The SFO: masters of their fate?

Serious Fraud Office SFO

Sir David Green is an honourable man. That much was confirmed last December when the former Director of the Serious Fraud Office was knighted by the Duke of Cambridge at Buckingham Palace. But less than 24 hours before the royal sword was placed gently on his shoulders, the retrial of two former Tesco executives collapsed: an episode of dramatic irony that would not have been amiss in Shakespeare’s Julius Caesar.

‘They took a big hit…it was a huge blow,’ wrote Frances Gibb in the Times, referring to the SFO’s failed prosecution as ‘a humiliating defeat.’ Christopher Bush, formerly managing director of UK operations and John Scouler, former food commercial director, were charged with one count of fraud by abuse and one of false accounting. Despite the debacle of their three-month trial, where the prosecution was accused in court of ‘manifestly ignoring or misinterpreting evidence’, the SFO pushed ahead with a decision to seek a retrial.

Halfway through the retrial, which began last October, and after hearing several weeks of evidence, Sir John Royce dismissed the case against both men, saying “in certain crucial areas the prosecution case was so weak it should not be left for a jury’s consideration”. The SFO then appealed, only to see Royce’s finding upheld by the Criminal Court of Appeal which refused the SFO leave to appeal and agreed that they had no case to answer.

A third Tesco defendant, Carl Rogberg, had not been well enough to stand trial with Bush and Scouler after he suffered heart-attack during the first trial. The SFO nevertheless maintained that it was still considering pursuing a retrial. But in January, it offered no evidence against him and Judge Deborah Taylor formally entered a verdict of not guilty. On the same day as his formal acquittal, the SFO published the full text of the Tesco DPA with Bush, Scouler and Rogberg named in it.

The decision to pursue these retrials was one of the last which Sir David made before he stood down as Director last April, after six years in charge of the troubled agency. Responsibility therefore rests firmly on his shoulders, as he enjoys his new role as a consultant at Slaughter and May.

Bush, Scouler and Rogberg had been charged in the wake of the SFO’s Deferred Prosecution Agreement (DPA), agreed by Sir David with Tesco Stores in March 2017, which resulted in a fine of £129m. That DPA, together with the record DPA of £497.25m, which he also negotiated with Rolls Royce in January 2017, may have assisted in the decision to award him a knighthood. Both DPAs were hailed at the time as landmark achievements for the SFO.

After a series of unfortunate events, several questions now arise: Was the SFO’s decision to prosecute the Tesco three inherently flawed? Was the decision to seek a retrial even more flawed? Was Tesco’s decision to agree a DPA with the SFO made too quickly? How could Tesco accept full responsibility for false accounting and pay an enormous fine as a penalty, but no Tesco employee be convicted?

Whether it was hubris, or Sir David’s honest belief that he was doing the right thing in deciding to opt for a retrial, is open to question. More certain is that the decision was wrong – as confirmed by the trial judge and upheld unanimously by the Court of Appeal. The SFO is ‘now left eating humble pie,’ according to the FT. ‘It is a serious blow to the SFO’s new dual-pronged strategy: of pursuing deferred prosecution agreements with companies, and criminal prosecutions of individuals.’ The Tesco trial was its first attempt to prosecute individuals after securing a DPA, and it failed lamentably.

The lesson would appear to be: you can agree a huge DPA fine with a company which fully co-operates in an SFO investigation, or you can prosecute individuals. But you cannot do both, at least not successfully. Dramatic irony turns into Whitehall farce when a company admits criminal liability and buys its way out of a criminal conviction, but a court then rules that there is insufficient evidence for individual employees of that company to be prosecuted. The Tesco DPA and the Bush, Scouler and Rogberg trial verdicts are entirely contradictory.

Securing convictions based on evidence gathered during the DPA process is problematic. Tesco may indeed regret having agreed its DPA in haste while other companies facing investigation could be minded to refuse an SFO deal in future. Following the Court of Appeal decision, one prominent lawyer commented: ‘Although this case produced an outcome for the SFO in that Tesco entered into a DPA, there will be questions asked whether they, as both an investigator and prosecutor, have sufficient financial and human resources to investigate highly complex cases to the level required. Her [Ms Osofsky’s] team are still investigating a number of high-profile historic cases so they will need to ensure that those are not evidentially flawed otherwise there will be renewed calls for the SFO to be dismantled.’

Beyond Tesco, the SFO faces two persistent problems. The first is money. Most large corporates under investigation have deep pockets: they can afford the best lawyers, and where necessary, deploy armies of them. Put bluntly, the SFO cannot. Its internal team, well-intentioned and highly motivated though they may be, is no match for the impressive ranks of smart City law firms and eminent defence QCs pitted against them. For Osofsky’s SFO to buy the same quality of external legal advice, at least in the sort of breadth and depth that large corporates can, would require not just an uplift in its annual budget, but an increase of many times the £50m or so that they are currently allocated by the Treasury. The Tesco trials alone have led to £12m of public money being wasted.

The second problem lies in the well-rehearsed argument that the SFO be put on a path to abolition. Theresa May pushed the idea wholeheartedly, both as Home Secretary and then as Prime Minister. Her plans, however, do not enjoy a track record of success. That the UK needs a strong fraud prosecution agency is self-evident. But changing the label and calling it something else, or folding it to the National Crime Agency, as May advocated, would not solve the fundamental problem: having enough money to afford the best and the brightest to make the right decisions about the investigation and prosecution of serious fraud.

In addition to the DPAs negotiated by Green, his knighthood was awarded in recognition of what he did to resurrect the SFO: giving it order, structure and a renewed sense of purpose, or as he put it, ‘getting its mojo back’. But this is undermined by the sustained drive to prosecute the Tesco trio despite a lack of evidence.

Green’s legacy now rests in Osofky’s hands. Currently, four former Barclays bankers are on trial: John Varley, former CEO of Barclays Plc, Roger Jenkins, former Executive Chairman of Investment Banking and Investment Management, MENA, Barclays Capital, Thomas Kalaris, former Chief Executive of Barclays Wealth and Investment Management (a division of Barclays Plc), and Richard Boath, former European Head of Financial Institutions Group, Barclays Capital.

The outcome will be a true test of Osofsky’s stewardship. This is particularly so after the SFO failed in its application to the High Court last October to re-instate charges against Barclays PLC and Barclays Bank PLC, which had originally been dismissed last May by the Crown Court. We might have some idea of how things are going by mid-March. But as Caesar was warned by the soothsayer: ‘Beware the Ides of March.’

Dominic Carman

Written by:

Dominic Carman, journalist, writer and legal commentator.
www.dominiccarman.com