Serious Fraud struggles – the SFO in hot water again over Dahdaleh

You are the Serious Fraud Office (SFO), looking into allegations that a Canadian-British businessman funnelled billions of dollars in bribes to a Bahraini aluminium company to secure contracts. Who do you turn to to help with your investigation? 

How about lawyers hired to represent that company in US civil litigation against him? 

What about witnesses? Who do you turn to to stand up in court and be cross-examined over the details of the case? How about those same lawyers representing the defence’s opponent in America?

Sound unlikely? Unfortunately it is exactly what the SFO did and why it has been blamed for the collapse of the trial against Victor Dahdaleh in December 2013 (11 December 2013). 

In the 21 March hearing Judge Loraine-Smith rounded on the body for its “remarkable” mismanagement of the high-profile trial, which he said was two blame for two Akin Gump Strauss Hauer & Feld lawyers’ refusal to appear as witnesses.

It is the latest in a string of searing critiques of the agency, which have called into question whether its resources are up to the task. The SFO’s budget has been slashed from £53.3m to £30.8m since 2008-09 and spiraling litigation forced it to ask for £19m of additional funding from the Treasury in January to cope with blockbuster cases.

Excoriating blame laid at its door over one of the biggest corruption trials in the UK will not have eased its pain.

At the March hearing Dahdeleh had argued that Akin Gump should shoulder part of his legal costs for serious misconduct after failing to appear. But Loraine-Smith instead blamed the SFO for the events, which resulted in a trial with no prosecution evidence to show on December 2013.

He said the SFO had threatened the case by not only asking prosecuting party Aluminium Bahrain (Alba)’s US lawyers, Akin Gump, to appear as witnesses in the UK trial, but also by delegating the bulk of its own investigation to the firm – something the SFO denies. 

The SFO had enlisted the lawyers to be directly involved with the UK trial despite the fact it was representing Alba in the US against Dahdaleh and American company Alcoa.

Referring to Akin Gump lawyer Mark MacDougall, the judge said: “His primary duty was to his client in the USA. That highlights the problem that lay in wait for the SFO in this case: at some point there was all but inevitably going to be a conflict between Akin Gump’s wish to cooperate with this prosecution and their professional duty to their client.”

The UK trial came about following a suit brought by Alba in the US against billionaire Victor Dahdaleh. Alba accused Dahdaleh of funnelling tens of millions of dollars in bribes to Bahraini officials on behalf of Alcoa.

Akin Gump was instructed by Alba in the US in 2006 to look into the allegations and in 2009 the case was also referred to the SFO, which began collecting evidence from Alba.

But instead of merely accepting information from Akin Gump, the body delegated the hefty chunk of its work to the firm. The delegation of probes to external counsel is not uncommon but asking opposition counsel to put together such a probe is contentious.

“The fact of delegation to a firm of lawyers acting in a foreign jurisdiction and acting in civil proceedings, with interests in direct conflict with those of a defendant, was bound to result in very real complications,” said Loraine-Smith.

Those ”very real complications” came to the fore on 8 April when Dahdaleh’s trial was due to take place. Days before the trial, the billionaire breached his bail conditions to attend a meeting with his lawyers, Allen & Overy (A&O), a Bahraini lawyer and Akin Gump lawyers MacDougall, Randy Teslik and Thomas Evans.

A&O was promptly removed from the case and replaced with Norton Rose Fulbright partner Neil O’May but the firm remains under investigation for its actions (7 November 2013).

Following the meeting the SFO asked Teslik and Evans for witness statements about the meetings and several meetings running up to it. But when the two found out they were to be cross-examined over their testimony and over issues which extended beyond their statements, they said they were not able to testify.

If Loraine-Smith had found the two guilty of serious misconduct for not appearing, the third-party costs order would have succeeded, but she did not.

Talking about MacDougall he said: “His refusal to appear was discourteous to the court, there’s no doubt about, that but his primary duty was to his client in the USA.”

He also questioned the extent to which the SFO relied on Akin Gump to gather documents and also produce witnesses for the trial, something the SFO denies. 

He said: “The SFO relied on Akin Gump to an extraordinary extent in this case. They relied on them for nearly all the documentation and they relied on them for nearly all the important witnesses to be interviewed. The defence were therefore in a position to complain that no witnesses were called from Alba other than arranged by Mr Dahdeleh’s opponents in a civil case.

“By relying so heavily on the witness and material provided by Akin Gump the SFO gave the defence the opportunity to describe the prosecution as one that was being part-motivated by the commercial interests of Alba on the course of civil litigation in the USA.”

The SFO has whole-heartedly denied any wrong-doing in the case and said: “No aspect of this investigation was delegated.”

Arguing against Loraine-Smith’s ruling, it added: “It is a routine feature of cases where third-party companies have legal representation for those lawyers to act as an intermediary between the prosecuting authority and the company in question. In this case we told Akin Gump exactly what material we wanted and we have no reason to believe that they did anything other than provide it to us.

“However, we are aware of the criticisms that were made of our handling of the investigation into Mr Dahdaleh’s case and will be studying the ruling carefully with a view to identifying any lessons that can be learnt.”

The case highlights the issues for the SFO, which has to face up to powerful opponents in litigation that may have a much bigger wallet. That is an alarming prospect when facing the highest damages claim ever brought againt a UK law enforcement agency, that brought by from Robert and Vincent Tchenguiz. The brothers’ counsel fees for the latest hearing alone came to £126,650 (24 February 2014). 

The SFO is thought to have already racked up more than £2m (12 July 2013) for disclosure in preparing to defend the £300m claim. The Tchenguiz brothers are seeking damages for trespass, wrongful arrest, human rights breaches, misfeasance in public office and malicious prosecution. The civil suit was launched after the brothers were subjected to a highly public dawn raid in 2011 in connection with the failure of their Oscatello company.

In the latest stage of the long-running trial, which has already spawned a mammoth disclosure exercise, liquidators Grant Thornton were told to hand over documents the SFO relied on for its botched investigation into the brothers.

In 2012 Lord Justice Thomas, president of the Queens Bench division, questioned its ability to cope with the case following the collapse of its investigation into the brothers (31 July 2012)

He concluded: “The public interest in upholding the integrity of the financial markets is destroyed if those who investigate and prosecute do not have access to the same level of legal and accountancy skills and human and financial resources as those who are the subject of investigation and prosecution.”

The bulk of the Alba claims have now been settled, with Dahdaleh’s the only outstanding case. The Tchenguiz case continues.  

The legal line-up for the 21 March 2014 hearing 

For the prosecution Victor Dahdaleh

Cloth Fair Chambers’ Nicholas Purnell QC and Jonathan Bernard, instructed by Norton Rose Fulbright partner Neil O’May

For the defendants Mark Macdougall and Akin Gump

Three Raymond Buildings’ Hugo Keith QC and Ben Watson instructed by Hickman and Rose partner Ben Rose

For the SFO

7 Bedford Row’s Phillip Shears QC instructed by SFO solicitors