The Serious Fraud Office: An Emerging Contender for the Position of Spearhead in the U.K.’s Regulatory Framework
Today’s post looks at the recent
headlines garnered by the (relatively) massive fines being given to serious
corporate players by the Serious Fraud Office (SFO) in the U.K. This marks a
drastic change in approach, as we shall see, and that may be down to the
adoption of an American creation known as a ‘Deferred Prosecution Agreement’
(hereafter DPA), which has already been discussed in Financial Regulation Matters. The focus of the post is to show how
the SFO is becoming a genuinely powerful and influential regulator for the
financial sector and, ultimately, that it must be supported in its endeavours,
because of its capabilities to reduce transgressions via the only (unfortunately)
palatable form of correction.
The SFO has been in the business
headlines recently because of a number of high-profile agreements that have
been reached under the possibilities afforded by the adoption of the DPA. A DPA
became a tool for the SFO in the U.K. in 2014, and was introduced to the
arsenal by the Crime
and Courts Act 2013. Essentially, the agreement ‘allows
for a prosecution to be suspended for a defined period provided the
organisation meets certain specified conditions’ and can be used to punish ‘fraud,
bribery, and other economic crime’. These agreements, which are commonly
referred to as ‘settlements’, operate under the supervision of a Judge and
apply to corporate bodies, never individuals. The advantages of using a DPA as
a form of correction are many, and include reducing costs of litigation,
and fostering transparency. However, there is a massive issue attached to
the usage of DPAs, and that is that they do not go far enough,
because often the corporate entity can settle without admitting guilt which,
depending on their crime, may be particularly inappropriate and distasteful.
There is a code
of practice attached the usage of DPAs, and the public prosecutor must
consider a wide range of factors before deciding whether utilising a DPA is
appropriate for the circumstances. However, there is a deeper issue that
emerges from this use of DPAs, and the SFO are aware of it.
The SFO has utilised the DPA on a
number of occasions since being granted the power to do so, with three notable
instances. We saw in Financial Regulation
Matters the largest instance of its usage, with the massive £497
million fine that was given to Rolls Royce for systemic corruption and
bribery. Then we saw the £129
million fine given to Tesco for misrepresenting its figures. Finally, there
is an understanding that Barclays
and GlaxoSmithKline are currently under investigation by the SFO (but
Barclays’ consistent approach of fighting punishment, both in the U.S.
and the U.K.
means that this story will likely have many more twists and turns before a
conclusion is reached) with DPAs being on the table as a potential corrective
tool, as well as a cross-border
investigation into Airbus, which also may result in a massive DPA. Whereas
these fines are not record fines, they do mark the changing of a long-held
understanding that it has been difficult for the U.K. to actually get these
large entities to pay fines in the past, with the collapsing
last year of a trial aimed to find six brokers guilty of fixing the LIBOR rates.
David Green, the Director of the
SFO, has been at pains to state that using DPAs should not be considered the ‘new
normal’ when it comes to the power of the state to punish wrongdoing in the
financial sector. He states, quite rightly, that the usage of a DPA is at the
SFO’s discretion and that its use will be correlated to the amount of
cooperation displayed by the accused corporate body – less correlation and the
body can expect to be punished much more severely. It has been noted, however,
that the upcoming Barclays case will be a massive indicator of the independence
and mandate of the SFO because the case involves examining the business of the
Qatari investors, the same investors who have recently pledged to invest £5
billion in the U.K. post-Brexit – the obvious question is will the SFO want
to investigate those who are pledging their allegiance to a country, and more
realistically to a government that is seemingly hell-bent on prioritising the perception of prosperity above all else?
The SFO has emerged from a barrage
of criticism, some of which emanated from the then-Home Secretary Theresa May
(who wanted to merge
the SFO with the National Crime Agency), to represent the forefront of the
U.K.’s fight against wrongdoing. However, Green is leaving his post in 2018
after a six-year term (Green was personally responsible for the push to bring
in DPAs to the arsenal) and the OECD has
recently called for the U.K. Government to ensure the independence and funding
of the SFO long into the future. The OECD highlight the fact that the SFO
has seen its funding slashed from £52
million into 2008 to just £34 million last year, and that if it needs extra
funds to pursue an investigation, it must seeks ‘blockbuster’ funds from the
Treasury; this arrangement is quite rightly condemned by the OECD. There is a ‘shakeup’
of the regulatory framework on its way based upon the fact that London is
increasingly becoming the ‘global
money laundering centre’, an issue which was previously
discussed in Financial Regulation
Matters, and this may result in a different approach being taken which
would see even more resources taken away from the SFO – but this would be a
massive mistake.
This author, for one, has been massively
critical of the lack of appetite displayed for the criminal convictions of the
financial elite. However, as Ben Morgan, Joint Head of Bribery and Corruption
at the SFO, recently asked what, in reality, are the defined
benefits of pursuing a criminal trial against these bodies? There is merit
to this viewpoint, because as an organisation that has very limited funds, what
can be gained from taking the chance that a body will not be convicted by a
court, when the SFO could have settled for a massive amount previously? Whilst
distasteful to allow criminals to settle for a financial penalty when, in any
other circumstance, one would be criminally prosecuted, it represents the
reality of the situation. In reality we have the situation of an organisation
who is trying to make a positive impact in the financial sector being
underfunded and having their future threatened. In reality we have the
situation of organisation being pitted against some of the most resourceful
entities on the planet, and who naturally utilise some of the most effective
legal minds in the world. With that in mind, it is actually the case that the
SFO is one of our most useful assets in the fight against illegality in the
financial sector, and as such needs to be supported. It is advisable to pay
close attention to the actions of the government in this regard – specifically
with regards to Qatar and Barclays – as its actions will be a clear indicator
as to its sentiments towards really punishing wrongdoers in the financial
sector.
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