03 October 2018

What does ENRC mean for the SFO?

The Court of Appeal recently issued a landmark decision on the availability of litigation privilege, in particular in the conduct of investigations.

In summary, while the question of whether documents are privileged remains a question of fact, the decision has put businesses in a stronger position to argue that the documents that they generate, in particular when conducting internal investigations, are privileged and therefore protected from disclosure. 

The decision plainly presents a challenge to the Serious Fraud Office (SFO). Specifically, it potentially limits the range of documents that are disclosable by businesses in the conduct of their investigations. Documents that, until the Court of Appeal decision, the SFO argued were not protected by privilege and were therefore required to be disclosed to it under its powers of compulsion. In particular, notes of interviews with witnesses carried out during an investigation.

At the time of writing, it is not known whether the Supreme Court will hear an appeal on the Court of Appeal’s decision or, if it does, what approach it would take. Irrespective of any appeal, and as things stand, we can expect the SFO to continue to seek disclosure of relevant pre-investigation documents i.e. any material that it asserts was generated before legal proceedings were reasonably contemplated.

What are the SFO’s priorities under its new director?

Lisa Osofsky, a former US federal prosecutor, Deputy General Counsel at the FBI and MLRO at Goldman Sachs, recently gave a useful insight into what we can expect under her tenure. In her speech at the Cambridge International Symposium on Economic Crime, she said the following:

  • Overall objective – 'My goal is to make sure our country is a high risk place for the world’s most sophisticated criminals to operate' facilitating 'a level playing field and a safe place for law abiding companies and individuals to do business.'
  • International co-operation – 'Our kinds of cases are becoming increasingly multijurisdictional and complex, so cooperation to achieve global settlements like Rolls-Royce are ever more important. Strengthening and deepening the relationships that make this happen is going to be a major focus for me. Working with the newcomers to DPAs – [France], Argentina, Canada [and] Australia. The SFO hosts secondments and exchange programmes – for example we have a DOJ secondee as of this month...'
  • Domestic co-operation - '... the SFO has been contributing to the design and build of the National Economic Crime Centre over the last 9 months and will be seconding staff into the centre when it becomes operational.' It will be 'continuing to work with the NCA to tackle serious and organised crime' and 'I see a natural ally in Revenue and Customs as we could build very strong cases together.'
  • Use of technology - 'I will focus on the SFO’s strategic use of cutting edge technology… There were 30 million documents in our investigation into Rolls Royce, which was our largest case at the time. We now have one with over 65 million, and there’s another in the pipeline which will have more than 100 million. To put that in perspective, the Panama Papers leak was only 10.5 million – and that would count as an average sized investigation for the SFO.' In relation to artificial intelligence, she said 'In 2016 the SFO deployed an AI robot to help check for legal professional privileged material in the Rolls Royce case, which led to savings of 80% in the area that it was used' and 'We’ll soon bring a range of machine learning and AI based technology assisted review features to our investigations… This should create even greater efficiencies, and potentially help us reach charging decisions sooner, and shorten the time it takes to progress to trial.'
  • Improving intelligence – 'Our intelligence unit is already using more powerful analytic tools to make connections across disparate and diverse datasets to enhance our development of strategic intelligence.' However, 'It is not enough to only work with intelligence in a reactive, tactical capacity. Instead, there is a need to have an ability to collect and analyse data to improve knowledge of priority or emerging threats and to identify proactive investigative lines of enquiry. I aim to build our capabilities through the use of dedicated intelligence analysts and by strengthening our capabilities to deal with both human intelligence sources and internet intelligence in our investigations.'
  • Deferred Prosecution Agreements (DPAs) – 'When considering resolutions short of trial (for example, DPAs), we must analyse whether the company has a credible and colourable defence under Section 7 (Adequate Procedures). Has the company engaged in proactive efforts to clean [its] house and to reform? Has the company instilled the right controls? Are these backed by demonstrable commitment at the appropriate level? The SFO will want assurance that companies are doing everything they can to ensure the crimes of the past won’t be repeated long after the watchful eye of the prosecutor moves on to another target.'

It is perhaps worth revisiting some of the key powers that Ms Osofsky will have at her disposal in leading the SFO.

What powers does the SFO have to achieve its objective?

The SFO enjoys wide-ranging statutory powers to tackle serious or complex fraud, bribery and corruption:

  • Information gathering: The SFO has the power to issue a notice to any person, compelling them to provide information in interviews and/or to produce documents. It is a criminal offence to fail to comply with such a notice, provide false or misleading information or to destroy relevant documents. The SFO also enjoys the more typical law enforcement powers of obtaining warrants for search and seizure (Section 2, Criminal Justice Act 1987).
  • Prosecution: The SFO also has the ability to detect, investigate and prosecute individuals and corporates in serious fraud matters. This integrated capability, known as the 'Roskill model', differs from the typical UK model under which the Police investigate criminal matters and refer the evidence to the Crown Prosecution Service who will then decide whether to prosecute. The SFO’s decision to prosecute is, however, taken in the usual way, considering both the evidential test and public interest test (Code for Crown Prosecutors).
  • DPAs: The SFO can enter into DPAs with corporates that could be prosecuted for the commission of fraud, bribery and other economic crimes. The DPA must be approved by a Judge. The DPA allows for the prosecution to be suspended for a specified period of time while the corporate complies with certain conditions, typically the payment of a financial penalty (discounted up to 50% of the penalty that would be ordered upon conviction), payment of compensation and improvement of its compliance programmes. If the corporate complies with all of the conditions under the DPA, the prosecution will be ceased (Crime and Courts Act 2013).
  • Unexplained Wealth Orders (UWOs): The SFO can apply to Court to obtain UWOs. In summary, it can obtain these where there are reasonable grounds for suspecting that the known source of the target’s lawful income would have been insufficient to enable the target to obtain the asset and there are reasonable grounds to suspect that the target is involved in serious crime or the target is a Politically Exposed Person (Criminal Finances Act 2017).
  • Asset recovery: The SFO is able to recover property that represents the proceeds of crime. It has the power to obtain confiscation orders and compensation orders. It can also obtain civil recovery orders in the High Court even if there is no criminal conviction (Proceeds of Crime Act 2002).

What predictions can we make regarding enforcement?

We have previously reported on the SFO’s recent announcements on enforcement strategy. Here are our current predictions following Ms Osofsky’s appointment:

  • Enforcement approach: Our view is that the SFO will continue the assertive enforcement approach developed under Ms Osofsky's predecessor, David Green QC. That is, it will proactively detect, investigate and enforce serious fraud and other economic crime matters. Moreover, that approach will not discriminate between either industry or size of business, as evidenced by the selection of cases referred to above. To assist it, the SFO is receiving significantly boosted financial resources. For 2018-19, its core budget is being increased from £34.3 million to £52.7 million. It is also benefitting from enhanced 'blockbuster' funding for larger cases. We therefore expect to see further high profile cases announced in the near to medium term.
  • Self-reporting and co-operation: Our view is that the SFO will continue to require self-reporting and fulsome co-operation if a corporate wishes to avoid prosecution and trial. The SFO has repeatedly stated that it will prove very difficult for it to go to a Judge and seek a DPA if self-reporting and co-operation cannot be demonstrated. One topic that has evolved since the introduction of DPAs is the requirement of immediate self-reporting. Early statements from the SFO appeared to indicate that immediate self-reporting was a pre-requisite for a DPA. However, since the Rolls-Royce case, the SFO appears to have shown greater flexibility on this point.
  • Use of DPAs: We anticipate that the SFO will favour the continued use of DPAs as an enforcement tool, so long as the required co-operation is demonstrated by the corporate in question. DPAs have obvious advantages for both the SFO and corporates. They are able to bring about an expedient, cost-efficient outcome that punishes the corporate, requires active remediation and yet minimises the impact on innocent shareholders and employees. However, the criticisms that the SFO has received over the Rolls-Royce DPA (namely agreeing a DPA despite Rolls-Royce's failure to immediately report the wrongdoing) may mean that it is keen to demonstrate that DPAs are neither a default option nor a rubber stamping exercise and that it is perfectly willing to prosecute an appropriate case to trial.
  • Legal professional privilege: The SFO has said more than once that it is not interested in seeking disclosure of legal advice or reports, which plainly are protected by privilege. However, what it does want is first account evidence. That is, copies of any interview notes, memoranda or statements by witnesses. The Court of Appeal's decision in SFO v ENRC presents a significant challenge to the SFO's ability to compel disclosure of these documents. In the absence of any successful appeal, it may be that the SFO will be willing to revert to the position it took in some of its earlier DPAs, namely accepting summaries or 'oral proffers' of the interview notes generated by the business in its internal investigation.
  • International co-operation: Consistent with Ms Osofsky’s comments in her speech, we expect to see further and deeper co-operation with overseas counterparts to the SFO, particularly the Department of Justice and other law enforcement agencies in the US. Attorney-General Jeremy Wright said in a statement about Ms Osofsky's appointment that the SFO will continue to work 'closely and collaboratively with other UK and international authorities to best protect the public'. Ms Osofsky’ dual UK/American nationality and trans-Atlantic experience can only assist in this regard.
  • Artificial intelligence: Again, consistent with Ms Osofsky’s statements, we envisage continued and increased use of AI technology by the SFO in its investigations. Before leaving, David Green QC praised the SFO’s use of such technology in reviewing the vast volumes of documents disclosed during investigations. It was reported that AI software was utilised in the Rolls-Royce case and was capable of processing 600,000 documents per day, saving time and public money while increasing accuracy. A significant technological challenge that the SFO will face is increasingly powerful encryption technology as well as a shift from traditional server-held data to data 'clouds.' We recommend businesses focus on understanding these increasingly prevalent technologies.

How can we help? 

We help our clients on all aspects of fraud and white collar crime, from prevention through to investigation. If you would like help with this also, please contact David Hall from our Fraud and White Collar Crime team.

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