SFO must radically overhaul prosecution approach

Partner Bambos Tsiattalou explains why the SFO must radically overhaul their prosecution approach, in Law360.

Bambos’ article was published in Law360, 20 March 2020, and can be found here.

The reputation of the Serious Fraud Office is in tatters after three Barclays executives were acquitted of fraud charges by a jury at the Old Bailey last month. This latest failure to secure a conviction comes after the Serious Fraud Office (SFO) spent over seven years and some £15 million of taxpayers’ money investigating and prosecuting the matter.

The SFO had accused the three executives of making fraudulent statements to the market. The case arose out of a 2008 deal where Barclays raised £11.2 billion from Qatar, thereby avoiding a taxpayer funded bailout. The SFO alleged that side deals with Qatar worth £322 million represented hidden fees in respect of the loan.

Corporate prosecutions against the bank itself were struck out in 2018 on the basis that – even on the SFO’s own narrative of events – they were clearly unfounded. It is remarkable that the SFO brought prosecutions which were so obviously baseless. It is all the more amazing that the SFO persisted in such efforts against the executives, even thought the 2018 ruling, which dismissed the prosecutions against the bank, also made pointed references to the proseuctions against the executives involved. At the time, Justice Fay noted that his judgment had “obvious implications” as regards the prosecution of the executives which the SFO needed to consider.

The High Court upheld the judgment of Justice Fay, noting that “It simply is not acceptable, in my opinion, for the SFO to regard the various resolutions of the Board and of the BFC as, in effect, mere pieces of paper. They are not: they reflect the level of delegation sanctioned by the appropriate organs of the company …. It had to be shown, if criminal culpability was capable of being attributed to Barclays, that they had entire autonomy to do the deal in question; and that is not the case here.”

Serious questions are now being asked about the effectiveness of the SFO in the wake of this latest failure. Last year, the SFO also abandoned two other high-profile investigations into Rolls-Royce and GlaxoSmithKline. It is now essential to conduct a thorough review of decision-making processes within the SFO. The judgement of key decision makers within the SFO must also surely be called into question, at this stage.

The SFO needs to radically overhaul how it analyses cases. It needs to go back to basics and once again look at the Code of Crown Prosecutors, and the two-stage test set out for prosecutors. This simple test is applied successfully by the CPS, and other prosecutors, on a daily basis. The first stage of the code test requires that prosecutors are satisfied there is sufficient evidence to found a “realistic prospect of conviction” before a prosecution is brought. Unfortunately, the SFO appears to have very significant difficulty in making this fundamental assessment with any sort of accuracy.

Increasingly, the SFO’s default response appears to be to agree a deferred prosecution agreement (DPA) with the corporate targets of its investigations. DPAs mean that the company will not face criminal charges. The use of DPAs has been criticised as being a way for big companies to buy their way out of criminal prosecutions. Yet your average common-or-garden criminal doesn’t have this option. Our criminal justice system is supposed to be blind, yet DPAs suggest that money talks. The SFO has now agreed DPAs with a number of major companies including Standard Bank, Rolls-Royce and Airbus.

While the £3 billion DPA agreed with Airbus amounts to an impressive sum, it is ironic that consequences of the worldwide bribery and corruption which Airbus was embroiled in was tempered by a further payment to the SFO.  Similarly, in 2017, the SFO agreed a £497 million DPA with Rolls Royce. The judge involved noted “egregious criminality over decades”, and “truly vast corrupt payments” – yet no prosecutions were brought by the SFO. It seems that, sadly, striking deals to evade criminal prosecution will never cease.

While DPAs with companies theoretically leave the door open to the prosecution of individuals involved, we have not seen the SFO take robust action against individuals or third parties in the wake of a DPA. Instead, the SFO has seemed content to agree a DPA and simply take the fine.

The appetite of the SFO for DPAs seems to grow as its repeated failures to secure convictions accumulate. As well as being useful to corporate wrongdoers, DPAs also seem to be a conventient way for the SFO to avoid the embarrassment of yet another failed high-profile prosecution.

Remarkably, however, despite a string of failed and aborted proseuctions, the SFO does not appeare to have looked at meaninful ways to increase its own effectiveness as a prosecutor. Instead, the SFO has called for the goalposts to be moved so as to make its job easier, by adjusting the criminal law to suit it.

When attributing criminal liability to a company for fraud, English law requires the company’s “directing mind and will” to be complicit in the crime. This means prosecutors must show that controlling officers of the company, such as senior board members, were criminally involved in the fraud. A problem for the SFO in the case of Barclays was that the executives prosecuted were, quite simply, not part of the “directing mind and will” of the bank.

The SFO has called for lower standards to be applied in corporate fraud prosecutions, similar to those that apply where companies are held liable for a “failure to prevent” bribery. Speaking on BBC Radio 4 recently, the director of the Serious Fraud Lisa Osofsky called for “lower standards” for corporate fraud prosecutions, saying “we have a very antiquated system when it comes to fraud.”

Ms Osofsky’s complaints about the UK’s supposedly antiquated fraud laws sound a lot like a worker blaming their tools. Serious fraud is inevitably vastly complex and the justice system must uphold high standards in all criminal cases. The criminal standard of proof is a cornerstone of our system of justice. It has prevailed for centuries because it reduces the injustice of a wrongful conviction. Even corporate defendants deserve due process when they come before the criminal courts. While lower standards of proof in criminal cases would of course make every prosecutor’s job much easier, the high standards of proof which the criminal law demands exist to protect the innocent from wrongful conviction, and to preserve the integrity of our justice system.

A fundamental issue with criminalising a “failure to prevent” is that it can make an innocent company liable for the actions of an individual wrongdoer. In that sense, a rogue employee can do serious commercial and reputational damage to a company by, for example, engaging in bribery to improve their sales figures. Yet if the company’s anti-bribery procedures are not quite up to scratch, the company may suffer the additional damage of a criminal conviction for “failure to prevent” bribery. It is perverse to deliberately design criminal laws so as to be capable of convicting the innocent.

English law has always made a sharp distinction between criminal and civil liability. The idea of criminalising a company’s “failure to prevent” an employee doing something wrong blurs the line between liability for negligence and criminal conduct. It also makes one legal person criminally liable for the actions of another.

We have well-developed regulatory systems and civil remedies which often provide a more just, and appropriate, means of redress in cases where a company’s rogue employee engages in wrongdoing. There is also little evidence to suggest that the SFO would actually secure more convictions if the lower standard of proof prevailed when prosecuting corporations for fraud.

For example, the SFO’s case against Airbus involved significant corruption allegations relating to the company’s use of external consultants to pay bribes to secure orders for aircraft. Since the Airbus case involved bribery, the lower standard of proof applied. Indeed, section 7 of the Bribery Act, 2010 enables prosecutions to be brought in respect of a failure to prevent bribes anywhere in the world, including where bribery was done by an agent, employee or subsidiary.

Yet the SFO did not bring prosecutions for failure to prevent bribery against Airbus. Instead, it offered Airbus a DPA in respect of five counts of failure to prevent bribery. It therefore appears that even this lower standard would not induce the SFO to marshall admissable evidence and prosecute in open court, since 5 of the 7 DPAs it entered into involved failure to prevent bribery – including those agreed with Standard Bank, Sarclad, Rolls-Royce, Güralp Systems and Airbus. In each case, the lower standard which Ms Osofsky’s implores Parliament to adopt as regards fraud was available to the SFO.

While life would be far easier for prosecutors if they no longer had to prove criminal intent, that is not a good reason to abandon fundamental and “antiquated” criminal legal concepts such as mens rea. If we do, we risk setting off down a slippery slope, which could greatly damage the very foundations of our criminal justice system.

The Barclays case provides additional evidence that the SFO’s failure to successfully and properly bring its cases to court has little to do with the state of law relating to corporate criminality. The issue is in fact something far more basic. The SFO’s fundamental error was persisting with the prosecution of the individuals in the Barclays, despite having insufficient evidence to support their case. The net result was that the SFO wasted millions of pounds of taxpayers money on prosecutions that were always destined to fail.