Does the Serious Fraud Office need to be supervised more?

The case that the Serious Fraud Office (SFO) brought against a number of Barclays bankers for the deal reached with Qatar at the height of the Crisis has been reviewed before here in Financial Regulation Matters and across the financial press. However, now that case has concluded with the three bankers who were prosecuted being acquitted by the courts, one of those bankers – Richard Boath – has decided to speak out about his experience and is arguing that the SFO should have its powers seriously reviewed. In this post we will look at these arguments and look at some of the consequences of taking action in this regard, and of continuing the course.

The high-profile fraud case dominated the financial press once the SFO brought charges against the three bankers – Richard Boath, Roger Jenkins, and Tom Kalaris. The five-month trial concluded with the jury returning after five hours to find all the defendants not guilty on all counts. The SFO had begun to experience criticism from before the trial took place, because the case rose through the courts a number of legal figures had stated the issues with the case as it developed; Mr Justice Jay criticised the SFO for not investigating the Qatari side of the equation enough, despite having opportunities to do so. Though the SFO argued, in its defence, that the levels of disclosure from all parties provided serious hurdles for the Office to cross, the criticism escalated after the trial concluded. Lisa Osofsky, the director of the SFO, argued that the reason for the low conviction rate of the SFO was down the high threshold applied to fraud cases, stating that ‘I wish we had come of the lower [evidential] standards for fraud because we have an antiquated system… in fraud cases I’ve got to have the controlling mind of a company before I can get a corporate in the dock. That is a standard from the 1800s… that’s not at all reflective of today’s world’. Perhaps. Yet, the critics – including those charged by the SFO, and their legal teams – have been vocal in their suggestions that something needs to change regarding the SFO.

Immediately after the trial concluded, Michael O’Kane of Peters & Peters, who represented Richard Boath, said that the Attorney General needed to review the SFO’s operational capacity, adding that ‘what was the SFO doing spending millions prosecuting Mr Boath, when he had been cleared of exactly the same conduct by the FCA?’. Whilst the FCA certainly should not be held as the standard when it comes to dealing with bank-based criminality and inappropriate actions (one need just think of their actions regarding RBS), the legal team ratcheted up the pressure, declaring ‘after a series of high profile failures, the reputation of the SFO rested on this verdict’. One of the defendants – Roger Jenkins – was a little more muted, stating that ‘I am conscious that the SFO plays an important role in the ethical functioning of our capital markets, however it is equally important that they are properly resourced to act fairly and expeditiously’. In today’s interview with the Financial Times, Boath describes his experience, and argues that the power to both investigate and prosecute fraud cases, under a process known as the ‘Roskill Model’, is inherently conflicted and needs to be reviewed by Government; Boath stated that ‘All I want is someone… to examine whether they think the SFO should continue to be allowed to exercise that privilege [of exercising the power to investigate and prosecute]’. The ‘Roskill Model’, as proposed by Lord Roskill via the Roskill Committee on Fraud Trials which published its report in 1986, is based on the concept that there was a need for a unified organisation ‘to match the breadth of a fraudster’s activities with an efficient system of detection and trial’. Essentially, the Committee called for the unification of investigative and prosecuting arms of case development, as opposed to the usual structure of separate bodies conducting these roles (like the police investigating crimes that the Crown Prosecution Service then decide to charge, or not). Whilst Roskill’s proposals came with recommendations to review this system as it progressed, the system was enacted and has maintained without much review ever since – the creation of the system created the SFO as we know it. However, with this trial, there is the potential that the system will be seriously reviewed. Boath stated in his interview that the model brings conflicts of interests and is akin to ‘marking your own homework’. The SFO is reviewed regularly by the CPS Inspectorate which is an independent body but, as the FT state, this reviewing system ‘is more relevant now due to the ever-increasing complexity of SFO cases’.

Boath describes the personal effect of the case that was brought against him and his colleagues, with the years-long process taking a particular toll on his mental health, as well as his employment career. That Boath and his colleagues was acquitted does indeed call the SFO’s processes into question, but as the SFO and its supporters argue, this should not deter a body like the SFO from bringing prosecutions; as the FT note in citing the SFO’s supports, ‘it is the function of a criminal justice system to have some acquittals in any cases brought’. This is, of course, very true. The importance of prosecuting fraud in high finance is extremely important, as cases continue to be seen around the world – the SEC only yesterday announced that it was alleging that Goldman Sachs employees have been bribing officials in Ghana. The impact of these so-called white-collar crimes is often downplayed or lessened in comparison to so-called ‘blue-collar crimes’, and that process must stop by whatever means possible. Perhaps it is time to review the evidential standards required to prosecute fraud, as Osofsky stated, although what she is proposing is fundamental review of the concept of company law in the UK, which has a long, storied, but also cemented tradition. The courts have been renowned for refusing to lift the so-called ‘corporate veil’ for anything other than outright fraud which can be easily proved (for the most part), which brings into question whether such a traditional stance is appropriate for the modern and often overly-complicated financial arena. However, the protection afforded to companies and their members is fundamental to the growth of the economic arena since corporate law was formalised. Threatening that concept with a weaker corporate veil, and more intervention from ‘the state’, is something that we will not likely see because of its philosophical implications regarding the very nature of ‘capitalism’. A wise person would argue that the SFO needs to consider this when it takes its actions, but restricting its approach, in any way, almost makes its position impossible and renders its effect almost useless. The SFO is, indeed, between a rock and a hard place more than ever before, and one can be sure that its detractors will smell blood in the water since the Barclays trial. How the ‘state’ defends the SFO will be indicative of its views on the progression of ‘capitalism’ as we know it, arguably.

Keywords – SFO, Fraud, Barclays, Business, @finregmatters