SERIOUS FRAUD OFFICE
The latter half of 2019 continued to be a busy time for the SFO, with several prosecutions reaching a conclusion and a number of new investigations announced. In keeping with the focus of this publication, this section will focus on the SFO's efforts to tackle bribery and corruption. Full details of the U.K.'s efforts to tackle white collar crime will be available in another Shearman & Sterling publication, coming soon.
As we highlighted in our July 2019 Trends & Patterns, "cooperation" is the buzzword at the SFO. Lisa Osofsky, the SFO's Director, used her speech at the Cambridge Symposium in September 2019 to stress again the importance of cooperation between law enforcement bodies both in the U.K. and overseas. She also used her speech to emphasize the importance of the private sector "cooperating" in preventing crime, and specifically bribery, from occurring in the first place. However, it is the SFO's updated guidance on corporate cooperation and Ms. Osofsky's comments concerning the cooperation of individuals believed to have engaged in criminality that has attracted the most attention in recent months.
In August 2019, the SFO updated its guidance on corporate cooperation by publishing the relevant section of its Operational Handbook. Although the Handbook is for "internal guidance only," it is commonly made available (either in full or with redactions) "in the interests of transparency." It is intended to supplement the Guidance on Corporate Prosecutions and the Deferred Prosecution Agreements Code of Practice.
Unsurprisingly, the guidance highlights the benefits of organizations cooperating with the SFO to allow it to "more quickly and reliably to understand the facts, obtain admissible evidence, and progress an investigation to the stage where the prosecutor can apply the law to the facts."
Cooperation is defined as "providing assistance to the SFO that goes above and beyond what the law requires." The SFO asserts that "many legal advisers well understand the type of conduct that constitutes true cooperation" and observes that "this will be reflected in the nature and tone of the interaction between a genuinely co-operative organisation, its legal advisers and the SFO."
In short, the SFO believes everyone will be able to recognize cooperation when they see it. However, in an effort to assist, the SFO sets out a non-exhaustive list of eleven "good general practices." Many of the practices identified are to be expected, but it is the SFO's approach to material over which legal professional privilege is asserted that is raising a few eyebrows in London and beyond.
First, if documents are withheld, the SFO expects to be promptly provided with a schedule of such documents, including the basis for asserting privilege. In addition, if an organization claims privilege, "it will be expected to provide certification by independent counsel that the material in question is privileged." Later in the guidance, the SFO states that "if an organisation decides to assert legal privilege over relevant material (such as first accounts, internal investigation interviews or other documents), the SFO may challenge that assertion where it considers it necessary or appropriate to do so."
Therefore, in this area at least, the guidance is relatively clear— without certification from independent counsel, the SFO is unlikely to accept any assertions as to privilege made by an organization and, even then, the SFO may seek to challenge any assertion. Such a stance can only have been adopted for two reasons. First, because the SFO is of the view that the legal principles relating to privilege are being routinely misapplied by organizations or, second, because it believes organizations are using privilege as a device to hide behind.
The stance adopted by the SFO is interesting because, under section 2 of the Criminal Justice Act 1987—the legislative provision from which the SFO derives its principal powers of investigation—it is precluded from requiring the disclosure or production of any document over which legal professional privilege can properly be asserted. It is therefore not unreasonable to conclude that the SFO's assessment of the level of cooperation provided may depend, at least in part, on an organization's willingness to provide the SFO with access to material that it would otherwise be unable to obtain. Perhaps this is what the SFO means by going "above and beyond what the law requires."
In contrast, the Principles of Federal Prosecution of Business Organizations issued by the U.S. DOJ state:
Eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection. Instead, the sort of cooperation that is most valuable to resolving allegations of misconduct by a corporation and its officers, directors, employees, or agents is disclosure of the relevant facts concerning such misconduct. In this regard, the analysis parallels that for a non-corporate defendant, where cooperation typically requires disclosure of relevant factual knowledge and not of discussions between an individual and his attorneys.
The thinking behind the approach taken by the DOJ is a sensible one—it expects to be provided with the relevant facts regardless of the professions of those used to gather information during the course of a fact-finding exercise or internal investigation. Such an approach ensures that no corporation is at an advantage or disadvantage by using lawyers to gather information when it comes to assessing eligibility for cooperation credit.
Of course, you can hardly blame the SFO for trying to encourage organization to waive privilege at an early stage, given the difficulties it has encountered in relation to such matters in recent years (see SFO v ENRC  EWCA Civ 2006, for example). In the absence of cooperation from an organization, the thorny issue of privilege will often cause significant delay to the progress of an investigation and is almost certain to require the deployment of costly resources. As was demonstrated in Regina (on the application of AL) v SFO  EWHC 856 (Admin), an organization's withholding of documents on grounds of privilege may also complicate the prosecution of individuals connected with that organization in later proceedings. In that matter, the application was dismissed for proper handling in the Crown Court, but, notwithstanding this conclusion, the court admonished the SFO for failing to challenge the organization's assertion of privilege to obtain the interview notes from an internal investigation of the company's executives, who were allegedly involved in the bribery scheme at-issue.
The SFO concludes its guidance by stating that "an organisation that does not waive privilege and provide witness accounts does not attain the corresponding factor against prosecution that is found in the DPA Code but will not be penalised by the SFO." The latter may be strictly true, but if an organization that refuses to waive privilege is likely to find it far more difficult to achieve eligibility for a DPA, it is going to feel an awful lot like it is being punished for asserting its legal rights. Surely an approach more in line with that adopted by the DOJ is more appropriate in the circumstances. After all, if an organization is willing to provide the SFO with all relevant facts and goes out of its way to do so, why should that not amount to "true cooperation" merely because it wishes to maintain a genuine claim of privilege over some material?
What remains to be seen is whether an organization must adhere to all eleven "good general practices" to be eligible for a DPA. We envisage that adherence to most of the practices will prove to be sufficient in most cases, as long as any departure from them can be justified in the circumstances.
In April 2019, Ms. Osofsky hit the headlines following comments made during an interview with the Evening Standard in which she stated that she planned to tell offenders: "you can spend 20 years in jail for what you did or wear a wire and work with us."
In October 2019, during an address at the American Bar Association's Eighth Annual White Collar Crime Institute in London, she again turned to the topic. Ms. Osofsky said:
Even if I don't have all the powers to wire someone up, we do work with partners who actually may have those abilities to do something similar... We can work with either [National Crime Agency] partners or policing partners or others if we've got an investigation that seems to merit that sort of approach.
The SFO regularly works with the NCA, police forces, and others during investigations, so while the SFO may lack the operational expertise and experience to "wire up" a cooperating suspect, there is no legal or practical impediment to the organization pursuing such a course. However, Ms. Osofsky may have failed to fully appreciate three key differences between the U.S. and U.K. legal systems.
First, even those convicted after trial for white collar offences rarely receive prison sentences in excess of ten years. In addition, offenders will usually serve less than half of any sentence imposed and the vast majority of that time will be spent in a low-security or "open" prison. In those circumstances, the incentives for suspects to cooperate may be low, while the longterm risks to their safety and security remain high.
Second, in the U.K., it is very unusual for a cooperating suspect to be rewarded with immunity from prosecution, even though the Attorney General is able to authorize such a course. In most cases, a cooperating suspect or defendant will receive additional credit towards any sentence imposed. As the starting point for any sentence following a plea is already likely to be relatively low, any additional credit is unlikely to make any significant difference.
Third, anecdotal evidence appears to suggest that both judges and juries view the evidence of cooperating suspects and defendants with a significant degree of skepticism, and the use of such witnesses does not appear to significantly increase the chances of securing a conviction. As a result, investigators and prosecutors tend to embark on such a course only when evidence cannot be gathered by alternative methods or when pursuing those methods would lead to significant delay. Further, theoretically a cooperating suspect could obtain more direct (and convincing) evidence through the use of wires and recording devices. However, in most white collar cases, these methods of evidence gathering are impractical, because the crime is usually only discovered after-the-fact, and are therefore rarely utilized by the U.K. authorities We are aware of corruption investigations in the U.S. where the use of a wire by an informant has been successful (e.g. the PdVSA matter), but we have not seen similar tactics in the U.K. Therefore, unless there is a shift in approach, we still expect cooperating suspects to be of relatively low value in bribery and corruption cases.
In June 2019, FH Bertling Ltd, a freight forwarding company, was fined £850,000 for implementing a "planned and systematic" bribery scheme designed to secure $20 million USD-worth of shipping contracts in connection with an oil project in Angola. At the time the company was sentenced, several employees had already received suspended terms of imprisonment for their involvement in the scheme or another that centered on oil exploration in the North Sea.
Also in June, Carole Ann Hodson was sentenced to two years' imprisonment for her part in a scheme that saw almost £300,000 paid in bribes in order to allow ALCA Fasteners Ltd, a company she owned at the time, to win contracts worth around £12 million. A confiscation order in the sum of £4,494,541 was made against her, and she was ordered to pay costs of £478,351 to the SFO. Ms. Hodson was also disqualified from acting as a company director for seven years.
In July 2019, three former executives of Sarclad Limited, a Sheffield-based steel components company, were acquitted following a trial. As we detailed in our July 2019 Trends & Patterns, the SFO alleged that Michael Sorby, Adrian Leek, and David Justice struck twenty-seven corrupt agreements to secure contracts that the company would not otherwise have obtained. The case was another example of the SFO concluding a DPA against a company, but being unable to secure convictions against individuals for their alleged roles in the criminal activity.  7 WLUK 220.
Also in July, Basil Al Jarah pleaded guilty to charges arising from the SFO's investigation into the activities of Unaoil, its employees, and its agents in Iraq. He will be sentenced following the conclusion of the trial against three other individuals, Ziad Akle, Paul Bond and Stephen Whiteley, which is scheduled to begin at Southwark Crown Court in January 2020. Relatedly, as we noted in the July 2019 Trends & Patterns, the SFO announced that it had dropped the investigation into three other Unaoil executives, who were subsequently charged and pleaded guilty in the U.S.
In November 2019, the long-running criminal proceedings against two Alstom subsidiaries and several individuals concluded with Alstom Network UK Ltd being fined £15 million and ordered to pay £1.4 million in costs. This strand of the investigation centered upon contracts to supply trams in Tunisia. While the SFO's investigation led to convictions against two Alstom subsidiaries and three individuals, the prosecutions brought also resulted in a number of acquittals. In the U.K., a number of commentators are questioning whether the outcomes merited the time and resources expended on this investigation.
Also in November, the European Bank for Reconstruction and Development (EBRD) imposed a six-year term of debarment on GE Power Sweden AB following an investigation in collaboration with the SFO. The investigation found that, from as early as 2002, representatives of Alstom Power Sweden AB, a predecessor company to GE Power Sweden, had conspired with another Alstom entity to manipulate the technical specifications for works carried out at a Lithuanian power plant by making payments to Lithuanian government officials. The project was financed by donor funds administered by the EBRD. The debarment, which began on November 27, 2019, is the longest to have been imposed by the Bank. EBRD's Office of the Chief Compliance Officer stated it will also submit debarment of GE Power Sweden AB to the World Bank, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank.
In December 2019, following the acquittal of Cansun Güralp, Andrew Bell, and Natalie Pearce after a trial, the SFO announced that it had concluded a DPA with Güralp Systems Ltd in October 2019. The company, which produces equipment and data systems for seismological research and similar applications, accepted that the charges of conspiracy to make corrupt payments and failing to prevent bribery by its employees between 2002 and 2015 were made out, and agreed to pay a total of £2,069,861 by way of disgorgement of profits. The DPA also requires the company to cooperate fully and truthfully with the SFO, and to review and maintain its existing internal controls, policies, and procedures regarding compliance with the Bribery Act 2010. In its press release, the SFO highlighted the fact that the company appointed a new Executive Chairman in 2014, who identified the wrongdoing and ordered an internal investigation, which led to the company reporting matters to the SFO and the DOJ in 2015.
As we set out in our July 2019 Trends & Patterns, in May 2019, the SFO commenced criminal proceedings against Anna Machkevitch, a director of London-based ALM Services UK and the Machkevitch Foundation, for failing to produce documents to the SFO as part of its ongoing investigation against ENRC. Ms. Machkevitch, who is not a suspect in that investigation, will stand trial at Hendon Magistrates' Court in January 202.
In November 2019, Ms. Machkevitch failed in her attempts to halt the prosecution by bringing an application for judicial review of the SFO's decision to commence the prosecution against her. In refusing her application, Mr. Justice Supperstone stated that the decision was neither disproportionate, unreasonable or "wholly out of the ordinary."
In July 2019, the SFO confirmed that it had opened an investigation into the activities of the De La Rue group and its associated persons in relation to suspected corruption in South Sudan.
The SFO's long-running investigation against ENRC and its acquisition of mineral assets in Africa continues to grab the headlines. Although the investigation began in 2013, no charges have been brought against the company, its employees, or agents to date. In November 2019, the SFO confirmed that ENRC had failed in its attempt to seek a judicial review designed to force the body to reinstate an independent examination of the case. In November 2018, the SFO had appointed retired High Court judge, Sir David Calvert-Smith, to carry out an independent review following demands made by ENRC. However, the review was suspended in March 2019 when ENRC filed a separate civil claim seeking more than $90 million USD from the SFO for alleged wrongful conduct by inducing the company's former lawyers to act in breach of contract.
In December 2019, following an announcement by Glencore PLC, the commodity trading and mining company, the SFO confirmed that it is investigating suspected bribery in the conduct of business by the Glencore group of companies, its officials, employees, agents, and associated persons.
OTHER MATTERS OF INTEREST
In December 2019, the High Court refused an application by Tesco PLC to withdraw an admission made in its defence as part of the ongoing civil proceedings brought by investors who argue that they have suffered a loss as a resulting from false and misleading trading statements issued by the company. In refusing the application, Mr. Justice Supperstone relied, at least in part, on the fact that when entering into the DPA with the SFO and agreeing the terms of the Final Notice with the Financial Conduct Authority, Tesco PLC made similar admissions. The case serves as a timely reminder that reaching a settlement in one set of proceedings may well have consequences in others.
Finally, in recent editions of the Trends & Patterns, we have been following Zamira Hajiyeva's attempts to challenge the Unexplained Wealth Order (UWO) made against her in 2018, which requires her to explain how she funded the purchase of two London properties worth an estimated £22 million. For those unfamiliar with the case, she is the wife of the convicted former Chairman of the International Bank of Azerbaijan, who is currently serving a fifteen-year sentence for fraud and embezzlement. To date, Mrs. Hajiyeva's attempts to set aside the UWO have proved unsuccessful. However, we await the Court of Appeal's judgment following the hearing of her appeal in January 2020.
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