instance (and a second time under the voluntary bill procedure).

Although that proposal does not present as low a bar to corporate liability as that presented by the vicarious liability model in the USA, other proposals also include some strict liability stocking fillers: a raft of new 'failing to prevent' offences (adopting the same structure as section 7 of the Bribery Act 2010) in relation to substantives as diverse as fraud, human rights abuses, and computer misuse. And there’s more. Perhaps the most impactful (albeit less glamorous) proposal is a requirement for large corporations to report on anti-fraud procedures. If all those proposals hit the statute books, a whole new arsenal will be available to prosecutors in this field, of whom the SFO is the most dominant by some margin, and the heavy demand for expertise in financial crime, not least in the white-hot corporate governance market, will only increase.

That now sprawling intersection of corporate governance and financial crime became busier in December of last year, when the FCA brought the first criminal prosecution for failing to comply with the Money Laundering Regulations 2007. NatWest was fined £264 million. The FCA’s powers to prosecute such cases had lain untouched for over a decade, but the Authority now claims to have on its books two further criminal investigations into companies or individuals, with a further six “dual-tracked” (as yet undecided between criminal and regulatory investigations).

But back to the SFO. Before we reach the future and the Law Commission’s proposals, there are the ghosts of Christmases past and present to address. The juggernaut civil action brought by ENRC against both the SFO and Dechert, ENRC’s former solicitors, came to a climax in May. The High Court determined that the SFO had acted with “bad faith opportunism” in being fed information by the senior solicitor representing ENRC, who had acted in such plain breach of his professional duties that it would have been obvious to those SFO officers dealing with him: “they were prepared to receive the information which he should not have given them on the basis that it might prove useful intelligence in going forward.” The court’s trenchant criticism went all the way to the very top of the SFO hierarchy, finding that the Director 2008-2012 had an ability to “ride roughshod over proper procedures” and was “wanting” in relation to “observing proper, indeed sometimes legal, standards”. That particular DSFO did not give evidence, but the Interim DSFO of 2018 did. The judge found that the latter’s evidence, on occasion, “simply did not stack up”, was “not accurate” and that he had lied to the court.

And so to the ghost of Christmas present, and the conduct of the SFO under the current Director. Never before this year has there been such intense scrutiny of the SFO’s internal goings-on. The results have been unedifying. In December 2021, the Court of Appeal severely criticised the SFO with regard to its handling of the Unaoil case, citing “wholly inappropriate” dealings with a ‘fixer’ (who subsequently ensured that the SFO did not charge his client, despite him being the head of the alleged conspiracy), together with subsequent “serious” failures to disclose those dealings. Three convictions of former Unaoil managers were overturned and the attorney general launched an independent review, conducted by Sir David Calvert-Smith, setting out 11 recommendations to remedy the SFO’s failings.

That report was published in July 2022, when, like buses, another one came along, headed in the exact same direction. That second report was into the SFO failings in relation to the collapse of the SERCO trial in April 2021. Its conclusions were not dissimilar to Sir David’s. It confirmed that the ignominious end to the proceedings against individuals had been caused by “a major failing in disclosure”, after an eight year investigation and a DPA with the company in 2019. The report found that the “inexperience” of the disclosure officer “should have disqualified him from appointment”. That poor appointment was coupled with an “inadequate and unfit” Quality Assurance review regime, which amounted to a “serious systemic failure”. A plethora of systemic problems of real concern, including low morale, insufficient resourcing, large turnover of staff, restrictions on recruitment, and an “ineffective, if not chaotic” Performance Monitoring scheme, featuring “endemic” backdating of forms, were also identified. The Report found that remuneration for disclosure counsel had “been static for many years, is out of step with what other organisations pay for such work and is not reasonable”, making the SFO “uncompetitive”, and the “task of building reliable and experienced case review teams much more difficult.”

Top of the SFO’s current in-tray are the cases against various individuals potentially implicated in the Petrofac and Glencore pleas. Will any face a criminal trial, and, if they do, will the SFO manage to make inroads on the 100% acquittal rate achieved by those charged after DPAs?

The Petrofac case shone the spotlight on another important issue for those advising individuals caught up in corporate wrongdoing. Petrofac entered into a plea agreement in September, seeing the company plead guilty to seven offences of failing to prevent in the Middle East. While the SFO’s probe into Petrofac was triggered by the Unaoil investigation, negotiations for the plea agreement would not have been possible without the cooperation of the company’s former head of sales. He pleaded guilty to 14 counts of bribery. Although he avoided immediate custody, any potential SOCPA candidate listening to how his life was “opened up like a can and inspected for four years” will wonder if the much vaunted 'incentives' under that process really are more attractive than not passing a SOCPA 'go' and heading straight to jail instead. It is a serious question when the current DSFO began her tenure in the hope of following her US counterparts by 'turning' high level executives to open the door on large scale corporate criminality.

The events of this year have led to criticism of the SFO’s leadership being “focused on garnering money-making deals”, rather than leading successful investigations, growing louder. With the promise of legislative change to assist pinning liability on corporates, will the SFO manage to learn from the dark moments in its past, lit up so relentlessly so recently, and sufficiently redeem itself to embrace that brighter future?