Focus: Serious Fraud Office: Split decision
25 April 2011
Regulatory risk: new SFO Director signals changes in how the agency will treat companies in the future
8 March 2013
11 September 2013
22 August 2013
11 February 2013
7 November 2013
SFO director Richard Alderman is adamant that removing the watchdog’s teeth would be doing UK plc a major disservice
In Whitehall a battle for the budget of the SFO is raging. The future of the agency is once again at risk, with plans to divide its investigative function from its prosecution powers being seriously mooted by senior politicians. If approved, SFO prosecutions would be transferred to the CPS. Investigations, meanwhile, would come under the umbrella of a new National Crime Agency (NCA).
Allies of the agency, led by SFO director Richard Alderman, are trying to ensure its future and secure the UK’s reputation for dealing actively with bribery and corruption.
Getting a touch of deja vu? This is not the first time the SFO has been under review. In March 2007, in the wake of the collapsed BAE Systems investigation, former SFO director Robert Wardle and former attorney general Lord Goldsmith (now a partner at Debevoise & Plimpton) commissioned Jessica de Grazia to examine the progress of the SFO compared with its US counterpart the Department of Justice.
The former New York prosecutor reported back in June 2008. She found an agency lacking in manpower and handicapped by the legislative framework in which it worked.
The appointment of Alderman as Wardle’s successor in April 2008 was intended to bring about comprehensive change within the agency.
At considerable cost the civil servant cronies were moved out to make way for a new and more progressive agency.
“There’s been a number of problems with Richard,” one Tory peer says. “When he came in he acted in a precipitate manner within the SFO and upset a lot of people who were just getting used to working for him. The hostility towards him has held him back enormously.”
Yet Alderman should not be burdened with the blame for the lack of progress made by the SFO when it comes to prosecutions. Much to the admiration of legal practitioners he has aimed to bring about a cultural change in the way corporates crack down on fraud and corruption.
The Bribery Act has not passed through Parliament, yet many top international corporates have already been forced to look at their systems.
“What [Alderman] has done is interesting,” comments Allen & Overy partner Arnondo Chakrabarti, who was part of the team that advised BAE Systems on its dealings with the watchdog. “Using minimal resources and not prosecutions he’s managed to get big corporates to rethink their policies on corruption. He’s had success as more of a quasi-regulator than an investigator and prosecutor, and that’s quite innovative.”
BCL Burton Copeland partner Harry Travers agrees.
“Richard’s looked at what’s happening in the US and has drawn on the best aspects of that. He’s tried to bring about a culture of self-reporting.”
What is not in dispute is that Alderman is fighting to secure the SFO’s future.
“London, as a leading global financial centre, needs the ability to deal with complex financial crime,” Alderman stresses. “To tackle those cases requires the sort of approach the US takes, with an integrated investigatory and prosecutions body.
“This is a political question about whether the UK wants to tackle top-level financial crime.”
Alderman, a civil servant and barrister by background, tiptoes around the politics in play over the SFO. He is due to retire next year and is reluctant to upset his political peers lest his exit is hastened.
Others are more outspoken.
“This is a classic Whitehall turf war,” argues Kingsley Napley head of criminal and regulatory Stephen Parkinson. “The internal politics of Whitehall have always been tribal.”
Dividing the SFO into separate investigation and prosecution bodies would, he says, give a financial boost to proposed new agencies.
“At the moment the SFO falls under the remit of the attorney general,” continues Parkinson. “This way the Home Office gets half the resources of the SFO. It will cost £100m to set up the NCA, but it will get no new money, so this is a way of helping to finance the new agency.”
A source familiar with the situation agrees.
“The Serious Organised Crime Agency [Soca] and the CPS always wanted to do fraud work,” says the source. “If they take over the SFO it would mean more money for them.”
Another source expands on the point.
“The attorney general doesn’t want the responsibility - he wants to take his office back 30 or 40 years and do prosecutions only, offloading investigations,” explains the source. “He doesn’t want the SFO as it is.”
Therein lies another problem. If the SFO is enveloped into an NCA that also houses Soca and the CPS, what role, if any, can the attorney general play in deciding the public interest of certain investigations?
Alderman believes the attorney general is important to the SFO.
“My view is that superintendence by the attorney general is beneficial,” he says. “It gives us the opportunity to talk to a top legal mind with a broad legal perspective about our direction.”
In his fight to preserve the SFO Alderman has a lot of support from the profession, which is concerned about the City’s poor reputation for cracking down on international bribery.
“The Organisation for Economic Cooperation and Development [OECD] has been critical of the UK’s poor record on corruption,” points out BCL Burton Copeland partner Harry Travers.
Indeed, in 2008 the OECD stated that it was “seriously concerned about the UK’s continued failure to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery”.
This sparked a sudden impetus to get the Bribery Act moving through Parliament.
Alderman says there has been progress in the past two years.
“One of the achievements of the UK has been to be regarded by the OECD as being in a select group of enforcers of corruption legislation,” he says. “We’ve moved up the table from no enforcement to active, and we must retain that status.”
Splitting the SFO, practitioners warn, would put this at risk.
“The best approach is cradle to grave,” insists Travers.
“The model for investigating and prosecuting big economic crime cases is integrated,” adds Devereux Chambers’ Jonathan Fisher QC, a leading white-collar crime specialist. “The CPS is good, but this is a specialist area and there’s a strong case for legal input throughout the investigation stage at the highest level.
“To have separation is clumsy. You need a team approach - it makes sense.”
Alderman says that if the SFO manages to see off the vultures he will press ahead with the current programme of reform within the agency.
The SFO has suffered heavy defeats by the judiciary when attempting to push through prosecutions, the central problem being that, when investigating corruption in corporates, the SFO has to prove the involvement of the ’controlling mind’ of the company, which is notoriously complex.
“The SFO’s bringing a type of case that has never come to court before, and the judicial tools haven’t been developed to deal with such cases,” says Alderman. “We need judges involved before we bring charges so we can ensure a degree of certainty for those under investigation and so the appropriate part of the offence is dealt with in the UK.”
Alderman has made no secret of the fact that he would prefer deferred prosecutions, as would many practitioners, to allow negotiations with companies over fines that would then need to be approved by a judge.
There is no denying that the SFO has had serious problems. Hampered by high-profile exits, a poorly developed legislative framework and a budget that will drop from a high of £51.5m in 2008-09 to £30.5m to 2014-15, Alderman has done a good job to get it this far.
There has been progress in spite of the problems though. Furthermore, lawyers agree that to break up the agency would stall anti-corruption momentum. After all, the UK’s reputation as a financial centre stands or falls by its ethical standards.
To scrap the SFO, an agency that was set up to support those standards, because of a Whitehall turf war would be short-sighted. Who would really benefit? n