Fraud Lawyers Association

26 Mawrth, 2013 | Areithiau

David Green CB QC, Director, at the Inaugural Fraud Lawyers Association.

I am delighted to have this opportunity to address the inaugural meeting of the Fraud Lawyers Association.  I understand membership embraces every nook in which fraud lawyers are to be found.  As such I welcome your association as yet another organisation “on my case”.

I thought it might be of interest if I covered developments at SFO since I took over as Director, and then examined some of the challenges facing the SFO and tell you how those challenges are being addressed.

I took up post on 23 April 2012.  Looking back over the last 11 months, we have made 10 fundamental changes at the SFO.

1. We have restated the role and purpose of the SFO
2. We have refocused the SFO’s take-on criteria
3. We have re-organised and restructured the SFO
4. We have an entirely new senior management team
5. We have reviewed the caseload we inherited and commenced new investigations and pre-investigation projects
6. We have issued new guidance, chiefly on self-reporting and facilitation payments
7. We have negotiated a return to “blockbuster” funding in discussion with the Treasury
8. We have had an inspection by HMCPSI and encourage a follow-up inspection
9. We have expanded our intelligence capability and will continue that effort
10. We now occupy new premises, culturally different from Elm Street.

Expanding that list:

1.  Restating the role and purpose of the SFO

The SFO is an investigator and prosecutor of serious complex fraud, bribery and corruption. Such restatement is simple, yet necessary, because the SFO’s role had become blurred giving rise to the perception that it did not have the stomach for prosecution and preferred risk-free civil settlements. We are an investigator and prosecutor, organised on a unique model since 1988, a model which brings together all the skills necessary (prosecutors, forensic accountants, investigators, computer experts, electronic presentation of evidence) for our task under one roof. We investigate and prosecute.  We are not a regulator: accepting, of course, that our prosecutions can and do have an effect on behaviour. We investigate and prosecute: civil settlement is still alive and well, in the right circumstances but we are not there to offer deals and a special easy path for white collar criminals.  

2.  Refocusing the SFO’s take-on criteria

The SFO is there to undertake the difficult and complex investigations and prosecutions that others cannot do: the very top slice of fraud and bribery.  These are cases which undermine UK commercial/financial plc in general and the City of London in particular.  Sums involved – actual or potential – will usually be high.  Harm – actual or potential – will be significant.  We will also take on cases which have a very substantial public interest element, and new species of fraud. This refocusing was necessary because there was a perception that the SFO had “dumbed down” to reduce risk and shorten the time an investigation took.  

3.  Restructuring the SFO

The path of the Tchenguiz investigation and JR was a very loud wake-up call for the SFO.  It represented a significant failure in the quality of our decision making and output.  In response, we have restructured the organisation, building in layers of quality assurance and objective examination, testing and assessment. Case teams work within 4 casework divisions:

• 2 fraud, 2 bribery – each headed by an SCS;
• Advice and challenge comes from General Counsel, from His Honour Geoffrey Rivlin QC as Special Adviser and from me, as Director;
• We also have a specialist POC Division, a Chief Investigator who is also in charge of our new and developing intelligence capability, and a Head of Profession for Accountancy.

4.  An entirely new Senior Management Team

This comprises the Heads of Division, General Counsel, Adviser, Director, a Chief Finance Officer and Head of HR.  These, together with the NEDs, comprise the single Board which runs the SFO and agrees its strategic priorities. We are about to recruit 2 new NEDs.  

5.  Review of our inherited caseload and commencement of new projects and investigations reflecting refocused take-on criteria

We do not necessarily make public statements at the start of all our investigations, but we have announced the following:

Weavering:  Investigation into the collapse of £300m hedge fund – previously dropped – now charged and awaits trial.

Libor:  (by far largest and most complex SFO investigation) – into the alleged manipulation of London Interbank Offered Rate (arrests made and investigation continues apace).

Barclays/Qatar:  investigation into the circumstances surrounding Barclay’s £8bn recapitalisation in 2008 with Qatari investment.

HP/Autonomy:  investigation into allegations surrounding HP’s purchase of Autonomy.

GPT/SANG:  investigation into dealings by a GPT subsidiary with Saudi National Guard. We have also progressed inherited investigations:

Harlequin:  investigation into allegations of fraud around financing of holiday resort construction.

JJB Sports: investigation concerns alleged disclosure failures as JJB was seeking to raise funds from the market. Charged and awaiting trial.

Glide:  investigation into alleged transfer of liabilities in relation to cleaning up after open cast mining operations in Wales. Charged and awaiting trial.

In all we have 65 cases on our books, of which 23 are criminal investigations;

14 are post charge, either awaiting trial or in trial

13 are post trial; confiscation or awaiting appeal

15 under development in our intelligence section.

These 15 under development include projects which predate and those which post-date the Bribery Act 2010.  

6.  New guidance

I withdrew guidance on corporate self-reporting issued by my predecessor.

Why?  Because it implied that if a corporate self-reported to the SFO, then the SFO would strain every sinew to resolve the matter by civil settlement and not by prosecution.  Why did that need changing? :  because no prosecutor can ever give such a guarantee in advance: each set of facts is unique.

So what is the result?  We have said that we will apply the full Code Test for Crown Prosecutors to the available evidence.  Assuming there is sufficient evidence, we would prosecute if it was in the public interest to do so.

BUT in the case of a genuine self-report, where, say, a new board had discovered previous misconduct under previous management, had investigated it and reported it to SFO and put in place measures to avoid repetition, then obviously the fact of self-reporting would weigh heavily in the public interest against prosecution.

This approach also addresses concerns voiced by the OECD in early 2012 that the definition of “self-reporting” had been severely strained in order to achieve the highest number of civil settlements.

Similarly, we withdrew the guidance on facilitation payments.  The position is now common sense: such payments are and always have been illegal and we will apply the full code test to the evidence and all the circumstances in deciding whether to prosecute.  Again, this addresses OECD concerns over loose definitions in previous policy, which promised no prosecution if the company was “moving towards a zero tolerance policy” on facilitation payments – whatever that meant.

So:  our position is back to what it should be, reflecting existing published guidance on the Bribery Act and on Corporate Prosecutions agreed with the DPP and without any gloss added unilaterally by the SFO.  And genuine corporate self-reporting is still very much alive and well.  

7.  Funding

We have an agreement with HMT that where any case costs over a certain percentage of our budget in any one year, we can have access to the reserve for a sum covering that cost, ring fenced for that case.

Libor is the first example.  There will be others.

Otherwise, if and when I feel that our core funding is insufficient to cover our general caseload, I will raise it with the Attorney General who has made clear he would then raise the matter with the Treasury.

The basic principle is that, on my watch, the SFO will never refuse to take on a case simply on grounds of cost.  To do so would be deeply damaging to public confidence and provide a perverse incentive to criminals to commit high value complex fraud.

So what I have is a “core” SFO capable of handling its core caseload with a surge capacity when that is needed to address exceptionally large, complex cases.  For example, our Libor team is doubling in size from 30 to 60.  

8.  Inspection by HMCPSI

HMCPSI carried out an inspection of the SFO in May 2012. 

Its report was published November 2012. It made 8 recommendations, every one of which I had raised beforehand with the inspectors as matters of concern to me. The recommendations covered:

Intelligence function, case acceptance processes, systematic allocation of resources to cases on adoption, standardised case management processes, training, updating guidance and transparent processes for Civil Recovery Orders.

All these suggestions are either completed or underway.  Compliance with the recommendations will be the subject of a standard follow-up inspection at a time to be agreed between the Attorney General and HMCPSI.

I have also indicated my support for giving HMCPSI a statutory right to inspect SFO as soon as possible.  

9.  Enhanced intelligence capability

We have taken steps to

• open contacts with intelligence agencies at home and abroad
• enable intelligence to be gathered on fraud in real time
• build an intelligence database.

10.  New premises

We have moved from Elm Street to new offices in Cockspur Street, 30 yards from Trafalgar Square.  That is significant because it brings us physically nearer the centre of things and reinforces a culture wherein senior management is more visible to staff and not hiding behind sandbags on the top floor, as in Elm Street.  Communication is much easier and is improving.  

That is a brief canter over the significant changes at the SFO over the past 11 months.  I do not pretend that all our problems are solved.  They are not.  But we are firmly set on an upward trajectory.

I now want to set out what I see as the most significant challenges facing us and say a word about how we are addressing them.

In no particular order:

(1)  Drawing a line under the past

The need to do this needs no further explanation.  The process has been akin to an archaeological excavation, digging down until one’s trowel scrapes the buried foundations.  We act on the principle that sunlight is the best disinfectant, and that the process is a necessary part (but only a part) of moving forward.  We aim to be as transparent as we possibly can in all that we do.

(2)  Some consequences which will flow from our refocusing of the SFO’s role

We have refocused the SFO’s aim at the top tier of complex fraud and international bribery.  Progressing such investigations and prosecutions requires total concentration on quality of output and decision making and performance. It may be that time from case adoption to trial will extend in some of the most complex investigations. It may be that more cases will require blockbuster funding. The right resources – people and funding – will be applied to our cases. By way of example, Libor was funded by Treasury to the tune of £3.5m in 2012-13. In 2013-14 it will receive more than that. As I said, we are doubling the Libor team from 30 to 60. In return (and sorry I can’t say more) there will be very significant progress in that investigation over the next quarter.

I am absolutely clear that the answer to the laudable desire to reduce time spent in investigation is not to take the less complex, easier cases. They are better done on the traditional police/CPS model. For the SFO, the imperative is to apply the right resource to the right case.

(3) Recruitment

We have to maximise performance. We also have to attract a flow of high quality staff. That is never easy in public service, simply because good people can earn more – sometimes much more – in the private sector.

We can offer experience doing some of the most challenging work in the criminal lexicon. Service at the SFO, particularly in senior positions, can be a valuable addition to a CV. As is commonplace in USA it is entirely possible to move between public and private sectors and vice versa.

Established firms in law and accountancy can benefit by seconding people to the SFO. It gives the secondee valuable insight and experience. When the secondee returns to their firm, their experience can also enhance any pitch being made to a white collar client for their custom.

We have secondees now from Taylor Wessing, Norton Rose and Baker Mackenzie. We will soon take more on from other firms, and later this year will take secondees from the New Zealand SFO in Auckland and hopefully from the DoJ in Washington.

And I spoke earlier about the SFO having the money to fund a surge capacity: “blockbuster funding”. My preferred model is to have a core of high quality staff whose reach and depth can be expanded with other particular expertise as and when required.

(4) Media treatment of SFO

This is and has always been a challenge for the SFO. Interestingly, on a visit to the DoJ in Washington last year I heard people from their Criminal Division describing very similar coverage that they receive in the US media.

Don’t get me wrong. There is significant, understandable public interest in the SFO. Its cases are all high profile and high risk. The handling of the Tchenguiz investigation fell well short of what was required. The public need assurance that these cases are properly dealt with and that white collar criminals are brought to justice. The SFO should be scrutinised and held to account. The previous SFO regime spent blood and treasure with cosy off-record chats, judicious leaks and a media consultant, trying to improve its media coverage. A fat lot of good that did them.

I am not complaining: I seek only a professional engagement with the media, accurate reporting (warts and all), an end to the wilful bending of every scrap of news to fit a tired and outdated agenda about the SFO, and the weaving of stories that simply don’t exist in reality. Suspects and defendants will use media to deliver their messages in hope of influencing SFO and public opinion. Coverage can be hackneyed. Any inspection is a “review”.

Any set back (however slight) is a body blow. Any report covering historic events is reported as if it is describing the current position.

(5) We will continue to address the difficulties faced in prosecuting top tier fraud in practical ways.

• We will strive to produce tightly-focused cases and indictments in court, rather than trying to cover every scrap of excavated criminality.
• We prize strong judicial management.
• We strive to use technology to make our prosecutions more accessible and readily understandable to juries.
• I am anxious to start sensible debate on whether the test for Corporate criminal liability is set at the right level.

As you know, in English law it depends on the identification principle. A corporation is only liable for criminal conduct if the controlling mind (ie the top personnel) of the company can be shown to have been complicit in the criminality. This is very hard to prove: rarely does the email chain go above a certain level.

A more sensible and just approach might be that embodied in S7 of the Bribery Act 2010. This creates the offence of a commercial organisation “failing to prevent” bribery by its employees, with a statutory “adequate procedures” defence. Extending this approach, a Corporate, or certain types of Corporate (such as banks and companies listed on stock exchange) could be liable for failing to prevent certain types of criminal offence by their employees subject to a statutory defence.

Such an approach would merely add a criminal sanction to existing obligations; it would assist in the reform of poor corporate culture which contributed to the crash; it would underpin the recovery by encouraging clean and stable markets; it would increase investor confidence, assist in more rapid prosecutions and dovetail well with deferred prosecution agreements.

(6) We also need to articulate the reasons why companies should enter DPAs.

That case is:

• DPAs will only be used in the right circumstances and only in relation to: Corporations
• Self-reporting is the right thing to do
• We are greatly enhancing our intelligence capacity. If corporations do not self-report when they have discovered past misconduct, we may well find out anyway and call them in.
• DPAs enable a corporation to draw a line under past misconduct and to move on.
• A DPA enables a company to conduct an investigation and assess the scale of the problem for themselves.

(7) The Tchenguiz litigation.

Obviously, I can’t comment on this – other than to say that we are addressing this challenge head on, assisted by Slaughter & May.

(8) Lastly, we will continue, whenever asked, to make the case (and it’s a very strong case) for an independent, separate and distinct SFO.

• The Roskill model works
• An investigation with the complexity of Libor could not be done under the traditional police/separate prosecutor model.
• The prosecution of top end serious fraud would not receive the necessary ring-fenced prioritisation if it were handled by a group within the CPS.
• The City and those who advise large corporates want a strong SFO
• The SFO is strongly supported by influential NGO’s such as Transparency International.
• The SFO is a strong international brand

Like any government department, we have to prove our worth. What the SFO needs is results.

It has enjoyed a number in 2012 and this year.

It will achieve more.