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Seriously Embarrassing?

7 January 2014

The US authorities have successfully prosecuted a London-based consultant just a month after the Serious Fraud Office (SFO) failed to do the same. Here, Aziz Rahman asks whether this is another damaging blow to the SFO’s credibility.

Question marks

A month, it appears, is a long time in the world of business crime. Just ask the SFO.

It must be more than a little embarrassed that the US financial regulator, the Securities and Exchanges Commission, has succeeded in a large anti-corruption investigation - just a month after the SFO failed to do exactly that.

The Securities and Exchanges Commission, the US financial regulator, found that London-based consultant Victor Dahdaleh paid £65m in bribes to Bahraini government officials to gain hugely lucrative contracts for one of the world’s largest aluminium smelters.

Dahdaleh, described as “connected to the Bahrain royal family” and “well versed in the normal ways of Middle East business” was found to be a central player in a huge fraud committed by another big aluminium business, Alcoa. The SEC has fined Alcoa  £233m – the fourth largest fine of its kind in US history.

Such a high-profile success for the SEC will be met with a heavy heart by senior SFO officials. Only last month, the SFO’s own aluminium bribery case against Dahdaleh collapsed. The trial judge singled out the SFO for heavy criticism for delegating the Bahraini part of its investigation to a law firm in a bid to save money.

Seeing the US authorities succeed in a case that was centred on the City of London will do little to boost morale at the SFO. While it licks its wounds after the collapse of its Dahdaleh case, observers are wondering if the SFO has made any progress from the troubles of the past decade or so that have seen it labelled the Serious Farce Office in some less than flattering opinion pieces.

Acknowledging the situation, a SFO spokesman said: “We are aware of the announcement and continue to work with the Department of Justice. We discontinued our criminal proceedings against Victor Dahdaleh last month in connection with alleged corruption offences around the supply of aluminium to Bahrain. This was due to factors fully described in court.”

The SFO’s case was halted after Judge Nicholas Loraine-Smith directed the jury at Southwark Crown Court to return a not-guilty verdict on all charges against Mr Dahdaleh. The SFO said it was offering no evidence in the case, after a witness changed his evidence and two US lawyers declined to testify in court.

Mr Dahdaleh had denied the eight counts of corruption, conspiracy and money-laundering brought by the agency. The trial collapsed after the judge asked the SFO to reconsider its position due to the concern over the way the SFO had delegated duties in Bahrain to a US law firm, Akin Gump, that was involved in a “hotly contested” US civil lawsuit against Mr Dahdaleh.

Coming soon after the Tchenquiz brothers’ £300m legal claim against the SFO for its mishandled investigation of them - and accompanying raids on their properties – the Dahdaleh case can only shed doubt on the agency’s ability to prosecute complex cases covering numerous jurisdictions.

As in the Tchenquiz case, the Dahdaleh investigation by the SFO has been criticised for being over-reliant on the investigations of third parties. Its budget in 2012 was £32M - £20M less than it was four years earlier.

This time last year, the SFO Director David Green was claiming his determination to take on those doing wrong whatever the cost.

His statement was clear: cases would not be dropped simply because they may cost too much. He claimed the Asset Recovery Incentivisation Scheme (ARIS) was boosting SFO coffers but made a bigger point of what had happened over LIBOR, the investigation of which he said had been underwritten by the Treasury. He predicted that the SFO would have a “surge capacity’’ or, to put it another way, “what used to be called blockbuster funding or something like it’’ when the big cases came up.

At that point, there were no precise details of exactly what would constitute a case that the government would deem worthy of its cash. The Attorney General had made it known that the government could make more funds available if and when necessary and stressed the need “to show that the regulators and the criminal justice system have teeth.’’

At the time, we remarked that Mr Green’s aim to make the SFO a more aggressive, efficient and effective force could only become a reality if the extra resources were guaranteed. The Director wanted to send out the message that the SFO was not out to do deals – instead it wanted to take on the biggest and most complex fraud, bribery and corruption cases.

No one doubted his sincerity. Many in government may well have been encouraging his appetite – and even making off-the-record pledges of extra cash – for the big cases. But the Dahdaleh case must surely have put some of that approach into doubt.

Notes in top pocket

No one could argue against the SFO having the strength and resources it needs to handle the big cases and land the high-profile cases. But the saga over Dahdalen has seen the SFO fail to secure a prosecution in UK courts in relation to allegations centred on its capital – only for their US equivalents to achieve exactly that a matter of weeks later. Last year, Mr Green admitted to SFO’s purpose had become “a bit woolly and a bit blurred over time, for all sorts of reasons’’. If the men handling the money in the government have been observing both sets of Dahdaleh proceedings they may well conclude that little has changed.

Last year, we warned that such strong talk from the SFO could leave it as an agency with a bark far worse than its bite. Unfortunately for Mr Green and his colleagues, the Dahdaleh saga has made the SFO look rather toothless. And for an organisation with an appetite for the big cases and a hunger for the necessary funds, the distaste with which the SFO’s paymasters may look at the Dahdaleh case could well mean extra funding for the agency is off the menu.


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