Serious Fraud Office boss warns big names to play ball – or else

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David Green, the director of the Serious Fraud Office, has warned that British businesses should not consider deferred prosecution agreements (DPAs) the “new normal” if they are caught misbehaving.

Green was speaking to the Observer after Tesco and the SFO announced they had reached a DPA over the accounting scandal that rocked Britain’s biggest retailer in 2014. The settlement includes a fine of £129m to be paid by Tesco.

DPAs allow companies to settle with the SFO without facing criminal prosecution. The companies must agree to specified conditions, which can include a fine and their conduct being monitored for a set period.

Used in the US for some time now, DPAs were introduced in the UK only three years ago. The Tesco case is the fourth time the SFO has used its new power: it previously reached settlements with Standard Bank, Rolls-Royce and a third company that cannot be named for legal reasons. The Tesco deal still needs high court approval: a hearing is scheduled for 10 April.

Getting such well-known British companies to pay huge fines could be construed as a major victory for the SFO, which suffered a setback last year, after City brokers were found not guilty of helping Tom Hayes rig Libor interest rates. Rolls agreed to pay £671m to the SFO and the US Department of Justice over allegations that it bribed middle men around the world between 1989 and 2013.

However, Green is keen to clarify that DPAs are not the only route that the SFO will take when investigating companies. This is are significant because the fraud-busting agency is still investigating alleged wrongdoing at several other huge companies, including Barclays, GlaxoSmithKline and Airbus, maker of the A380 superjumbo.

The Barclays case is particularly high-profile, involving not one of the biggest banks in the world and a key plank of the UK economy, but also Qatar, a major investor in Britain that only last week committed to investing £5bn here – a move viewed as a significant vote of confidence in the wake of the Brexit vote.

The SFO’s investigation centres on whether £2bn that Barclays lent to Qatar was then returned to the bank as part of the £7.3bn bailout that saved Barclays at the height of the financial crisis. Barclays turned to Middle Eastern investors at the time to avoid falling into state ownership. Green and his team are now close to making a decision on whether to formally charge Barclays and former senior executives at the bank, to drop the case, or to seek a DPA.

Speaking about DPAs in general, Green said: “We are an investigating and prosecuting organisation: that is what we do. But having been given this new power, which comes from a US model, and has been adapted for this jurisdiction, we will use it only in very specific circumstances.

“Absolutely crucial to those circumstances is that the company has been fully cooperative with us. There is a reason for that. Unlike with the American model, a judge over here has to decide whether or not the DPA is in the interest of justice. That is quite a high bar.

“If a company is totally uncooperative and sort of leads us a merry dance for four or five years by not cooperating with our investigation, I am sure you would agree that it would be almost impossible for us to represent to the judge that the DPA was in the interests of justice. Companies that don’t cooperate will be prosecuted. Indeed, their conduct may be so egregious that they have to be prosecuted anyway and a DPA wouldn’t be appropriate.”

These comments could be significant in Barclays’s case, because the bank has clashed with the SFO during its investigation, which was launched in August 2012. For example, the SFO had to go to court to try to force Barclays to hand over potential evidence after the bank claimed it was protected by legal privilege. Legal privilege ensures that advice between a lawyer and client is kept confidential. Eventually the bank partially waived privilege and handed over 100,000 documents.

Asked whether his comments meant that a DPA could be ruled out for Barclays, Green said: “I couldn’t comment on that. All I would say is that it is only companies that cooperate with us which we would consider a DPA for.”

The SFO boss said last year that the organisation’s decision on the Barclays case could be reached by the end of March. However, with March now passed, Green says that a decision could come by the end of May.

“We don’t work to timetables; we work to proper decisions on the evidence,” he said. “I think for all sorts of reasons it is safer to look probably at the end of May.”

On whether the SFO’s decision will be affected by the importance of Barclays and Qatar to the economy, he added: “Any charging decision is always based on the code test with crown prosecutions. Firstly there is the evidential test – is there sufficient evidence? If there isn’t then you don’t have to go any further, that’s it.

“If there is sufficient evidence, then you look at the public interest – is it in the public interest to conduct this particular prosecution? Obviously there, all sorts of considerations come into play. In bribery cases you are specifically not allowed under OECD rules to take into account the national economic interest.”

Whatever the SFO’s decision on Barclays, DPAs will be one of Green’s legacies as the director of the SFO. He took over in 2012 when it was facing heavy criticism for its botched arrest of tycoons Robert and Vincent Tchenguiz. One of Green’s first acts as director was to drop the investigation into the brothers.

Green pushed for DPAs to be introduced in the UK and then oversaw the first settlements in the UK. These have meant that high-profile investigations have resulted in companies paying out hundreds of millions of pounds, when previously the UK has struggled to prosecute firms.

“It is always satisfactory to be able to use a new statutory power in a positive way, and to use it properly,” he said. “But prosecutors are a fairly sober bunch. No one sits around celebrating – you are working on evidence, and we are just making use of a new power that has been given to us.”

Green’s four-year contract as director was extended last year until 20 April 2018. However, the SFO boss does not intend to stay beyond that. “I think six years is probably long enough,” he said.

Although critics of DPAs say the settlements allow companies to walk away from serious offences, Barry Vitou, head of global corporate crime at London law firm Pinsent Masons, said that they should be seen as a success and something that secures the future of the SFO. The body’s existence has been questioned in the past by politicians – including by Theresa May, who as home secretary considered rolling it into a National Crime Agency.

“There is a stark contrast between the SFO when he started and the SFO in 2017. If you talk to anybody, the SFO is working,” Vitou said.

The lawyer added that DPAs could ensure that innocent employees of a company were not punished for the misdeeds of others.

“Personally I think we should look at them as a success,” he said. “The previous set-up wasn’t working. The reality is that you can’t put a company in prison; the biggest hit you can impose is an economic fine. It is deeply unjust for all apples in the barrel to suffer when two rotten apples in the barrel did something they shouldn’t. There is no economic sense in pushing a company like Rolls-Royce to its knees.”

Done deals

Tesco
Tesco has agreed with the SFO to pay a fine of £129m as part of a DPA, although this deal requires court approval. The DPA relates to false accounting at Tesco subsidiary Tesco Stores Ltd, and is not an admittance by the company that it or any of its employees committed a criminal offence. The settlements relate to Tesco’s admitting, in 2014, that it had overstated profits by £326m. Dave Lewis, chief executive of Tesco, said the settlement allowed the retailer to “move on”. Lewis took over as boss of Tesco after the false accounting incident took place

Rolls-Royce
Rolls-Royce and the SFO announced in January that the aerospace and defence company had agreed to pay £671m in relation to allegations that it bribed middle men around the world between 1989 and 2013. Sir Brian Leveson, the judge who approved the DPA, said the SFO investigation had uncovered “the most serious breaches of the criminal law in the areas of bribery and corruption”. However, he approved the DPA because the management of Rolls, which has been overhauled since the bribery took place, cooperated extensively with the SFO, even providing evidence and reports that the organisation had not requested.