R v Crawley
Breach of restraint order is civil contempt of court
Barclays' 2008 bailout by Middle Eastern investors
SFO commences criminal investigation of Rolls Royce
SFO accused of indirectly assisting in suspected abduction of UK businessman
NAO claims confiscation orders are not working
The ongoing tension over funding for tackling economic crime has come to a head in two areas recently. First, in a thoroughly reasoned and brave decision, the judge stayed the Financial Conduct Authority's (FCA) land bank fraud trial of Crawley due to a lack of appropriately experienced barristers to act for the defence. Barristers are not prepared to take on legally aided complex fraud cases on account of the cut in criminal legal aid fees. These high-cost cases soak up a disproportionate amount of fees due to the volume of work required in the review of evidence and the level and quality of advice required – without suitable counsel, it has been recognised that a fair trial cannot be guaranteed. The FCA is seeking an expedited appeal, so the matter has not concluded.
Second, the challenges for the Serious Fraud Office (SFO) in the Dahdaleh case continue to linger. The judge heavily criticised the SFO for its management of this case and the delegation of part of its investigation to a third party's law firm. This leads to the inevitable conclusion that reliance on third-party lawyers is due to the lack of funds available to the SFO to carry out its own investigations. Both of these cases are stark reminders that tackling economic crime should remain clearly on the government's priority agenda.
Funds have apparently been more forthcoming for the SFO in the London Interbank Offered Rate (LIBOR) cases. Continuing to finance these cases will be an important way for the government to demonstrate its commitment, not only for the stated policy of tackling serious fraud, but also to shore up the reforms to ensure stronger and safer banks in future. Arguably, financing of the LIBOR cases is potentially money well spent, as acting to protect market integrity should go some way to reassure investors and safeguard the pre-eminence of the City of London as a global financial centre. The banks are no longer responsible for setting LIBOR – this responsibility passed from the British Bankers' Association to the Intercontinental Exchange Benchmark Administration on January 31 2014.
Three former ICAP brokers have now been charged with yen LIBOR manipulation. Three former brokers at Barclays have been charged with dollar LIBOR manipulation, in addition to another three US brokers at Barclays' New York operation. A total of 12 individuals have been formally charged in relation to rigging LIBOR rates in the United Kingdom and eight financial institutions have been fined by regulators. Two separate investigations have resulted in criminal charges: one concerning yen LIBOR rigging and the other concerning dollar LIBOR rigging.
Barclays remains under the spotlight for the use of alleged bribery in relation to the extra funds that it acquired in the 2008 financial crisis, thereby avoiding a UK government bailout. The FCA has already issued a warning notice communicating its intention to fine Barclays £50 million for behaviour described as "reckless". The SFO is still investigating and civil litigation may ensue.
The SFO continues to tackle shares fraud. Extensive cooperation between UK and Spanish police has shut down a number of boiler-room scams.
The National Audit Office (NAO) has found that confiscation orders represent poor value for money and fail to act as a credible deterrent to crime – another example of how effective law enforcement needs more than tough talk, powerful laws and ambitious targets.
A number of high-profile fraud trials are in jeopardy due to the withdrawal of assistance by criminal law barristers in protest of the 30% cut in legal aid. This will affect a number of very high-cost cases which require the review of a large volume of complex documents and representation by counsel with a suitable level of expertise in order to ensure a fair trial for the defendant.
After hearing the submission of Alexander Cameron QC (who was acting pro bono) that the Crawley trial should be stayed due to the failure to obtain appropriate counsel representation, Judge Anthony Leonard at Southwark Crown Court made the brave decision to abandon the trial, as there was no reasonable prospect of finding a sufficiently qualified barrister, even if the trial were adjourned. The judge held that to adjourn the trial would be unconscionable and threaten the right to a fair trial under the European Convention on Human Rights. Solicitors for the defendants had approached more than 100 sets of chambers, including in Northern Ireland and Scotland, to find a suitably experienced barrister, without success.
The FCA, which brought the alleged £4.5 million land bank fraud case, is seeking leave to appeal. It will be interesting to see what happens next; many support Leonard's brave decision. Not only does the decision have a bearing on fair trials for the accused, but it also brings into sharp focus the principle of separation of powers, one of the cornerstones of the legal system. Moreover, it puts the government in an embarrassing position. Tackling serious fraud cannot be done on a shoestring; it takes highly qualified and experienced lawyers to conduct these cases appropriately.
In March 2014 the SFO charged three former brokers (Goodman, Read and Wilkinson) from ICAP, a money brokerage firm in the City of London. The conspiracy to defraud charges related to the rigging of yen LIBOR rates. Reports suggest that the charges relate to conspiracy charges brought against former UBS and Citigroup broker Tom Hayes and two former brokers at RP Martin, who have pleaded not guilty. The FCA fined ICAP's European parent company £54.5 million in October 2013 for manipulation of LIBOR rates.
In February 2014 the SFO charged three former Barclays employees (Johnson, Mathew and Contogoulas) with conspiring to make false dollar-denominated LIBOR submissions. In addition, the SFO has charged the first US citizens in relation to LIBOR. Three former employees of Barclays' New York operations (Merchant, Pabon and Reich) have been charged with conspiracy to defraud in relation to LIBOR.
The focus of criminal proceedings before these charges had been on Hayes, the former UBS and Citigroup trader who was charged with conspiracy to fix yen LIBOR rates with employees at eight other financial institutions, including Royal Bank of Scotland, JP Morgan Chase, Deutsche Bank, ICAP, Tullett Prebon, Rabobank, RP Martin and HSBC. Barclays was already fined £290 million by the US and UK authorities two years ago for its "serious and widespread" role in the manipulation of LIBOR rates.
The SFO has charged a total of 12 individuals in relation to its LIBOR investigation, a number of which face parallel charges in the United States. SFO Director David Green QC is keen to be seen as being tough on large-scale fraud. The Treasury has allocated extra funds to assist and outside counsel have been drafted to ensure that past mistakes will not be repeated. Although the SFO is reported to be working alongside the US Department of Justice, given the long sentences that can be incurred in the United States for fraud, it will be interesting to see in which jurisdiction those facing parallel charges will face trial, and whether any jurisdictional arguments will ensue.
Regarding the collapsed trial of Labour Party backer Victor Dahdaleh – which concerned alleged corrupt payments to obtain contracts with Alba, the Bahraini aluminium company (for further details please see "Recent SFO enforcement actions") – the SFO was found to have delegated part of its investigation in Bahrain to law firm Akin Gump. Judge Nicholas Loraine-Smith has since criticised the SFO for doing this and mismanaging the case. The SFO vehemently denied this, stating that the investigation was not delegated and that it made specific requests of Akin Gump. It was also routine practice to use lawyers of third parties as go-betweens. Nevertheless, this represents another difficult chapter for the SFO, especially as US company Alcoa World Alumina, which had allegedly paid bribes for contracts with Alba through a London-based middleman, pleaded guilty to bribery offences and agreed to pay $223 million to the US Department of Justice for criminal fines and forfeiture. Alcoa also reached a civil settlement with the US Securities and Exchange Commission, agreeing to pay $161 million. In addition, it paid $85 million to Alba to settle a civil claim. Dahdaleh's lawyers have declined to comment on Alcoa's plea.
In another twist to this case, Bruce Hall, the former Alba chief executive, is now wishing to change his plea from guilty to not guilty. Hall initially pleaded guilty to charges relating to an alleged bribery conspiracy involving Dahdaleh and others and agreed to give the prosecution evidence in the hope of receiving a lighter sentence. However, he gave evidence that was different from his initial statement and the SFO partly blamed Hall for the collapse of the trial against Dahdaleh. The SFO is expected to contest Hall's application to change his plea.
In R v O'Brien the Supreme Court ruled in favour of the SFO, finding that non-compliance with a pre-trial criminal restraint order constitutes civil contempt of court and is not in itself a criminal offence requiring separate extradition. US citizen O'Brien had been extradited to the United Kingdom to face fraud charges. He was also found to have breached a restraint order and was therefore in contempt of court. He was sent to prison. O'Brien appealed and argued that the contempt was a criminal offence for which he should not have been imprisoned, as he had not been extradited for it. The Court of Appeal disagreed, as did the Supreme Court, and ruled in favour of the SFO.
The SFO is investigating an alleged £322 million fee paid by Barclays to a third party in Qatar to secure investment as part of a total £7 billion bailout for the bank in the 2008 financial meltdown. The FCA has already issued a warning notice indicating a £50 million fine for reckless behaviour in breach of the London Stock Exchange Listing Rules. Barclays has contested this, arguing that the payments were made for "advice". The bank disclosed that it had agreed to deals to pay advisers a total of £322 million over five years. Only one of these agreements was made public and the amount was never disclosed. The warning notice has not been made public to date, as the SFO has yet to conclude its investigation. Barclays is contesting the findings and quantum of the fine.
In an investigation involving unprecedented cooperation between the UK and Spanish police, 110 individuals have been arrested: 84 in Spain, 20 in the United Kingdom, two in the United States and four in Serbia. This two-year investigation involved alleged money laundering and boiler-room fraud in which investors were duped into buying worthless or non-existent shares. Most of the suspects are UK citizens and are expected to be extradited to face trial.
The SFO was recently successful in another boiler-room fraud case affecting UK investors, securing five convictions in the Secure Trade and Title Ltd prosecution.
The SFO director recently confirmed that the SFO has commenced a criminal investigation into alleged bribes paid to win contracts. The bribery allegations originated from a whistleblower and retired employee who had spent 30 years at the company. Rolls Royce appointed Debevoise & Plimpton to investigate the claims and its findings were passed to the SFO, including concerns about the company's dealings in China. Lord Gold, former senior partner of Herbert Smith and Conservative peer, has also been retained by Rolls Royce to review its anti-bribery and compliance procedures. The company has reportedly offered to pay a fine to avoid formal proceedings.
The Liberal Democrats face concerns over their donors in light of the SFO's arrest and questioning of Sudhir Choudhrie and his son in connection with this investigation of Rolls Royce. The allegations were denied and the two were released on bail. However, Choudhrie has been named as one of 23 "unscrupulous persons" by the India Central Bureau of Investigation.
The wife of UK businessman Abbas Yazdanpanah Yazdi has accused the SFO of providing personal information to the Iranian authorities, which she believes are responsible for the disappearance of her husband in Dubai. Yazdi was being investigated in Iran over bribery allegations involving Norwegian oil company Statoil. French prosecutors charged Yazdi with corruption in relation to a bribery investigation involving French oil company Total. In addition, Yazdi was an important witness in the Crescent Petroleum arbitration with Iran's national oil company. The SFO had previously searched Yazdi's London home and obtained material that it has reportedly since passed on to the Iranian authorities. Yazdi was to commence legal action against the SFO for passing on information to the Iranian authorities, as he believed that this would put his and others' lives in danger. His wife believes that there is clear and compelling evidence that officers from the SFO indirectly aided Yazdi's abductors.
The NAO has found that only £0.26 for every £100 of criminal proceeds is seized. It found that almost as much is spent on confiscating criminal proceeds as are actually recovered. In 2012/2013 6,392 confiscation orders were made, attempting to recover £318 million from £1.6 billion in illegal gains. The amount actually recovered was approximately £133 million. The NAO estimated that 76% of the sums recovered were spent in enforcing the orders, leaving a net income of £31 million from confiscation orders. This makes for a disappointing read for the government. According to the NAO, the reasons for the low level of recovery are a lack of coherent strategy for the use of confiscation orders and a lack of prioritisation, leaving many criminal cases with no confiscation order at all. Poor IT systems, errors and a lack of communication between agencies were also to blame. Only 2% of offenders paid in full and penalties have proved ineffective.
For further information on this topic please contact Kathleen Harris, Rochelle Mello, James McSweeney or Michael Atkinson at Arnold & Porter LLP by telephone (+44 20 7786 6100), fax (+44 20 7786 6299) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Arnold & Porter website can be accessed at www.arnoldporter.com.