Euribor: Christian Bittar Pleads Guilty
On 2 March 2018, former Deutsche Bank trader Christian Bittar pleaded guilty to conspiracy to defraud in connection with manipulating Euribor, the Eurozon'sbenchmark for interbank lending rates. He is currently awaiting sentencing.
The trial of five other former Deutsche Bank and Barclays traders commenced on 9 April 2018. Four defendants have pleaded not guilty, while the fifth has not entered a formal plea and refused to appear, claiming that the proceedings in the United Kingdom would not be fair. During the course of the proceedings seven other individual traders have been named as co-conspirators, drawing in other banks, with those traders employed by Barclays, Deutsche Bank, BNP Paribas, Citibank, JPMorgan, Société Générale, Credit Agricole and HSBC.
11 traders were initially charged by the SFO in relation to Euribor manipulation. However, the SFO has struggled to enforce European arrest warrants for five other traders. On 21 February 2018 the Frankfurt state prosecutor's office decided that it would not extradite four other Deutsche Bank traders to face charges in the UK, stating that too much time had elapsed since the alleged crimes under German statutes of limitations. Similarly, a French court ruled that it would not extradite a former Société Générale employee.
On 30 April 2018, the former CFO of software firm Autonomy was convicted of fraud in the US. Shushovan Hussain was found guilty of artificially inflating the firm's financial position before it was sold to HP, by manipulating revenue and quarterly results figures. HP bought Autonomy for £7.1 billion in 2011 but subsequently identified accounting irregularities and was forced to write off most of the value of the software firm.
In addition to the US criminal proceedings, Mr Hussain is facing a civil claim in the UK as HP sues him and Mike Lynch, Autonomy's founder and chief executive, for damages.
SFO Reprimanded Over Disclosure Failings: R (On the Application of AL) v XYZ Ltd & Ors  EWHC 856 (Admin)
The SFO has been reprimanded by the Administrative Court for its failure to make sufficient attempts to obtain the notes of interviews conducted by a company's (named only as XYZ) lawyers' records of interviews conducted with employees.
XYZ instructed external lawyers to conduct an investigation to determine whether or not allegations of bribes by some of its employees should be reported to the SFO. In the course of that investigation, as is normal, the law firm interviewed employees, lawyers made detailed notes of the answers to questions. Following the self-report to the SFO, a Deferred Prosecution Agreement (DPA) was entered into. One of the terms of the DPA was that XYZ would "cooperate fully and truthfully"with the SFO as it investigated the company's employees.
In order to pursue that investigation the SFO requested copies of the interview notes from the employee's internal interviews. XYZ refused, claiming that the interview notes were subject to legal professional privilege. In a course of action at odds with the SFO's position in the ENRC case, the SFO did not challenge XYZ's apparently erroneous claim to privilege in the interview notes. The SFO permitted XYZ'slawyers to present oral summaries of the interviews. The SFO recorded these presentations and disclosed the transcripts to the Claimant in his trial. The Claimant did not accept that these were a full enough account and required the SFO to provide him with the full notes of his lengthy interview with XYZ's lawyers.
The Court did not accept that the SFO had behaved in a way that adequately discharged its disclosure duties in accepting XYZ's offer of providing short oral summaries of what were lengthy witness interviews. The Court noted that the SFO could have sought to obtain the full interview notes through a witness summons, or it could elect to take the more draconian route of instigating breach proceedings against XYZ for breaching the cooperation terms of its DPA. In this case XYZ'sfailure to provide the witness interview notes seems at odds with the requirement to cooperate.
The Court described the SFO's conduct in the following terms: "the SFO failed to address relevant considerations, took into account irrelevant matters, provided inconsistent and inadequate reasons for its decisions, and applied an incorrect approach to the law. These public law errors were material." The Court also encouraged XYZ to reconsider its refusal to provide the interview notes to the SFO.
The scathing criticism of the SFO's conduct in this case will likely cause the SFO to recalibrate its approach to disclosure and the lengths to which it will now need to go in order to obtain first accounts of witness interviews. The Court's opinion that the SFO had breached the Attorney General's Guidelines on Disclosure will be particularly uncomfortable for the organisation. In addition, the ruling serves as a reminder to corporates considering entering into a DPA that they may leave themselves open to obligations to submit to wide-ranging future cooperation with little ability to limit the requests that the SFO may subsequently make of them.
In a further blow to the SFO, the Court declined its request that the Claimant pay the cost of defending the judicial review, notwithstanding that the SFO had successfully defended the claim for judicial review. The Court observed that despite the Claimant failing to satisfy the Court that there was any legal basis for bringing a claim for judicial review, the SFO's conduct during the investigation to date was sufficiently inappropriate that it would be improper to require the Claimant to foot their bill.
KBR Judicial Review: Challenge to Extraterritorial Reach of SFO's Core Powers
KBR Inc, a company linked to the SFO's investigation into Unaoil, has itself been under formal investigation by the SFO since 28 April 2017. KBR is incorporated in the US where it is under concurrent investigation by the DoJ.
KBR has been issued with notices under s.2 Criminal Justice Act 1987 Section 2 Notices), the SFO's staple mechanism for obtaining evidence once it has opened an investigation. Such notices oblige the recipient (an individual or a corporate) to provide documents or information to the SFO in writing or at interview. The SFO frequently issues these notices in order to secure information held outside the UK.
The Criminal Justice Act 1987 does not express whether Section 2 Notices permit the collection of information or documents outside the UK. Other tried and tested mechanisms exist for the SFO (as for other law enforcement bodies) to obtain evidence from overseas. Mutual legal assistance is used daily by law enforcement bodies for just this purpose. However, those requests take time, require cordial diplomatic relations to exist between the requesting and requested States, require sufficient information to be supplied to the requesting State to satisfy its local requirements (sometimes requiring a court order to be obtained) and so subject the SFO's investigatory decisions to more scrutiny.
Section 2 Notices, in contrast, are a blunt tool threatening a penal sanction for non-compliance and can be issued for immediate response, sometimes by the SFO attending premises at dawn to demand information. Importantly, and in contrast to applications for search warrants, there is no direct judicial scrutiny of the SFO'sissuance of Section 2 Notices. Challenges to Section 2 Notices through claims for judicial review seldom succeed. The Administrative Court (to which such claims must be made) is highly reluctant to interfere with the SFO's investigatory discretion.
KBR has challenged the use of Section 2 Notices to obtain information held abroad. Although no judgment has yet been delivered, it is understood that one of KBR'srepresentatives was issued with a Section 2 Notice when she was in the UK. The notice purported to require the production in the UK of data held on servers in the US. The data had previously been held by KBR's UK subsidiary but had been sent to the US for routine archiving.
KBR's lawyers argue that the absence of an extraterritoriality provision in the statute cannot mean that Parliament intended these powers to have extraterritorial reach: other statutes contain just such provisions. It has been suggested that the SFO elected to issue the disputed Section 2 Notice simply to avoid the cumbersome and uncertain process of seeking mutual legal assistance and that this is an abuse of its powers.
In response, the SFO argued that applying the statute only domestically would hamper its ability to investigate serious fraud and corruption.
The Court has indicated that it is unlikely simply to accept an unrestricted interpretation of the statute, whilst noting that material that had at one time been taken out of the jurisdiction could be subject to requests for its return.
No date has yet been fixed for judgment to be delivered.