A stress test for the Serious Fraud Office?

2021 was set to be the year that would be known for the Serious Fraud Office’s (SFO) decision not to proceed with a number of investigations, rather than for what the SFO had done.

British American Tobacco, KBR’s subsidiaries and individuals associated with Airbus were told they were no longer being probed by the agency, which also ended its 15-year pursuit of businessman Nisar Afzal. The SFO seemed to be continuing the spring-cleaning that started around the time its director Lisa Osofsky said her aim was to ensure the agency makes quicker decisions about investigations

And then Unaoil executive Ziad Akle’s bribery conviction was quashed, due to the SFO’s conduct, and the Attorney General announced it was launching an independent review into the agency.

The Court of Appeal had no doubt the SFO’s failure to disclose vital evidence had unfairly led to Ziad Akle being jailed. The December quashing followed criticism of the dealings Osofsky and some of her senior colleagues had with a private investigator. Appeal court judges highlighted the lack of a satisfactory explanation for how SFO chief investigator Kevin Davis came to delete data on his mobile phone regarding his dealings with the investigator – the second time in a year, the judges noted he had wiped a mobile phone of its data.

The SFO is now tasked with persuading the Attorney General, the business world and its equivalent agencies abroad that it is fit for purpose. It cannot be forgotten the prosecution of two Serco executives collapsed in 2021 because of an SFO failure to disclose evidence to defendants. The task is a stern one. The SFO has suffered a high-profile defeat accompanied by scathing criticism and the prospect of its activities being scrutinised very closely. Thus, restoring its reputation in the eyes of those it needs to work with will be a huge challenge.

In 2021, the SFO was unsuccessfully dropping cases at a time when the US Department of Justice (DOJ) was stating its intention to come down harder on corporate crime. If there is any merit in the old phrase about the world catching a cold when the US sneezes, we may see a rise in investigations in the UK.

Comparisons with the US do not put the SFO in a flattering light. This was inevitable, given its case dropping came as the DOJ was making very clear its intended targets. The DOJ made particular reference to the largest US corporations, those who violate the terms of a deferred prosecution agreement and those who are not meeting their compliance obligations being high on its list of priorities. It is a far stronger statement of intent than anything that has come from the SFO.

Ironically, one of the main tasks facing the SFO may be building bridges with the DOJ. After the turbulence of the Unaoil investigation, the SFO will need to ensure its relationships with counterparts across the Atlantic are as good as they can be, as cross-border cooperation is going to be key to any number of future investigations. The agency may also have to see how its relations with its European counterparts develop now Brexit has ensured the UK is not part of the newly-created European Public Prosecutor’s Office (EPPO), which has been hailed as ushering in a new era of EU-wide cooperation to combat fraud.

It seems likely a number of those future investigations – even many related to bribery and corruption – will at least partly focus on environmental, social and governance (ESG) issues. An increased emphasis on ESG issues has seen legislation enacted throughout the European Union. The Duty of Vigilance Law in France has imposed ESG obligations on companies, as will the Supply Chain Due Diligence Act in Germany. A number of major corporates in both countries are now being investigated in relation to alleged ESG failings.

It remains to be seen whether this will eventually happen with some of the UK’s big corporate names and how the SFO will manage such investigations – many of which could give rise to fraud probes. The fact we have a number of European countries – and most recently the US – showing a desire to address the importance of ESG in business is something that can be applauded. Yet it could prove to be one more challenge the SFO has to address in the future.

What should be remembered is prior to the Akle case, the imminent arrival of 2022 was being accompanied by what can only be seen as a charm offensive by Osofsky. She had joined the Attorney General to tell MPs about the SFO’s role as defender of the UK economy and had been vocal about the use of deferred prosecution agreements. She even went as far as to state the SFO was learning lessons from the Serco prosecution collapse, although such a statement may now be jumped on by the SFO’s critics in the wake of the quashing of the Akle conviction.

Osofsky’s promotional activities on behalf of the SFO came in the wake of what, at best, had been a patchy run of results. The Supreme Court clipped the wings of the SFO last year by ruling that the agency’s powers under section 2 of the Criminal Justice Act do not entitle it to compel a foreign company with no business or presence in the UK to produce documents held outside the UK. This was one more outcome the SFO could have done without.

While 2021 certainly included some very notable bad days at the office for the SFO, it did see the agency achieve a guilty plea from GPT Special Project Management Ltd over corruption in Saudi Arabia and further successes regarding Petrofac and Unaoil. The SFO can also point to the fact that its use of deferred prosecution agreements over the past six years has seen enough money raised to fund the agency’s operations over that period four times over. Although unlike the Financial Conduct Authority, which is financed by the firms it regulates, the SFO is funded directly by the government.

The SFO may be girding itself for a more demanding year beyond 2021. Against a recent backdrop of deck clearing, risk avoidance and limited success, the SFO now has to prove it can meet the battles ahead. The gathering clouds of both pandemic-related fraud and the possibility of further damaging fall-out from the Akle case do not, at this stage, make 2022 look like a particularly easy year for the SFO. It may be melodramatic to call 2022 a make-or-break year for the SFO, but it is shaping up to be a significant stress test for the agency.

Aziz Rahman is a partner at Rahman Ravelli rahmanravelli.co.uk