The UK’s Serious Fraud Office (“SFO”) recently received an unexpected, yet significant, increase in baseline funding for the 2018-2019 fiscal year. The funding boost comes in spite of Prime Minister Theresa May’s previous efforts, following several high-profile prosecutorial setbacks for the SFO, to fold it into the UK’s National Crime Agency (“NCA”). Relatedly, a new funding arrangement addresses prior concerns of the Organization for Economic Cooperation and Development (“OECD”) about potential conflicts of interest. It is probable that these changes will enable the SFO to better develop and retain internal talent. These developments should come as good news to Lisa Osofsky, the newly appointed Director of the SFO who will begin her renewable five year term on September 3, 2018.
In this two-part post, we look first at the alleged chequered history of the SFO, seemingly causative of attempts by the government over time to disband it, before then focusing on a remarkable turnaround in its fortunes, both figuratively and literally.
SFO: purpose and history
During the 1980s, a series of conspicuous frauds shook public confidence in traditional law enforcement’s ability to detect, investigate, and prosecute white collar crime. Public outrage eventually culminated in a Parliamentary investigation and the Fraud Trials Committee Report 1986 (known as the Roskill Report), which recommended the creation of the standalone, specialist SFO. One year later, the SFO was officially empowered by the Criminal Justice Act 1987 and it has gone on to assume the role of “chief enforcer” of the Bribery Act 2010.
However, the SFO’s fortunes over the years have been somewhat mixed.
Tchenguiz fraud investigation dropped; costly settlement ensues
In March 2011, the SFO conducted highly publicized arrests of Vincent and Robert Tchenguiz, real estate developers accused of fraudulently obtaining a £180 million loan from Icelandic bank Kaupthing just prior to its collapse in 2008. The case against the brothers began to unravel in late 2011. The SFO admitted there were “factual errors” in the search warrants used to conduct initial raids and returned materials seized. By June 2012, the SFO conceded there were “no longer reasonable grounds” to consider Vincent Tchenguiz a suspect, and ultimately dropped the investigation of Robert as well.
The Tchenguiz brothers subsequently sued the SFO, alleging trespass, false imprisonment, malfeasance in public office, and malicious prosecution. Their combined suits sought some £300 million in damages. In April 2014, the SFO estimated that it could spend £18.5 million fighting the lawsuits in a filing for emergency funding. The cases settled before trial, with the SFO agreeing to pay £4.5 million and some of the Tchenguiz’s legal expenses. Then SFO Director David Green also publicly apologized to the brothers for their ordeal.
Brokers accused of financial misconduct acquitted
In total, the SFO arrested and prosecuted 13 individuals in connection with the London Interbank Offered Rate (“LIBOR”) manipulation scheme. Ultimately, it only secured four convictions and one guilty plea. The other eight defendants were acquitted including, on January 27, 2016, all six of the interdealer brokers charged with conspiring with former UBS and Citigroup trader Tom Hayes. Many critics excoriated the SFO’s conviction rate and lack of senior executive prosecutions, given the magnitude of the fraud and the £21.4 million spent investigating it.
Even the SFO’s convictions in the LIBOR scandal were not without controversy. On appeal, it was revealed that an expert witness paid £400,000 by the SFO had limited expertise and texted a friend for help while providing evidence. The English Court of Appeal characterized this “an embarrassing debacle” for the SFO.
Manifesto to combine the SFO and the NCA
In May 2017, Prime Minister May revived previous proposals from 2011 and 2014 to incorporate the SFO into the NCA, purportedly to improve intelligence sharing and bolster resources. A poor showing in the June 2017 snap election, when May’s Conservative party lost its working majority, derailed this latest attempt at reform.
As we discuss in the second part of this post, there is a body of public opinion to suggest this was perhaps for the best. Moreover, in an about-turn by the government, the SFO has recently been empowered, financially speaking, to redouble efforts to tackle white collar fraud and corruption head on.