The Serious Fraud Office (SFO)
In line with other national authorities, the SFO has been adopting an increasingly proactive and aggressive approach to investigating and prosecuting financial crime, in particular fraud and corruption. As the SFO becomes more familiar and comfortable with the growing arsenal of investigative, injunctive and enforcement powers available under the Proceeds of Crime Act 2002
(POCA) and the Bribery Act and elsewhere, we are seeing ever more innovative and pragmatic use of those powers to achieve fast and high-profile results.
Civil Recovery Orders (CROs) under POCA. CROs can be sought in the High Court or Crown Court. They provide for the recovery of property where, on the lower civil standard of proof, it can be established that such property was obtained through unlawful conduct. There is no requirement to obtain a criminal conviction first. On 26 October 2009, the SFO obtained a CRO of almost £5 million against construction firm AMEC plc. The Director of the SFO, Richard Alderman, had determined that AMEC had failed to comply with its obligations to keep accurate accounts pursuant to section 221 of the Companies Act 1985. This followed an internal investigation (and subsequent self-reporting to the SFO) regarding irregular payments made between November 2005 and March 2007 in connection with a Korean bridge-building project in which AMEC was a shareholder.
The future use of CROs was called into question following the sentencing remarks of Lord Justice Thomas in R v Innospec. The judge rejected the SFO’s suggestion that a CRO would be appropriate as part of the penalty imposed on a corporate that pleaded guilty to conspiracy to corrupt and stressed that those who commit crimes of corruption, including companies, “must not be viewed in any different way to other criminals” and that it would “rarely be appropriate” for a corporate that is guilty of bribery to receive a civil recovery order instead of (rather than in addition to) a criminal fine: “It is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions”. For more detail of the implications of this case please read our Law-Now article here.
Serious Crime Prevention Orders (SCPOs) under Part 1 of the Serious Crime Act 2007. SCPOs are civil orders intended to prevent, restrict or disrupt involvement in serious crime. As Richard Alderman explained in a speech he gave on 26 February 2009: “[SCPOs] enable prosecutors to obtain court orders regulating the future conduct of those who have been engaged in serious crime. SCPOs can be obtained before or after a conviction. The conditions that can attach to such orders are almost limitless. A company might, for example, be asked to submit its trading accounts for scrutiny every six months. I am very interested in these orders. An SCPO obtained from the High Court quickly without prosecution is a very important weapon for us.” On 20 March 2009, the SFO obtained its first SCPO in a prosecution against Haroon Khatab, for his involvement in a boiler room fraud. The order severely restricted Mr Khatab’s ability to become involved in investment and financial management. For example, it prevents him from directly or indirectly offering to sell shares, investment opportunities or financial products of any kind for a four-year period.
Confiscation Orders under Part 2 of POCA. Confiscation Orders are a post-conviction remedy. Broadly speaking, the purpose of a confiscation order is to prevent an offender from benefiting from the proceeds of their crime by confiscating an amount which is the lesser of the “benefit” which they have obtained from their criminal conduct and their “available assets” (i.e. the offender’s gross assets less secured liabilities). The computation of “benefit” is complex. Where the offender has a “criminal lifestyle” pursuant to section 75 of POCA, then “benefit” comprises: (i) the benefit derived from the offence(s) of which the offender has been convicted; (ii) the benefit calculated under certain statutory assumptions with regard to income and expenditure; and (iii) the benefit of any earlier criminal conduct at any time which can be proved to the civil standard of proof. When considering whether an offender has a “criminal lifestyle”, the assumptions that the court will make can have the effect that any profits and revenue earned by the offender can be confiscated, unless there is cogent evidence to the contrary, or if there is otherwise a serious risk of injustice.
Deferred Prosecution Agreements (DPAs). Following its consultation in 2012, the Ministry of Justice is in the process of amending legislation to introduce DPAs into the UK legal system. DPAs will allow corporates to reach a court-approved agreement with the prosecuting authorities in relation to economic crime (i.e. fraud, bribery, money laundering). The corporate would avoid criminal conviction and receive a lower financial penalty than might otherwise have been imposed (up to a 30% reduction) in return for co-operating with the authorities and agreeing to various obligations, including payment of fines, putting controls in place, being subject to external monitoring etc. The concept is similar to that already established in the US but involves more judicial oversight.
It is hoped that the introduction of DPAs (most likely in 2014/2015) will incentivise corporates to self-report wrongdoing early, while permitting the matter to be dealt with efficiently and effectively, without the need for costly and lengthy investigations and trials with uncertain outcomes.