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08 May 2015

The case of Evans and lessons for the SFO

Written with Andrew Smith of Corker Binning

These are testing times for the Serious Fraud Office (SFO). In November last year, in a case called R v Evans, the SFO sought a voluntary bill of indictment (VBI) against six individuals on allegations of conspiracy to defraud, having seen the original charges arising out of the same transactions dismissed by the court. With no other recourse available to them, the SFO pursued the VBI on the basis that the judge had erred in law in dismissing the original case. The dismissal of the VBI application and the subsequent costs hearing stand as a stark re­minder that the SFO, like all prosecutorial bodies, will not be permit­ted to pursue unmeritorious  cases without impunity, and that the public purse may ultimately pay the price.

Mr Justice Hickinbottom, in holding that the SFO must pay both the wasted costs of the defence incurred since the dismissal notice and the costs of the VBI hearing on the more stringent indemnity basis, pointed to a series of failures by the SFO in pursuing its case. The Judge accused the SFO of repeatedly “changing the goalposts” and held that this could not be explained as a mere mistake, but was in­stead evidence of an intransigence which was in direct opposition to the SFO’s positive obligation of self-scrutiny. The ramifications of this judgment are yet to be seen, but Evans is indicative of a problem which has become familiar to white collar crime practitioners in the UK — that the SFO, despite some successes, remains prone to embarrassing and costly mistakes.

Moreover, the wider question posed by Evans is whether the SFO is capable of delivering on its promise to convict large corporates for bribery and fraud offences, given that its prosecutions of individuals remain haphazard. That is not to say that the SFO has failed to convict at all; over the past three years, the rate of conviction of cases brought to trial has been relatively high at around 70%. Of course, that statistic presupposes that cases are brought to court, and whilst the conviction rate has been on a steady but incremental decline over that time, the number of cases being taken on by the SFO has also declined. The roll call of corporates currently under investigation by the SFO is impressive, including GSK, Tesco, G4S, Serco and Barclays, but apart from encouraging a more positive compliance culture in the corporate world, the real test of the SFO’s resolve and skill will be whether it can successfully prosecute any of these companies.

The absence of a successful corporate prosecution (other than the conviction of Smith & Ouzman for bribery offences in late 2014, a company nobody could truthfully de­scribe as a large corporate) can largely be attributed to the costs involved in investigating the types of cases which fall within the SFOs remit. Indeed, the SFO has recently struggled financially to support its caseload, in 2014 sub­mitting a request to the government for “blockbuster funding” of £26.5 million, representing a 75% expansion of its 2015 budget. Although part of this money was assigned to settle the claim for dam­ages brought by the failed Tchenguiz brothers’ prosecution, it was also to continue the work into the continuing LIBOR rate fixing investigations. On the latter, where money has been ring-fenced and granted, the SFO has seen corresponding success with the extra cash flow assisting in obtaining one guilty plea from a former banker and all dis­missal applications brought by other LIBOR suspects being dismissed by the court. This is a positive success for the SFO.

Most practitioners will hope that the criticism levied in Evans prompts the SFO to engage more critically with their case review policies before pursuing prosecution. In this context, it is important to remember the findings of the latest report on the SFO by the HM Crown Prosecution Inspectorate. In that report, published in 2014, Chief Inspector Michael Fuller expressed concern that reforms required by the previous 2012 inspection had not been implemented quickly enough. Problems surrounding the intelligence-gathering functions, qualification and allocation of staff and the investigation techniques employed by the agency were found to endure despite an acknowledgment that efforts had been made to resolve them.

In light of the ever increasing target list announced by the SFO, and the corresponding costs and resources which will be necessary to overcome the types of hurdles experienced in Evans, one wonders if a resolution to the SFO’s problems will be found quickly enough for it to deliver on all its post-Bribery Act promises and salvage its reputation in the public eye. If the SFO is unable ultimately to get its house in order, this will ultimately operate against the general consensus that having a strong prosecutorial body to investigate serious fraud, bribery and corruption is in the interests of all.

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