Future challenges in economic crime: a view from the SFO

A month earlier, on 7 September 2020 at the Cambridge Symposium on Economic Crime, Ms Osofsky talked about her four key priorities for the SFO. Building on the same themes, the October speech lists a shopping list of successes of the SFO, from collaboration with other regulators through to convictions secured. In this blog post we take a closer look at the recent achievements of the SFO and the challenges it faces in 2020 and beyond.

Collaboration with regulators outside the UK

In the first speech that Ms Osofsky gave at the SFO, two years ago at the Cambridge Symposium, she said that deepening cooperation with UK and international partners was a priority for her, to avoid criminals exploiting any jurisdictional differences.

In her September and October speeches this year, Ms Osofsky built on this theme, setting out how, in her view, in the past year the SFO has shown how it can do this. She gave the example of the SFO achieving, hand in hand with American and French partners, the largest ever bribery and corruption resolution, a record breaking EUR3.6bn global Deferred Prosecution Agreement (DPA) with Airbus.  The SFO’s part of the DPA covered conduct in five jurisdictions; Sri Lanka, Malaysia, Indonesia, Taiwan and Ghana, spanning over a period of four years. Ms Osofsky called the agreement “exemplary” and the “gold standard” in tackling global financial crime.

But cross-border collaboration not always a guarantee for success

It is unclear what degree of co-operation the SFO sought or received, if any, from its foreign counterparts over the course of its recently closed investigations into other organisations for suspected overseas bribery. The lack of sufficient overseas evidence to help prove wrongdoing will often be a major factor in reaching these decisions.

However, it is also clear from the SFO’s recent track-record that securing evidence from abroad (whether through a degree of cross-border law enforcement co-operation or otherwise) alone is not a guarantee for success. This was clearly demonstrated during the SFO’s unsuccessful prosecution of three former Sarclad executives in July 2019.

Juries

Whilst the evidence presented by the SFO in the Sarclad case was clearly not enough to bring home the prosecution’s case, it is reassuring to see that Ms Osofsky’s faith in the UK jury system appears to be unwavering. Her October speech (“God bless our jury”) echoes sentiments previously expressed by Ms Osofsky where she has described jurors as an “important protection of civil rights” and called their continued use in complex fraud trials “right and just”.

Some will welcome Ms Osofsky’s recognition that juries play a highly important role in the fair and just running of the English criminal legal system.

From the SFO’s perspective, juries will  represent  the ultimate stumbling block between success and failure. For instance, in a recent case, the jury took just under six hours to reject allegations that had taken almost five months to hear in court.

Multi-agency co-operation within the UK

In her speech, Ms Osofsky highlights the need to develop a coherent, overarching anti-fraud strategy that could tackle a broad spectrum of threats (from volume fraud arising out of the pandemic to complex, sophisticated illegal schemes) under the same umbrella.

Multi-agency co-operation (including information-sharing and a co-ordinated enforcement strategy) is undoubtedly an important tenet of any such approach. In this context, Ms Osofsky praises the SFO’s contribution to the National Economic Crime Centre (NECC), which was established by the UK government some two years ago, with the participation of various domestic law enforcement agencies and the private sector.

SFO contribution to the NECC

Ms Osofsky says that she is proud of the SFO’s contribution to the NECC: “not only did the SFO play a critical role in helping to build that organisation but we now have five secondees embedded there, working closely with our partners to ensure casework is joined up, and that we are each using our respective skillsets to the fullest”.

Ms Osofsky also makes mention of the NECC’s recent national law enforcement campaign known as Otello, which was launched in early 2020 with the explicit remit of targeting specific, so-called “high harm” financial crimes such as romance, investment and payment diversion frauds. It will be interesting to see what results this renewed focus on inter-agency co-operation will yield in the coming years. From what we have seen so far, it appears that the UK has adopted a divide and conquer approach, as far as tackling the ever-increasing levels of economic crime is concerned; with the NECC and Otello focusing on the types of potentially wide-spread low value fraud that could cause great individual harm and damage societal values, whilst the SFO is left to investigate headline-grabbing, multi-jurisdictional blockbuster cases.

The JMLIT and the NCA-led Foreign Bribery and Corruption Clearing House

Another aspect of the umbrella approach championed in Ms Osofsky’s speech is that it necessarily relies on the identification of potential threats through the timely and effective sharing of information, including the escalation of suspicion from financial institutions and other private sector players. Ms Osofsky specifically mentions the Joint Money Laundering Intelligence Taskforce (JMLIT), which directly links law enforcement agencies with 40-odd large financial institutions, as well as the National Crime Agency (NCA)-led Foreign Bribery and Corruption Clearing House. Relevant information is typically received and co-ordinated by the NCA in the form of reports filed by institutions under the Proceeds of Crime Act 2002 (POCA), including Suspicious Activity Reports (SARs).

As highlighted in Ms Osofsky’s speech, the domestic regulators’ toolkit for utilising such information has greatly increased since the introduction of various new powers in the Criminal Finances Act 2017. Notably, these include the much-talked about Account Freezing and Forfeiture Orders, Unexplained Wealth Orders and Overseas Production Orders.

But any enforcement tool is only as effective as the underlying information it relies on - SARs

However, any enforcement tool is only as effective as the underlying information it relies on. Whilst Ms Osofsky did not touch upon the issue, it has become increasingly apparent in recent years (even before the FinCen leak of September 2020) that the SAR system is in dire need of reform. Whilst more and more SARs are filed in the UK[1], this is not necessarily good news for law enforcement agencies: a 2019 Law Society report found that many SARs were said to be of low quality, filed “defensively” and demonstrating little understanding of the underlying statutory POCA obligations.

The UK government’s latest Economic Crime Plan has promised to agree on the future iteration of the SAR regime by December 2020. We eagerly await its announcement, which is expected to include increased guidance on filing SARs, a re-hauled approach to processing and sharing data (including qualitative analysis), as well as a much needed update of the NCA’s relevant IT systems.

Lisa Osofsky’s wish list for the SFO

Ms Osofsky identifies in her speech the top three items on her wish list for the SFO, as well as the three largest obstacles the organisation currently faces. Whilst there is little (if any) by way of surprise on Ms Osofsky’s list, it is always helpful to have the SFO’s strategic priorities re-confirmed.

Ms Osofsky states that if she had a “magic wand” this would be her wish-list:

• a “failure to prevent” offence (in light of one of the SFO’s recent unsuccessful prosecutions of four senior executives);
• legislation to allow the SFO to use Section 2 powers before formal investigations are opened in fraud and domestic bribery cases; and
• a “tipping off” offence in relation to Section 2 notices (similar to those under POCA).

Failure to prevent offence wish

Ms Osofsky (and her predecessors) have long complained that the current “directing mind and will” doctrine is often insufficient to hold corporates accountable in the UK, unless there is direct evidence of intention / knowledge / acts of wrongdoing at director or senior executive-level.

Whilst Ms Osofsky has openly lobbied for the introduction of vicarious corporate liability for economic crime offences, there has not been enough legislative appetite to push through such a reform (beyond the specific “failure to prevent tax evasion” offence which was introduced just over two years ago and is yet to be used by the regulators).

Section 2 notice wishes

Whilst the government is yet to comment on Ms Osofsky’s proposal for a ‘tipping off’ offence for Section 2 Notices, or increasing the scope for Section 2 Notices to be used during investigation stages (as currently available in overseas bribery investigations) it would seem unlikely that this issue is prioritised in the near future, given other pressing law enforcement matters on the Brexit landscape. Any attempts to widen the remit of Section 2 would also be almost certain to face fierce opposition from legal practitioners and may be unworkable given SFO investigations often span a number of years, or where tricky privilege issues are engaged that may require a dialogue between the recipients of a Section 2 Notice and those acting for the corporate under investigation.

Obstacles faced by the SFO

As to the top three obstacles currently faced by the SFO in Ms Osofsky’s view, these can be summarised briefly as follows:

• data explosion (i.e. the sharp increase in material subject to the SFO’s review);
• “influential and well-resourced” defendants who “use every legal and lobbying avenue at their disposal to fight” the SFO; and
• the international nature of the SFO’s cases (some of which involve as many as 20 or 30 jurisdictions).

Data and legal representation

As far as the increased volume of data in investigations is concerned, this is a challenge shared by both the SFO, corporates and their professional advisors alike.

As to well-resourced defendants, this looks rather defensive from an agency with a whole host of investigatory powers at its disposal. Corporate and individual suspects are wholly entitled to dedicate their resources to being legally represented, given the high stakes reputationally and financially of a criminal investigation and trial (and of course, the potential loss of liberty for individuals).

International nature of SFO cases

The multi-jurisdictional aspect of many SFO cases indeed appears to remain a major obstacle for the organisation, at least for the time being.

Since the start of her tenure, Ms Osofsky has repeatedly made the point that historically, complex and international SFO investigations have taken too long. Earlier this week, Ms Osofsky commented that the SFO was unable to charge any individuals in its long-running Rolls Royce investigation (closed in February 2019) because by the time the organisation had collated sufficient evidence, many suspects “were no longer alive and well”.  It remains to be seen whether Ms Osofsky will be successful in her quest to speed up the time taken by the SFO to investigate matters.

What further challenges does the future hold for the SFO?

Ms Osofsky acknowledges in her speech the separate threats posed by the ongoing coronavirus pandemic and the looming Brexit date.

She also notes that anecdotally, crime rises when individuals are pressed for money and, “further, that economic uncertainty or turbulence puts pressure on markets, companies, individuals, governments, and law enforcement, among others”.

“As criminals find more sophisticated ways to squeeze money out of the pandemic, the SFO anticipates seeing them come the way of the SFO.” We may be already seeing the first wave of such complex coronavirus fraud schemes, with recent news reports of an alleged GBP0.25m fraud at a franchisee of a major UK fast food chain linked to the Eat Out To Help Out Scheme. Such cases may well capture the SFO’s interest.

Improvement needed in fraud enforcement?

Despite Ms Osofsky’s claim at the beginning of her October speech that the SFO has a renewed focus on tackling fraud, her organisation has historically faced criticism about its work in this arena.

Ms Osofksy has spoken of her desire to speed up the length of complex fraud trials, but looking at recent SFO prosecutions, the organisation still has some way to go in this direction: the Unaoil trial had straddled across the first half of 2020 (including an inevitable three months break due to Covid-19). Both the Euribor and the Afren trials took several months from start to finish; with confiscation proceedings to follow separately.

It remains to be seen whether the recent fraud charges brought against a number of individuals as a result of the SFO’s investigations into Serco and G4S will prove its critics wrong.

In addition, Ms Osofsky refers to Action Fraud’s work in this arena, and highlights the ongoing “horizon scanning” and analytical activities undertaken by the SFO and its partner organisations in this regard. What Ms Osofsky fails to mention in her speech is the unrelenting wave of criticism that Action Fraud has faced over the last few years, stemming back to an early 2019 investigation by The Times that had found serious operational and systematic failings at the organisation. This was followed hot on the heels by an independent review into Action Fraud, conducted by Sir Craig Mackey QPM. The review contained a damning indictment of the organisation, finding that whilst it had “the potential to serve policing well in the UK”, its work was “significantly hampered” by various factors including the lack of a fully functional operating system and resourcing issues.  We understand that Sir Craig Mackey’s recommendations are currently in the process of being implemented.  Given the high volumes of fraud and cyber-crime, these overdue reforms will be very much welcomed by the business and legal communities.

How will the current challenges affect SFO work going forwards in a practical way?

Ms Osofsky appears optimistic over the logistical and legal challenges faced in the law enforcement arena by Brexit; she asserts in her speech that even if the UK and the EU fail to reach an agreement about judicial and law enforcement co-operation / information sharing going forward, the country has “well-developed and well-rehearsed plans” as well as “tried and tested mechanisms” to fall back on.

However, as many practitioners would agree, the extradition and mutual legal assistance tools mentioned by Ms Osofsky – including the Council of Europe Convention, bilateral treaties and reliance on organisations like Europol – are decidedly more cumbersome and slower than the streamlined European systems that the UK currently has access to; such as the European Arrest Warrant framework, European Investigation Orders, SIS II etc.

On a more practical level, we also understand that the UK’s coronavirus lockdown has severely impacted the SFO’s ability to effectively pursue its investigations, to the extent that it has not been conducting interviews remotely; instead relying on interviewees’ ability to attend in person. If this is correct, whilst we can only speculate as to the impact that such a delay would have had on the SFO’s current investigations, we expect to see a knock-on effect on charging decisions going forward. In circumstances where almost five years passed between the SFO opening its investigation into Serco (in November 2014) and its recent decision indicting three individuals on fraud charges (in September 2019), more prolonged SFO investigations are surely to be expected. Such delays would be further exacerbated by the inevitable back-log Covid-19 has created in the UK criminal court system, where the hearing of complex, non-custody fraud cases will necessarily be deprioritised. With court listings already stretching into 2022, this would certainly not bode well for Ms Osofsky’s aim to bring financial crime cases to trial promptly and effectively.

[1] The NCA’s 2019 Annual SAR Report records that a record number of SARS (478,437) were filed in 2018 - 2019, with a 52.72% increase in requests for a Defence Against Money Laundering (DAML) (34,543).