Once the subject of speculation regarding its possible consolidation with other agencies, the Serious Fraud Office (SFO) had an exceedingly busy 2014, with all signs suggesting that it will continue its aggressive enforcement in 2015.
U.K. criminal enforcement investigations and enforcement actions in 2014 were typified by significant corporate fraud and corruption cases across numerous sectors, including financial services, transport, mining, energy, pharma, retail, aerospace and defense.
Financial Crisis-Related Actions
Post-financial crisis enforcement proceedings continue to dominate the investigations landscape. The SFO and the Financial Conduct Authority (FCA) brought several new criminal and regulatory enforcement proceedings against global banks and financial services firms in 2014, including the FCA's involvement in the November 2014 FOREX settlements with six international banks. To date, the SFO has brought criminal charges in the LIBOR investigation against 13 individuals. One defendant reportedly has pleaded guilty but has not been named. The first trial has been scheduled for May 2015 and will undoubtedly be followed by more trials regarding rate-setting.
New Fraud and Corruption Actions
The SFO also has opened a number of new and significant fraud and corruption matters. U.K. government procurement remained in the spotlight over public services contracts involving Serco Group plc and G4S plc, which fraudulently overcharged for providing prisoner electronic tagging services to the Home Office. Suspected revenue recognition and accounting irregularities investigated by the SFO at Autonomy and Gyrus (a subsidiary of Olympus plc) have been followed by similar allegations against Tesco Plc, including charges of overstating its profits.
In addition to opening significant corruption investigations against Eurasian Natural Resources Corp. plc (ENRC) and Rolls Royce, this past summer the SFO concluded the long-running prosecution of Innospec Ltd, with corruption convictions of two former CEOs and two other directors for bribing Indonesian public officials to maintain or increase sales of a lead-based petroleum product. The conviction and jailing of three of the four Innospec executives followed a US$40 million settlement of the case brought by SFO in partnership with the DOJ, SEC and OFAC. Finally, the SFO opened an investigation of GlaxoSmithKline (GSK), following investigations by Chinese authorities (discussed more fully here), further reflecting the multijurisdictional trends in corporate corruption investigations.
Changes to the UK Criminal Justice System
The trend of internationalization of U.S. investigation and settlement techniques was confirmed with the introduction of deferred prosecution agreements (DPAs) in the U.K. in February 2014. Under a U.K. DPA, a company that admits certain economic and financial offenses, cooperates with the authorities and commits to significant remediation will be able to avoid prosecution if it complies with set conditions that include the payment of financial penalties. Notably, this disposition was available but rejected by the SFO in the long-running and heavily contested Alstom matter — in July 2014, the SFO charged the U.K. subsidiary of Alstom with corruption in the transport sector in India, Poland and Tunisia that allegedly occurred between 2000 and 2006. The lack of a DPA is an aggressive approach adopted against Alstom and suggests that the SFO will only offer DPAs to companies in selective circumstances.
In another potentially significant 2014 development, the U.K. Sentencing Council announced significant reforms of sentencing principles to be applied in serious economic crime cases. The Sentencing Council clarified the central factors for criminal sentencing for fraud, money laundering and corruption offenses. Focusing on harm and culpability, the reform brings U.K. sentencing principles recognizably closer to the structured approach set forth in the U.S. Federal Sentencing Guidelines. As a result, companies facing enforcement proceedings in the U.K. in 2015 and beyond can expect a more certain enforcement terrain for contested trials and settlements.
Reforms of the U.K. justice system also have been consolidated by the introduction of new criminal offenses. In the wake of the banking crisis, the U.K. has criminalized negligent banking and the manipulation of benchmarks such as LIBOR. In addition, the SFO and other interested parties have advocated for the criminalization of inadequate or negligent supervision of companies committing fraud.
Outlook for 2015
Over the past year, enforcement proceedings have become easier to bring in the United Kingdom. On December 5, 2014, the SFO announced the convictions of two individuals in an investment fraud case in which Bribery Act offenses were brought. Undoubtedly, it will not be long before the agency brings its first significant Bribery Act enforcement proceeding against a company.
Despite reported comments by the U.K. home secretary that she may restructure the SFO or merge it with other U.K. enforcement agencies, the SFO remains active in several significant, complex and internationalized cases of national and international importance. With the U.K. chancellor's recent pronouncement following the FOREX bank settlements that he would write a "blank cheque" to finance the SFO's FOREX enforcement proceedings against bank traders and executives, it seems that the agency's short-term future is assured and that it will continue to investigate and bring significant enforcement proceedings in the foreseeable future.