Cease and desist – or not? Challenging the SFO's discretion to investigate
22 November 2016
In a case the first of its kind, Soma Oil And Gas Ltd (Soma) sought, by way of judicial review, to require the Serious Fraud Office (SFO) to cease its long-running investigation into potential bribery and corruption offences committed in Somalia by Soma.
While expressing its 'sympathy' with Soma's position, and exhorting the SFO to proceed as expeditiously as possible, the High Court held that the claim had no real prospect of success and refused to grant permission to proceed: reiterating that there was a "very high hurdle" to be overcome by applicants seeking to challenge decisions of investigators. However, the commencement of the proceedings prompted the SFO to issue a letter informing Soma that there was 'currently insufficient evidence of criminality' to found any realistic prospect of conviction in relation to the primary aspect of the investigation.
In the 2015-2016 financial year, 12 new criminal investigations were opened (one concluding without charge) such that the SFO ended the year with around 60 active investigations – many of which will have persisted for a number of years.
A challenge to the duration of a SFO investigation was therefore somewhat inevitable. Ongoing investigations impose significant long-term economic burdens on target firms: increased compliance costs, difficulty raising funds and general reputational damage. It is very much in the financial interests of the investigation subject for the SFO to conduct its investigation, diligently, prudently and to conclude it as soon as practicable. In the case of Soma, the financial risk associated with the ongoing investigation crystallised at a particular date, prompting their judicial review application.
Investigation into Soma
Soma was involved in oil exploration and drilling operations in the territory of Somalia. It had agreed with the Federal Government of Somalia (FGS) to conduct an oil exploration programme in Somalia, at the conclusion of which it could apply for Production Sharing Agreements (PSAs) over blocks of interest to it (a valuable right enabling Soma to move beyond exploration into oil production). Subsequently, in 2014, Soma agreed with the FGS to provide direct financial support to the Somali Ministry of Petroleum and Natural Resources through 'capacity building payments'. The FGS, in its discretion, applied the funds paying allowances to certain Ministry employees.
In June 2015, the SFO commenced an investigation into whether Soma had, through its involvement in these capacity building payments, committed bribery and corruption offences. Soma vigorously denied the commission of any criminal offence, and co-operated extensively with the SFO's investigation.
Over time, Soma perceived that the investigation was dragging, and expressed its concerns to the SFO. The delay had serious consequences for Soma: it needed to raise sufficient financing to be in a position to execute the PSAs by 25 August 2016, a task which was being hampered by the investigation. Absent funding, it could lose the valuable targeted blocks to competitors, risking insolvency.
As such, on 10 August 2016, Soma commenced proceedings for judicial review. Soma ambitiously sought mandatory orders or declarations to the effect that the SFO must (1) terminate its investigation into Soma for offences connected with the capacity building payments; (2) provide a clear indication that the investigation would be the subject of no further action and a clear timetable to a formal decision; or (3) take a decision by 23 August 2016 as to whether to prosecute Soma in respect of the capacity building payments.
In response to the claim, on 16 August (merely one day prior to the hearing), the SFO informed Soma in a letter that, based on the information available, there was 'currently insufficient evidence of criminality' in relation to the capacity building payments to found any realistic prospect of conviction, but that 'other strands' to the investigation were continuing.
Soma advanced the case that the SFO was acting unlawfully in that the failure to conclude the investigation was irrational; and that, in addition to being irrational, the SFO's refusal to indicate that no further action would be taken against Soma failed to take into account relevant considerations, and/or was disproportionate under Article 8 of the European Convention on Human Rights (ECHR).
No case authority to date had precluded a challenge to the SFO's discretion to prosecute or investigate fraud. However, the court held that the law was clear: Soma faced a 'very high hurdle indeed' in asking the court to judicially review the SFO's discretionary decision in conducting an investigation in good faith into serious criminality, and in seeking a mandatory order to terminate that investigation.
An analogy was drawn to decisions of prosecutors, which may only be challenged in "exceptionally rare circumstances": where there has been some unlawful policy, where the prosecutor has failed to act in accordance with their own set policy, or where the decision is perverse (in the sense that it is one no reasonable prosecutor could have reached). However, it is still more difficult to challenge a decision of an investigator. Courts have long declined to intervene in on-going investigations, as to do so would be an unwelcome blurring of the separate roles of a Court and investigator.
No basis for judicial intervention
Importantly, the claim was found to fail in light of the 16 August letter, as Soma could do "no better": while it was not the "public decision" sought, Soma had permission to communicate the letter to potential investors.
- The court did go on regardless to consider the academic merits of the case aside from the 16 August letter, and still found against Soma. There was nothing irrational about either the commencement or continuation of the SFO's investigation, nor was there anything about the conduct of the investigation that meant it was wholly or most exceptional so as to warrant the court's intervention. It had been commenced, and continued, in good faith. While Soma may be frustrated, it could not be said that there was undue or even any delay given the nature of the investigation and the geographical context. It would have been 'remarkable' for the court to mandatorily terminate the investigation in such circumstances.
- Assuming Soma's ECHR right to privacy was engaged, the interference with that right was justified, and the investigation conducted proportionately. The SFO did not approach the matter "in generic terms": it was alive to the particular risks faced by Soma.
Seeking disclosure from the SFO
Soma had further sought to force the SFO to disclose the nature of any ongoing other matters being pursued. It argued that the refusal to provide this information was unlawful on the grounds that it was contrary to minimum standards of disclosure required at common law and under EU Directive 2012/13/EU on the rights of an accused or suspected person.
The SFO had informed Soma that, for reasons of operational sensitivity and security, it could not impart any more information on that element of the investigation, save that it was being conducted as expeditiously as possible and was a sensitive ongoing inquiry in respect of serious criminality.
The court held that there was no basis for it to go behind the SFO's response. Some material about the investigation had been disclosed to Soma – but the court was 'unable to accept that there [was] any common law right to compel further disclosure at this stage'. Rights under the Directive were limited to circumstances where information could be provided "without prejudicing the course of ongoing investigation", and therefore this did not assist.
A challenger's guide
While not a particularly encouraging precedent in the context of future challenges, given the 'very high hurdle' set, there are a few positives to be drawn. Most importantly, the commencement of the judicial review proceedings did act as a catalyst prompting the production of the SFO's concessionary 16 August letter. While the SFO emphasised that letter was a 'unique exception' to its policy, and should not be taken as precedent for any other case or investigation, it is clear that there was a link between the judicial proceedings and the issuance of the 16 August letter (merely one day prior to the oral hearing), as recognised in the discount applied to the costs order made against Soma.
Secondly, while the bar is set 'very high', it may not be impossible – in this case, the issuance of the 16 August letter was determinative of the claim, and should a more aggressive attitude be maintained by the SFO in a more remarkable factual situation, the balance may be different – particularly should an investigation have persisted far longer than the one year investigation into Soma. However, overall, it remains the case that seeking judicial review of a decision of the SFO would need very careful consideration and is likely to be advanced only in exceptional circumstances.