All Things Newz
Law \ Legal

Distrust, Bias And Incompetence At The SFO – White Collar Crime, Anti-Corruption & Fraud


The much-anticipated reports by Sir David Calvert-Smith and
Brian Altman QC into failings at the Serious Fraud Office (SFO) in
their Unaoil and Serco investigations were published on 21 July. As
Lisa Osofsky, Director of the SFO said on their publication the
reports “are a sobering read”.

Background

On 26 April 2021 the trial of R -v- Woods and Marshall collapsed
at Southwark Crown Court when the SFO offered no evidence. The case
concerned the SFO’s prosecution of Mr Woods and Mr Marshall,
both former directors of Serco, in relation to allegations of false
accounting concerning the provision of electronic monitoring
services within the criminal justice system: an investigation which
commenced in October 2013. The collapse of the trial followed the
discovery of significant disclosure problems with the trial Judge
refusing the SFO’s application for an adjournment. In May 2021,
Lisa Osfosky commissioned Brian Altman QC “to examine the
circumstances, facts and matters which caused or contributed to the
disclosure failures”
in the case.

On 10 December 2021 the Court of Appeal Criminal Division gave
judgment in the appeals against conviction of Ziad Akle and the
appeal against sentence for Paul Bond. Both had been convicted of
bribery in respect of their involvement in corruption to secure
Iraqi oil contracts. The SFO opened an investigation into Unaoil in
July 2016. The Court of Appeal overturned Akle’s conviction on
the basis that the SFO had failed to comply with its disclosure
obligations and the trial judge had wrongly refused to order
further disclosure with regard to the extent of the SFO’s
contact with David Tinsley, a so-called ‘fixer’, who
approached the SFO and, in the ensuing dialogue, indicated that he
might be able to assist in persuading persons charged by the SFO to
plead guilty; he did not, however, represent those people (and the
SFO knew they were represented by lawyers in the UK). Paul Bond
subsequently had his conviction overturned in March 2022 with
another defendant, Stephen Whiteley’s conviction being
overturned in July 2022.

Following the Court of Appeal’s judgment, the Attorney
General issued a statement that she was “deeply concerned
about the findings in the judgment”
and commissioned an
independent review of the SFO’s failings identified in the
case.

Calvert-Smith Report – SFO handling of Unaoil
investigation

The Calvert-Smith review looked beyond the Court of Appeal’s
decision, including a consideration of the SFO’s policies,
practices, procedures and related culture, but only as these were
relevant to the Unaoil case.

Quality assurance was an area of weakness in the SFO’s
handling of the Unaoil case. Ownership and accountability
were unclear and there was no internal challenge of the key issues.
Record keeping was insufficient and disclosure poorly managed.
There was also inadequate resourcing and other cases competing for
attention within the investigation team.

The contact with Mr Tinsley (a former US Drug Enforcement
Administration official put in touch with Ms Osofksy by one of her
former colleagues in the US) was a priority for SFO senior
management rather than the case team, who were more sceptical of
his involvement with the investigation. There had been tensions
between the US and UK investigating agencies in the Unaoil
investigation (now well-documented in the context of employment
proceedings brough by Tom Martin, the Unaoil case controller,
against the SFO following his dismissal) which meant that the SFO
senior management, including Ms Osofsky, were keen to build bridges
with the US. The review found a lack of independence or control
over the relationship with Mr Tinsley. Although now since amended,
the SFO’s Operational Handbook did not cover interactions with
non-legal representatives – so there was a lack of guidance on how
the organisation ought to have handled contact with Mr Tinsley.

The Report concluded that four key changes were required to
ensure such failures do not happen again:

  • Establish effective case assurance processes.

  • Have clear routes for the case team to voice concerns about
    cases, ensuring Heads of Division are not side-lined.

  • Embedding of regular assessments and challenges to case
    strategies, alongside clear determination of case resources.

  • Interactions which could affect disclosure obligations must be
    recorded and there must be stricter adherence to the Operational
    Handbook.

The Report made a total of 11 recommendations which in its
response to the Report, the SFO accepted.

Brian Altman QC’s Report – collapse of Woods and Marshall v
R

Mr Woods and Mr Marshall were charged with fraud by false
representation in respect of Serco’s contract to provide
electronic monitoring services to the Ministry of Justice. The
defendants were accused of misrepresenting financial models
covering costs incurred in delivering the services. Serco had two
years earlier concluded a DPA with the SFO in which it had accepted
criminal liability.

The prosecutions collapsed before Mrs Justice Tipples at
Southwark Crown Court in April 2021 because it was found, during
the trial, that there were significant disclosure problems,
including a failure to disclose or even search for certain
documents potentially favourable to the defence. This led to the
SFO applying for a lengthy adjournment which, when refused, meant
the SFO was forced to offer no evidence against both
defendants.

The terms of reference for the Review included: reviewing the
roles, responsibilities and skills of the case controller,
disclosure office, counsel and the disclosure reviewers; reviewing
the SFO’s compliance and methodology documents; understanding
the failures in the disclosure review process and seeing what the
wider disclosure issues were.

The Report found that document reviewers were overloaded with
detail and lost sight on what the real issues of the case were, and
guidance documents were of little practical help. The Disclosure
Officer was inexperienced, however finding more experienced
Disclosure Officers was challenging. Remuneration for disclosure
reviewers was unreasonable and ought to be increased. There was
also too much pressure on case teams, highlighting a need for both
more resourcing and better pay.

There was no quality assurance review conducted after 2019. As
the SFO’s case and arguments developed, ongoing QA would have
ensured the most pertinent documents were captured. The Report
described this as “a serious systemic
failure
“.

The SFO did not sufficiently engage with the defence in the
disclosure process, and this may have been because document
reviewers did not fully appreciate their role. Despite several
internal guidance documents on disclosure, it appeared to be the
case that they were not practical and ended up overwhelming
reviewers.

The Report made a total of 18 recommendations which the Attorney
General and SFO have accepted. In its response, the SFO committed
to increasing its training and pay for disclosure reviewers and
that it has bid for additional funding in technology to assist with
its document review and evidence handling. Its management of
disclosure is a recurring theme through the recommendations and the
SFO has undertaken a project to review how it hires and retains
disclosure officers, as well as how existing staff can be trained
up for this role.

The SFO has also committed to updating its Operational Handbook,
with new policies or guidance to be issued by the end of the year.
Interestingly, the SFO implies through its responses that it cannot
always engage with the defence in the disclosure process because
there is a lack of reciprocity.

What of the future?

These Reports criticised the SFO for various reasons, with some
overlap, yet together paint a picture of an organisation in some
distress. There are essential characteristics of good management
one would expect of an organisation investigating and prosecuting
serious and complex financial crime including good record-keeping,
appropriate resourcing, communication, fairness, independence and
quality assurance. The Reports outlined how these characteristics
were lacking, and at times altogether absent, in two of the
SFO’s largest investigations. Both reports refer to underlying
issues with the disclosure process which hampered both
investigations, such as inadequate supervision of the case team, a
lack of resources and insufficient compliance with internal
policies and procedures.

The Calvert-Smith Report refers to tensions in the relationship
during the Unaoil investigation between the SFO and the US
DoJ and indicates that the sequence of events suggested that senior
managers in the SFO were in 2018 anxious to find ways to
re-establish collaborative relationships” with
the US DoJ. In December 2021, the Biden administration published
its strategy on countering corruption which contemplates greater
co-operation with partner countries through joint investigations
and co-ordinated prosecutions. Indeed, there have been a number of
recent successful collaborations between the SFO and the DoJ
including the Airbus and Glencore bribery investigations which
resulted in a global DPA with Airbus in 2020 and guilty pleas from
Glencore earlier this year. In October 2019 the UK and US signed
what was described as an “landmark data-sharing
agreement”
under the US Cloud Act and UK Crime (Overseas
Production Orders) Act which will allow investigators to
gain better access to vital data to combat serious
crime”
. It would seem that the collaborative relationship
is on the road to recovery.

In its most recent Annual Report published in July this year, Ms
Osofsky describes 2022 as the “year of the
trial
” with a total of eight trials throughout the year,
six relating to fraud allegations and two relating to bribery and
corruption allegations. Several of those have already concluded
resulting in a number of convictions and three trials are due to
start at Southwark Crown Court in September. The Annual Report
indicates that the SFO has 130 active cases and 43 new cases opened
in the last financial year, so few would deny that the SFO has its
work cut out in the coming months.

The SFO’s remit is to investigate and prosecute serious and
complex fraud and corruption cases. Such cases inevitably involve
huge volumes of material and a properly conducted disclosure
process is integral to the fairness of proceedings which the SFO
chooses to bring. In March 2022 before the Justice Committee, Lisa
Osofsky appeared to be advocating for a revision to the disclosure
regime including what appeared to be criticism of defence teams for
not engaging early enough in the process stating that “we
have rules that do not require them [the defence] or even encourage
them, to engage with us”
.

The Altman Review found that the defence teams in that case had
clearly engaged with the SFO in order to ensure that
material that passed the disclosure test was disclosed and was
disclosed at the earliest time possible”
and yet key
material was not disclosed. As the Altman Review recognises
disclosure is a two-way street and the SFO should encourage and
engage with the defence in the disclosure process. A change to the
long-established disclosure rules and obligations however is not
the solution, indeed neither Review recommends such a change. As is
clear from both Reports, what is needed is investment in technology
and sufficiently trained and properly supervised people conducting
the disclosure process at the SFO.

SFO must learn from its mistakes

The Government on the one hand has accepted the recommendations
to ensure that lessons are learnt with the Attorney General
commenting “this remains a priority for the Director and
me”
, yet with the other hand has asked civil service
departments, including the SFO, to forecast the impact of a 20-40%
reduction in headcount. It is difficult to see how the SFO can
implement the reforms and recommendations it, and the Government,
has signed up to in its responses to the Reports, if it has reduced
resourcing to do so.

Ms Osofsky’s five-year term as Director of the SFO is due to
end in August 2023. Thoughts are no doubt moving towards who her
successor will be although in February she told MPs that she had
not decided whether to seek another term. How the SFO get on with
its trials in the next six months may provide an opportunity for it
to put its past failings behind it, but despite its recent
successful convictions following contested trials (Global Forestry,
Harlequin and Axiom investigations), there has still yet to be an
individual convicted following a Deferred Prosecution Agreement
with the corporate entity.

The SFO will remain under Government scrutiny with the Attorney
General stating that she will be “closely monitoring the
SFOs progress and delivery of that plan [of action to respond to
the recommendations made] and will provide an update to Parliament
in November 2022 and February 2023″
. The SFO must learn
from its mistakes, but it cannot do so without proper resourcing
from Government.

This article was first published by Reports Legal on 18
August 2022.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



Source link

Related posts

D.C. Circuit: No Award To Whistleblower Who Made Disclosure Before Enactment Of SEC’s Whistleblower Program – Whistleblowing

Look Ahead: Upcoming Congressional Work Period – July 2022 – Government Contracts, Procurement & PPP

Senior Executive Accountability Regime: In Conversation With Gerry Cross Director Of Financial Regulation Policy And Risk In The Central Bank Of Ireland – Financial Services