Spotlight On SFO: Prosecuting In The Regulator’s Shadow

December 22nd, 2014

Clutch European AVP and GC Aamir Khan discusses how the SFO, a UK government department, has been under intense scrutiny following a number of high profile fails. Read the full article at Law 360 here

Since the financial crisis, the spotlight has not just been on those that are regulated but on the regulators and prosecutors themselves. The Serious Fraud Office (SFO), with a number of high profile fails, has been under particular scrutiny with questions being raised about its effectiveness and the proper use of public funds to pursue prosecutions that collapse or end unsuccessfully. The Director of the SFO, David Green, recently gave a speech at the Cambridge Symposium on Economic Crime that highlighted the current workload of the SFO and provided a robust justification for the SFO’s work, the focus of which is to investigate high end, complex fraud and to bring criminal prosecutions.

Mr. Green discussed the “top ten” of the SFO’s current caseload in his speech. Two notable investigations related to the manipulation of the London Interbank Offered Rate (LIBOR) and the manipulation of the foreign exchange (FOREX) market.

Among the other investigations highlighted by Mr. Green were a number of bribery cases including Barclays Bank Plc and their alleged payments to Qatar Holdings LLC, which is also subject to an ongoing FCA investigation. The other cases involved Rolls Royce, GPT, GlaxoSmithKline, G4S, Serco, Alstom and the Sweett Group in various allegations of bribery payments and improper relationships. The other case in the “top ten” was a money laundering investigation relating to a former Ukrainian politician.

Mr. Green made it clear in his speech that these cases were from “the top tier of fraud and bribery work” and explained “that is what the SFO does, and that is what it is for.”  Green also stressed the importance for these cases “for a visibly independent investigator and prosecutor to have the conduct of these cases.”

Mr. Green also discussed the size and complexity of these investigations and the need to analyse vast amounts of digital data. He stressed again that “the SFO is focused on the top strata of economic crime and is clear as to its mission.”

Mr. Green referred to the Tchenguiz litigation case, suggesting that the settlement figure was far below what was initially claimed and that this “baggage” was behind them. However, the issue of costs remains to be resolved in that matter, which is likely to be far in excess of the settlement figure. The whole episode remains a sharp reminder of what can go wrong when due process is not followed.

While Mr. Green has stressed the high-end work that the SFO is currently undertaking and its purpose, this does not address the more weighty issue of whether the SFO should in fact be dealing with certain matters at all, particularly where regulators have already been investigating matters. It is worth noting that much investigatory work has already been completed in respect to both LIBOR and FOREX by a plethora of regulators across the globe, resulting in substantial fines and sanctions for a number of banks in respect to LIBOR manipulation.

The FCA has already investigated and imposed heavy fines on seven financial institutions in relation to serious misconduct relating to LIBOR and EURIBOR. The earliest being as far back as June 2012 against Barclays Bank Plc when a fine of £59.5 million was imposed. At that time, no criminal investigation had even started against any individuals. The latest fine dealing with LIBOR was against Lloyds Banking Group in July 2014 for £105 million.

The latest indicators are that both the FCA and other regulators are close to finalizing their investigations into manipulation of FOREX and that a number of banks may have or are about to reach substantial settlements with both the FCA and overseas regulators.

Given that the FCA has been investigating both LIBOR and FOREX issues and gathered substantial amounts of evidence, it is open to question whether the SFO is best placed to deal with these types of complex multi-party financial services issues where another regulator is already investigating, especially one as powerful as the FCA. What is obvious is that there is a large degree of duplication and overlap between what the SFO is working on and what the FCA has been investigating.

In his speech, Green referred to the work currently being undertaken by the SFO against 12 individuals involved in LIBOR manipulation. Indeed, it was recently announced that one trader has admitted to criminal charges.

One would have thought that the FCA would already have sufficient evidence to pursue individuals undertaking regulated activities at those institutions that have already co-operated and accepted substantial fines. The FCA has the power to bring prosecutions and has done so (with varying success). The question remains why the FCA is not bringing the criminal prosecutions against individual traders involved in LIBOR as much as why the SFO is.

Given the scope and depth of the FCA’s investigation, it is arguable that at the very least the FCA and SFO should really be working in tandem rather than separately and that the level of duplication between them should be avoided. The same can be said of the investigation into FOREX, where the FCA as well as a host of US based regulators have been investigating both individual traders and banks for some time.

As the SFO is funded by the government while the FCA is funded largely by those who it regulates (through an annual levy), the justification for the SFO’s mission becomes more difficult notwithstanding Mr. Green’s assertions in his speech. The Tchenguiz case serves as another reminder of the issues around funding. The SFO requested additional time to deal with disclosure due to the volume of documents and then encountered funding issues given the size of the legal costs.

It is inevitable that in any modern case of bribery, market abuse, anti-competitive behavior or collusion where many parties and jurisdictions are involved that there will be extraordinary amounts of data and information that will need to be considered. This in turn requires regulators and prosecutors to use technology and specialists appropriately and brings into sharper focus the need for a sufficiently resourced and funded prosecutors.

 

Despite everything that Mr. Green said, there remains serious questions on whether the SFO is really best equipped to be prosecuting individuals relating to issues already investigated by the FCA and other regulators.