Fighting fraud and corruption in a shrinking world
3 Ebrill, 2019 | Areithiau
Lisa Osofsky, Director, speaking at the Royal United Services Institute in London on 3 April 2019.
I am honoured to be here at this prestigious and influential institute, which has made such important contributions to our understanding of the threats to international security and defence. And I applaud the work that the Centre for Financial Crime and Security Studies is doing to address the challenges that financial crime poses to the UK and across the globe. The Centre’s focus on the public and private sectors to transform the ways we disrupt financial crime is key to tackling this threat.
I know that the people in this room understand the damage that fraud, corruption and money laundering do, to society and its citizens, often in the poorest parts of the world, but also to our own people and markets, as well as to democracy and the rule of law. I know you understand not only the scale of the challenge law enforcement faces in combatting these crimes but also how quickly those challenges evolve and change in our globalized and digital world. I know you wish us well.
The SFO’s remit
The SFO’s remit is to investigate and prosecute the most difficult kinds of fraud and corruption. We focus on cases with great harm and complexity, those that may undermine the integrity of our economy and markets. And unusually for UK law enforcement, we operate in multidisciplinary teams with investigators, accountants, prosecutors and other specialists working together through the lifetime of the case – from investigation through prosecution.
This last is crucial. Our cases may take a long time: too long, I hear some say, and I’ll get onto that later, but imagine how much slower and more laborious they would be if we didn’t have people with all the requisite skills engaged through all the stages of the case. In fact, I have recently updated my Statement of Principle, which guides my decisions on which cases to investigate, to emphasise this: we take on those cases that require the SFO’s unique multidisciplinary structure and approach.
It is seven months to the day since I gave my first speech as Director of the SFO, at the annual Cambridge Symposium for Economic Crime, when I was about three days into the job. In it, I laid out some key initial – and interrelated – themes for my tenure as I saw them on arrival. These included engagement and partnership, building our capabilities – especially in intelligence and technology – and exploiting new tools to gain efficiencies in every stage of our operation. So now it’s time to reflect on these themes again: what we are doing to incorporate them in our work and what I’ve learned so far.
I’ll start with our partnerships.
The increasingly transnational nature of serious economic crime – including the ease and speed with which criminals transfer money across borders – means criminal funds can travel through more complex structures further and faster. This makes it harder to trace and harder to detect in our “shrinking world”.
So there is a double challenge to law enforcement: we need to cooperate more effectively across jurisdictions while the quantity of data is increasing exponentially. We need technological solutions to address technological hurdles.
Of course, law enforcement is by no means the only arena in which nation states, whatever their other advantages and merits, can struggle to marshal an effective response to the challenges of globalisation.
But I would argue that in meeting these challenges, the collective hand of law enforcement, at least, has some strong cards. The people in our sector have a common mission. We are, or can become, natural allies, not competitors. We want the same thing—to make our shared world a better place by bringing to justice those who seek to profit through fraud and corruption. By any rational assessment, there’s plenty of work to go around.
I acknowledge there are significant barriers to cooperation. In some countries, working with those identified as “law enforcement officers” can do damage. It can lead to investigations being jeopardized, witnesses facing threats or even human rights violations. In entirely trustworthy jurisdictions, there are times when issues like sovereignty and primacy pose real stumbling blocks.
Even after these have been overcome, differences in the rules of engagement, national law and procedure can hinder or limit how we cooperate – if we let them.
We need to understand the differences embedded in different nations’ legal systems. Cases are often reported to multiple law enforcement agencies and regulators simultaneously; at times, cases are reported publicly.
Corporate entities who wish to cooperate with law enforcement look for certainty about who they are dealing with and to whom they should be providing data and information. There can be – and there are – weighty differences in how different countries’ laws protect their citizens. Countries deeply committed to human rights, the rule of law, and to expunging corruption can have very different rules as to how to do it.
One example is how different jurisdictions treat the “right to silence.” Here, a jury may draw an adverse inference when a suspect has exercised the right to silence. That would be heresy in the US, where – under the US Constitution (the 5th amendment) – no adverse inference may be drawn.
We have also seen differences in standards that must be met to obtain evidence.
Differences in how information must be disclosed to defendants before trial,
Differences in how witness and suspect interviews must be conducted,
Differences in the reaches and recognition of corporate criminal liability,
Differences in whether and how criminal dispositions can be negotiated, and
Differences in privacy laws – to name just a few.
Those of us who work across jurisdictions must understand these differences.
From the point of view of the SFO we must – in ways that respect the sovereign interests of different systems of law – bridge those differences so that justice can be done.
It is so easy to miss the differences, to think that we are communicating when we are talking past each other. For example, around the world, our legislative bodies are looking at similar tools – the use of corporate Deferred Prosecution Agreements is one. We, of course, have had them since the Crime and Courts Act 2013. We followed on—in our own way—after the USA. France now has them under Sapin II, and Argentina, Canada, Australia, do too. So when we work on a case together and use the word “DPA” we all assume we know what we mean – and we all assume we mean the same thing. We do not.
For example, in the US the judiciary may stand entirely outside a corporate resolution under a non-prosecution agreement. US prosecutors are sometimes surprised at how central the role of the judge is in our system. Only last month the OECD published its study on “Resolving Foreign bribery Cases with Non-Trial Resolutions” and I commend that to you if you wish to know more about the issues surrounding non-trial dispositions.
The SFO is working to overcome these barriers. We are building relationships with our colleagues in places from Argentina to Lithuania to Australia. Only recently I had the pleasure of signing a Memorandum of Understanding with the Independent Authority Against Corruption of Mongolia. Right now there is a US Department of Justice lawyer seconded to the SFO, sitting alongside our prosecutors and actively working on SFO cases. We have similarly hosted prosecutors from Singapore.
Developing that type of close mutual understanding and cooperation is the future. We see criminals in the UK cheating victims in Asia, or making corrupt payments in Africa, or sharing illicit profits in dollars flowing through the US. We are not going to catch them unless we can find appropriate ways to work together.
Strong international relationships have always been critical to the SFO and we are grateful for the support we receive from our international partners. Connectivity across the law enforcement community is vital for sharing information, particularly as you never know where an investigation might lead.
Closer to home, when I look to the future of fighting fraud and corruption, I also see the importance of close collaboration with domestic partners – whether it’s the police or the FCA, HMRC or NCA and other sister agencies at home. We’re doing so through one new structure, the National Economic Crime Centre (the NECC), which coordinates the law enforcement agencies and regulators operating in this field. We strive together for the efficiencies brought from a whole government approach.
Of course fighting fraud and corruption in a shrinking world cannot be achieved by law enforcement and government alone. We also need the assistance and cooperation of the private sector. It is an area where I know the Centre for Financial Crime and Security Studies would agree.
The UK government recognises this potential: in setting up the Joint Money Laundering Intelligence Taskforce (JMLIT) and the NECC it has envisaged an element of public-private sector partnership that goes beyond basic operational support and into more strategic relationships.
But a true public-private partnership, from the SFO’s perspective, involves more. And one area that the private sector has asked me about, since I became Director, is cooperation.
I know from my previous experience in the private sector how much time, effort and resource financial institutions and companies spend on ensuring compliance with money laundering regulations; defending themselves against fraud; and making sure they are not caught by the failure to prevent bribery or tax evasion. They have great experience, advanced analytical tools and vast quantities of data that they should be willing, indeed eager, to share with law enforcement. They may have regulatory requirements that force them to alert authorities to what they find and they may be part of a group like the JMLIT that is committed to sharing.
But let me go further when a company does detect fraud or corruption within its walls, I would hope that that company would be brave enough to report that to the authorities as soon as possible. Now don’t misunderstand me. I know that companies will want to examine any suspicions of criminality or regulatory breaches – indeed they have a duty to their shareholders to ensure allegations or suspicions are investigated, assessed and verified, so they understand what they may be reporting before they report it. And they will probably bring in independent advisors to carry out these investigations. That is their prerogative and entirely understandable.
But if they want all this hard work to count as cooperation, there are certain steps they must take.
First, in carrying out their own investigation, we need to see the ultimate objective of cooperating with law enforcement by preserving vital evidence such as first-hand accounts and witness testimony. This is different from when a company calls in a team of lawyers and then throws the blanket of Legal Professional Privilege over all the material they have gathered—especially material that we in law enforcement need to assess individual culpability, which is the very same material that individuals may need to defend themselves. That is not cooperation: courts do not like it, it does not help law enforcement, it does not make the job of dispensing justice fairly any easier.
Of course, Legal Professional Privilege is what it says, a privilege afforded to client-attorney communications. And although I may not sound like, nor hopefully look like, Rumpole of the Bailey, I am a qualified English barrister. I fully support and value the right of privilege. Indeed, I grew up in a system in the USA where privilege is in some ways stronger, than in my adopted home here. It is fundamental right in our legal system.
But companies can waive that privilege if they wish to cooperate with the Serious Fraud Office. I will soon be issuing guidance for corporates and their legal advisers to provide them with added transparency about what they might expect if they decide to self-report fraud or corruption to my office.
And waiving privilege over that initial investigative material will be a strong indicator of cooperation and an important factor that I will take into account when considering whether to invite a company to enter into DPA negotiations; it also highlights whether a DPA is in the public interest in that case. I say this in light of the comments of Sir Brian Leveson, in the decision of the Court of Appeal in the SFO v ENRC, that a court “will consider whether the company was willing to waive any privilege attaching to documents produced during internal investigations, so that it could share those documents with the SFO.” The President of the Queen’s Bench has spoken. Especially in a jurisdiction where the judge plays such a critical role in determining whether to accept a DPA, it behooves us all to listen—and to take heed.
It is easy to say, but harder to implement: as crime becomes more digital – so must we. We in law enforcement must increase our digital investigative capacities and capability.
When I started prosecuting, most of the evidence in fraud cases was on paper: ledgers, accounts and company records. Those days are long gone. We no longer struggle to locate enough hard copy records to build our cases. Today, communications are digital, accounting records are digital, and suspects and witnesses carry in their pockets computers that hold vast amounts of data.
E-mails, social media, closed chatrooms and Whatsapp messages are now the most likely sources of vital evidence to unravel serious and complex crimes and to identify the people who commit them. Today, about 95% of the evidence that the SFO confronts is electronically based. As investigators, all of us are now trying to find evidential needles in enormous digital haystacks.
This means that to be an effective prosecutor and investigator we must understand the digital world. This takes new tools. At the SFO we have begun using Artificial Intelligence tools for examining electronic documents, to get us to critical evidence more quickly. Similarly, we are increasingly using forensic computer expertise and developing, among multidisciplinary teams, forensic digital ability.
This is a global challenge for law enforcement. As my investigators and I work around the world, we learn how virtually every law enforcement agency is facing the same problem. Every agency is investing in training forensic personnel. Every agency is investing in hardware and software. Every agency must cope with the sheer volume of high-capacity devices involved in nearly every sophisticated case. And every one of us wants to know what works—and to learn from each other.
As I speak, our Chief Technology Officer has just returned from Washington and New York where he has been assessing the tools and techniques used by the authorities there, with a view to sharing and adapting strategies applicable to our jurisdiction.
Yet despite this new landscape, when the cases get to trial, courts have to apply old, reliable doctrine – doctrines related to disclosure, discovery, and authentication of evidence. It is, of course, not the first time that our courts have had to adapt to new technology and it certainly will not be the last. They did, for example, when telephones were at the cutting edge of communications technology. But we are at an inflection point. The evidential ramifications of this new type of evidence, how it is gathered, and how it may be used in court is something that defense lawyers use to wrestle with us in each new case.
So part of the future of fighting fraud and corruption is technology: Hardware, software, training, and litigating evidence from this new world in our well established court systems.
New laws, new tools
The government has responded to today’s world by giving us new tools. The globalisation of crime and the fact that the UK is an international financial centre has challenged our government to find new ways to meet the greatest threats. Responding to criticisms levied at our financial systems, Parliament recently enacted the Criminal Finances Act 2017, and we are using this law.
Among the most effective aspects are those that allow us to seize money and assets from offenders.
Just last month our Proceeds of Crime team forfeited over £1.5 million from a fugitive involved in a mortgage fraud scheme. Even though he fled from England to Pakistan, we were able to use our new powers to forfeit the money that was being held by the receiver—who had forced the sale of properties the defendant bought here with funds generated by his fraud before he fled. This represents a swift, proportionate and cost-effective method of hitting the criminal where it hurts. That 1.5 million will go straight to the Treasury. Most importantly, it means we’ve removed that money from the hands of organized criminals who would otherwise fund lavish lifestyles or invest in further serious crime.
Pace and efficiency
Finally, we must do all of this at better pace. When I arrived seven months ago, the one thing I heard from virtually every stakeholder, every partner, every observer and even my superintending Law Officers – was that our cases take too long. And I am still hearing it: you may be aware that last month the Select Committee on the Bribery Act 2010 of the House of Lords recommended that the SFO outline how it will speed up bribery investigations.
To be clear, our cases will always take a comparatively long time because of their nature and the fact that our evidence is frequently located in the far reaches of the globe. And long, complex cases, often with several defendants, take a lot of court time and consequently are hard for the court service to schedule. It isn’t uncommon for us to wait up to 18 months for a trial date.
But there are things we can do. Some of what I’ve talked about today will increase pace and efficiency. Better international cooperation reduces delays when we seek evidence abroad. Better coordination with intelligence partners, whether international or domestic, can help us shorten lines of inquiry and get us to the key evidence faster. Better technology reduces delays caused by the flood of digital records.
We are also exploring, as an agency, other strategies we can use to focus our cases more sharply, earlier on – including our information infrastructure – so that we cut down on any friction in our processes.
But in the end, the bedrock of a prosecutor’s job is a painstaking and relentless focus on evidence. Where and in what form the evidence will be found may change. Because the world has shrunk, the evidence may be hidden on any continent. And because the world is digital, it is likely in bytes rather than on pages locked in a drawer. So pace certainly requires the new tools that I discussed. But it also requires old-fashioned craft: sound investigative planning, rigorous management, and persuasive advocacy.
So what is the future of fighting corruption and fraud in a shrinking world?
The future starts with the old-school method of interdisciplinary teams – and I say old school because that is how I learned my trade working with federal and local agents back in Chicago: teams of investigators, accountants, analysts, forensic personnel and prosecutors working together – bringing their different skills to ferret out and punish those who defraud, bribe and cheat.
The future is also harnessing new technology. When criminals started using telephones, law enforcement kept up. Criminals now use iPads, encrypted chat apps, the cloud, and email accounts. Law enforcement, again, must keep up.
And the future is meaningful and mutually beneficial cooperation.
Let me end where I started. There is a community – made up of the public, private, academic and civil society – that cares deeply about the damage that fraud and corruption inflicts. Organised criminals exploit international gaps; they react quickly to embrace new technologies; and they don’t have to follow legal rules or norms when relentlessly pursuing their goals.
That means – for those of us who care, from all of our different perspectives –it is our job to close those gaps, to respond more quickly, to use technology more effectively and to work together to dismantle the criminality that causes such harm to our economy, our prosperity and to the lives of victims.
I look forward to joining with you to meet this enormous challenge. It has always been—and remains—worthwhile.
Please note this speech may differ slightly from delivery.