Prosecuting Serious FraudA glance at the future 1 July 2012 7 years ago The National Fraud Authority estimated in its latest figures (January 2011) that fraud is costing the UK over £38 billion per year. From a defence lawyer’s perspective it does seem that there are more fraud cases out there than ever before. The cases are getting bigger but are also taking much longer to bring to charge. It does seem to be all about resources – the fact is that the authorities are interested in prosecuting big frauds, not least because of the possibility of a big pay-out if they get to the confiscation stage; it all helps the budgets for those agencies who are having their government budgets drastically cut. The problem is that defendants often face an agonising wait of 2 years or even longer on police bail and when the charge finally comes it refers to an alleged conspiracy that lasted 3 to 5 years ending on the day of arrest. By the time the matter gets to trial matters are even more distant. This is all just a sign of the times. More existing frauds, large and small, are being exposed and more people are prepared to take risks – either to commit a fraud or invest in an ‘opportunity’ they might not have done 4 or 5 years ago. In this article we look at how the State agencies are dealing with fraud allegations and have a glance at the future. Serious Fraud Office The SFO was established in April 1988, its remit has never been to prosecute all cases referred to it; it takes on the largest most complex cases, often with an international dimension and where the value of the fraud exceeds £1m. It has been extensively criticized over the years for the poor conviction rate in the cases they do prosecute; the conviction rates for SFO cases fell from 82% in 2002/03 to just 61% by 2007/08. It has got better since and Government hints that the SFO might be axed appear to have subsided. We had reported in the past how the trend seemed to be that the SFO were focussing on non-conviction disposal of cases, e.g. by agreed civil recovery orders etc. The new Director of the SFO, David Green, who started in April this year, has expressed an interest in US Style Deferred Prosecution Agreements (“DPAs”) in order to ‘settle’ cases with big corporations. DPA’s effectively put prosecutions on hold on condition that suspect corporations clean up their act. However, he has also said that he is a traditional prosecutor who wants to take cases through the criminal process but in a much more targeted way than before, concentrating on cases where there is a threat to the UK economy as well as allegations of serious corruption. Big mortgage fraud and boiler room cases, will now expressly be left to the CPS to prosecute. This renewed emphasis on old-fashioned prosecutions rather than ‘settlement’ and plea negotiation comes in the wake of the Financial Services Authority and the City of London Police undertaking very long and complex investigations successfully in recent times. However, if the SFO are to try and follow suit they had better up their game because the SFO has demonstrated an ability to go spectacularly wrong with its criminal investigations as the case of the Tchenguiz brothers shows. That case followed the collapse of the Kaupthing Icelandic bank which had loaned the brothers £180m. The fraud case has just been dropped against one of the brothers; this followed a Judicial Review into the use of search powers by the SFO in the case which prompted the High Court judge to declare that the SFO had demonstrated “sheer incompetence” in its handling of the case – the SFO had admitted it had relied on ‘misinformation’ in securing the search warrants. We expect that the ‘new’ SFO will be as Director Green expects - more prosecutions but only of those cases at the very top of the league. International Co-Operation The authors of this article were involved in a case (SEC v Manterfield) where the US Securities & Exchange Commission pursued a British hedge fund manager who was alleged by the U.S. authorities to have operated a fraudulent investment scheme in the United States. The SEC’s website described the unusual move of seeking a freezing order from a foreign court; i.e. the High Court as Mr. Manterfield held assets here. The case in part revolved around issues about whether the SEC’s action was truly civil in nature given the draconian nature of some the penalties that could be imposed on Manterfield in the US in the event of failing in the ‘civil’ action. This kind of co-operation we predict will only increase. In these straightened times it seems that the world’s financial prosecution authorities appear to be coming together more and more to tackle the credit crunch and international fraud – and, of course, to secure coffers for their own strained budgets. Last year the UK and US authorities dealt with a company M.W. Kellogg Ltd. That company tipped off the authorities themselves about contracts which it suspected had been obtained by bribery and corruption. The company paid £7m following an uncontested High Court civil recovery action where no fault was placed on the firm – the money represented the proceeds from the tainted contracts. Despite the new Director’s comments about going back to basics these sorts of disposals are not likely to go away – they will only increase. This approach by the SFO of co-operation with other agencies and encouraging companies to self-report has its difficulties – especially when it comes to so called ‘plea bargaining’. Plea Bargaining The Attorney General’s Guidelines on Plea Discussions In Cases of Serious or Complex Fraud was introduced in May 2009. It is at least a step towards US style plea bargaining. On 25th September 2009 Mabey & Johnson Limited an English company supplying bridging equipment, largely to the third world was sentenced at Southwark Crown Court after pleading guilty to corruption offences prosecuted by the SFO. It was fined £3.5m and had a confiscation order made against it in the sum of £1.1m. It was significant because it was the first successful prosecution of a company for overseas corruption and was also the first time that a case was disposed of following the SFO’s engaging in plea discussions with the company under the AG’s Guidelines. However, after that flying start the SFO’s co-operation with overseas authorities and enthusiasm for plea negotiation has hit a series of criticisms in the Courts. In March 2010 the British chemical firm Innospec pleaded guilty to conspiracy to corrupt in exchange for an agreed fine and confiscation deal. This may have been acceptable to the US authorities dealing with the case on the other side of the Atlantic but here the Courts were very troubled by the process – the original Judge describing the deal as ‘wrong’ before recusing himself. The SFO got there in the end but only just and since then there have been more high level judicial criticisms of the plea bargaining approach in other cases. This leaves the SFO’s policy of wrapping up ‘deals’ with companies with the help of the US authorities in grave doubt – another reason perhaps for the new Director’s enthusiasm for traditional prosecutions. Civil Recovery Civil Recovery under the Proceeds of Crime Act 2002 (POCA) was heralded as a major tool in the fight against crime – criminals would be stripped of their assets without the need for complex and risky criminal trials; there would be a civil trial, with a civil burden of proof and though no jail sentence could result, the Court could make an order stripping the unlucky defendant of all his or her worldly goods. In reality civil recovery has not taken off in the way it was expected to. It is an expensive option and a number of agencies don’t seem to have the stomach for a fight in the High Court. The authors acted in the leading case on civil recovery which is an instructive case for a glimpse of how things might go in the future. SOCA v Gale is the only civil recovery case to reach the highest Court in the land. Mr and Mrs Gale, at one time, lived in Portugal. They were tried in the criminal Courts over there on allegations of drug trafficking and money laundering. They were acquitted. Years later the UK authorities resurrected much the same allegations and tried them here – but in the English High Court in a civil, not a criminal trial. The result was civil recovery orders that are now the subject of an appeal to the European Court of Human Rights following the Supreme Court’s refusing to allow the appeal which was based on a human rights challenge about pursuing those acquitted in criminal proceedings in separate civil proceedings; a number of the Judges indicated that they felt the whole “confusing area” needed to be considered by the Grand Chamber of the European Court. Watch this space. The Serious and Organised Crime Agency are the lead agency in civil recovery cases and we detecting an increase in both the number of cases they bring and in the variety of cases they bring. One of the authors is currently representing a man who is in prison in the UAE whilst SOCA attempt to strip him of his assets in the High Court here. The very recent case of SOCA v Aaron Coghlan is another example – he was regarded as a career criminal by the police and had been tried and acquitted of drug trafficking and murder. SOCA instead used the civil Courts to get their man. Criminal Trials Without a Jury The Criminal Justice Act 2003 introduced the notion of non-jury criminal trials in cases where there is a clear and present danger of jury ‘knobbling’. The first such trial has already taken place and convictions secured. But the Act sought to go much further and introduce – as perhaps almost the norm, the possibility of trial without jury in cases of complex fraud. However, after the Act came into force the then Attorney General subsequently sought to repeal those provisions and to replace it with new provisions under the Fraud (Trials Without a Jury) Bill. It is with pleasure we report that the Fraud (Trial Without a Jury) Bill was voted down by the House of Lords in March 2007. Thus in the midst of so much change and so many threats to our basic system of criminal justice it is ironic that it is the un-elected side of Parliament which, yet again, strives the furthest to preserve our most precious liberties. Authors Jonathan Lennon is a Barrister specialising in serious and complex criminal defence case at 23 Essex Street Chambers in London. He is a contributing author to Covert Human Intelligence Sources, (2008 Waterside Press) and has extensive experience in all aspects of the Proceeds of Crime Act 2002. Aziz Rahman is a Solicitor- Advocate and Partner at the leading Criminal Defence firm Rahman Ravelli Solicitors, specialising in Human Rights, Financial Crime and Large Scale Conspiracies/Serious crime. Rahman Ravelli are members of the Specialist Fraud Panel and have recently been ranked by Legal 500 as an 'excellent' firm with Aziz Rahman being described as 'first class and very experienced'.