In this edition of Inside the FCPA, John Cunningham and Geoff Martin revisit the subject of their May 2013 Financial Fraud Law Report article (Signs of Spring at the U.K.'s Serious Fraud Office: Challenges, Changes, and the Impact on Global Anti-Corruption Compliance) and address whether the enforcement trends and initiatives identified there have borne fruit for the Serious Fraud Office (“SFO”) during the course of the year.
The SFO has undoubtedly made progress since the Spring, and has consistently reinforced its ambitious objectives and assertive tone for anti-corruption and fraud enforcement in the U.K. However, the agency continues to be beset with criticism about its ability to effectively manage its caseload amidst a dwindling budget.
In the meantime, a number of high-profile international instances of corruption have been exposed, reinforcing the need and opportunity for increased enforcement by the U.K. The manner in which the SFO responds to these matters will be an important barometer of its progress.
The SFO has taken some important steps forward in 2013, including the following:
- In August, the SFO brought its first charges under the U.K. Bribery Act (the previous three convictions discussed in our May 2013 article were all brought by the U.K.’s general criminal prosecutorial body, the Crown Prosecution Service). Charges of making and accepting a financial advantage contrary to s. 1(1) and s. 2(1) of the Bribery Act (among other fraud charges) were brought against three executives of Sustainable AgroEnergy plc in connection with a £23 million fraud involving sales of biofuel investment products to U.K. investors (between April 2011 and February 2012).
- Although we have yet to see a corporate Bribery Act case, the SFO has shown that it is prepared to take cases against large corporations. For example, in November, the SFO revealed that it had initiated an investigation into the management of government contracts for the electronic tagging of U.K. prisoners by private security firms G4S plc and Serco Group plc.
- The SFO continues to prosecute companies for offenses in which the facts pre-date the coming into force of the Bribery Act (in July 2011), under then-existing legislation. For example, in September, Companies Act charges were brought against the U.K. subsidiary of the Japanese camera company Olympus; and in October, Smith and Ouzman Ltd., a U.K.-based printing company, was charged under s.1 of the Prevention of Corruption Act 1906 in connection with alleged bribes of nearly half a million pounds, which were paid to influence the award of contracts for the printing of ballot papers and examination certificates in Africa.
- Also in August, following the enactment of the Crime and Courts Act 2013, and pending the availability of the deferred prosecution agreements (“DPAs”) that this Act will introduce, the SFO issued a draft code of practice and opened a consultation into its proposed use of DPAs. The final guidance on the use of DPAs should be issued in January 2014. This indicates, as expected, that the SFO will be eager to make use of DPAs once they become available to U.K. prosecutors (expected to be in February 2014).
- The SFO has appointed former private practice lawyer Ben Morgan as Joint Head of Bribery and Corruption -- a key new appointment to the agency -- and is making significant recruiting efforts in other areas, particularly with respect to its intelligence function.
Case Management Concerns
The SFO has continued to face sustained criticism over its alleged historic and ongoing shortcomings in case management:
- The former Director of the SFO, Richard Alderman, continues to receive criticism over his tenure at the agency. The criticism has focused primarily on the extent and expense of his overseas travel, the SFO’s hiring and remuneration policies, its core case management competency, and Mr. Alderman’s personal delegation of powers. Recent revelations seem to have emerged from a string of Freedom of Information requests made of the SFO by journalists and lawyers, as well as repercussions from the U.K. Public Accounts Committee’s examination of the SFO discussed in our May article (its critical final report was issued in July 2013). All of this continues to affect the reputation of the agency, now under the leadership of David Green (since April 2012).
- In August of this year, the SFO issued an embarrassing public statement revealing that it had lost a significant amount of confidential data connected to its investigation of BAE Systems (including the identities of key witnesses). The SFO had closed its investigation into BAE in 2010, and the data in question were sent to the wrong address as part of closing out the case between May and October 2012. The resulting questions about the SFO’s case management procedures were exacerbated by the fact that it took nearly a year for this error to be recognized.
- According to the SFO’s annual report published in July 2013, during the one-year period ending March 31, 2013, the SFO brought prosecutions against 20 defendants with a conviction rate of 70 percent. This compares to prosecutions of 54 defendants and a conviction rate of 72 percent the previous year. Although the drop in prosecutions can be explained (at least in part) by the reduction in the agency’s budget and Mr. Green’s stated objective of taking on fewer, higher-value, and “harder” cases, the raw figures alone have led to questions, including in Parliament, about the overall effectiveness of the SFO.
SFO Director David Green has continued to reinforce and reiterate the SFO’s commitment, priorities, and areas of progress. For example, in a recent speech this October, Mr. Green emphasized that:
- Direct comparisons with current levels of corporate FCPA enforcement can be misleading;
- There is a pipeline of corruption cases that still include pre-Bribery Act matters;
- There are corporate Bribery Act cases under active investigation by the SFO;
- Once available, the SFO will look to make proactive use of DPAs;
- The SFO encourages self-reporting and will take into account any genuine corporate disclosure in assessing whether or not it would be in the public interest to prosecute a company;
- There will be no guarantees, however, of prosecution declinations (Mr. Green had given this as a reason for repealing the previously-issued SFO guidance on self-reporting, which he believed was too assertive in promising civil rather than criminal remedies in cases that were voluntarily disclosed); and
- The SFO will take any attempt to cover up a violation of applicable law, rather than self-disclose, very seriously -- the consequences will be significant if the SFO becomes aware of the facts by alternative means.
With regard to its funding, Mr. Green has stressed that, despite cuts to the SFO’s headline budget, cases will not be refused simply on the grounds of cost and that he will be prepared to request additional funding from the Attorney General (and in turn from the Treasury) if the annual budget proves to be insufficient. In addition, so called “blockbuster funding” can be made available for big ticket matters, the cost of which would otherwise absorb a disproportionate percentage of the SFO’s annual budget. The current investigation into the rigging of the LIBOR, which we discussed in our May 2013 article, is being funded in this way.
Tracking an Evolving Landscape
Meanwhile, the SFO is likely to be tested on several significant corruption matters that have gained notoriety over recent months and involve companies headquartered or listed in the U.K., including the following:
- The U.K. pharmaceutical company GlaxoSmithKline ("GSK") has been accused by Chinese authorities of paying bribes through a network of local travel agents in connection with the sale of GSK drugs into the Chinese healthcare market over the last six years. The total payments alleged are said to run into the hundreds of millions of pounds. This case has implications on both sides of the Atlantic and in China for GSK – not to mention, other pharmaceutical companies and multinationals doing business in China.
- The London-listed (FTSE 100) Kazakhstan mining company Eurasian Natural Resources Corporation PLC is currently under investigation by the SFO (as the SFO disclosed in April 2013). The investigation involves allegations of fraud, bribery, and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa. The announcement appears to mark an escalation of what seems to be a lengthy pre-existing investigation into the company by the SFO.
Eyeing Coordination, Consistency and Collaboration
Finally, there has been a restructuring of the way that serious organized crime is policed, investigated, and prosecuted in the U.K. through the establishment of the National Crime Agency (“NCA”) in October of this year. The NCA is an umbrella agency with the aim of ensuring that the various agencies involved in investigating and prosecuting serious organized crime in the U.K. (including the SFO) are more coordinated, consistent, and unified in their approaches. Analogies have been drawn between the construct of this new agency and the Federal Bureau of Investigation in the U.S.. The impact of this change in structure to the effectiveness of investigating and rooting out corruption in the U.K. remains to be seen.