Author: Nicola Sharp
10 April 2023
3 min read
In our article Fraud Trends 2023, we highlighted a number of types of fraud which will likely see an increase over the coming year. All of these issues will have to be addressed by the SFO, but it also faces a number of other major challenges that it will have to face in 2023 and beyond.
In 2023, the agency will have to find and appoint a new Director to replace Lisa Osofsky, who will stand down in August, when her fixed term in the position comes to an end. Yet there are other changes coming that go way beyond personnel matters.
The year is also set to see the SFO assessing – and then eventually working to implement – the changes being proposed by the Economic Crime and Corporate Transparency Bill. The Bill may introduce a criminal offence of failure to prevent fraud, false accounting or money laundering.
This would mean the SFO investigating (and possibly prosecuting) companies and senior figures that are suspected of committing this offence.
The SFO may also find a change to its working if the Bill’s proposed change to the ‘identification doctrine’ becomes law. If it does, it will mean that a company (also referred to as a corporate) commits an economic crime where the offence is committed with the “consent, connivance or neglect of a senior manager”.
In the past, the SFO has struggled to successfully prosecute corporates for non-bribery offences because of the need to identify an individual(s) whose conduct and state of mind could be said to be that of the company. The proposed change could mean that the SFO finds it easier to prosecute a company.
The Bill also looks set to expand the powers that the SFO has under Section 2A of the Criminal Justice Act 1987 to compel individuals and companies to provide information at the pre-investigation stage. At present, the SFO can only use those powers in international bribery and corruption cases.
The Bill proposes allowing the SFO to use them in all cases, which would help it decide whether to formally begin an investigation. If the Bill becomes law, it is also set to give the SFO and other enforcement agencies greater criminal confiscation and civil recovery powers to enable them to more effectively tackle the criminal use of crypto assets.
For the SFO, 2023 is a year when it may find itself with more it has to do. The UK has been enduring a fraud epidemic, with many news headlines being generated by the large-scale abuse of government coronavirus support schemes.
As the agency that investigates top-level serious or complex fraud cases, the SFO will be involved in the most notable Covid-related fraud investigations.
The SFO workload may also increase because of ESG (environmental, social and governance) issues. Recent years have seen both politicians and the legal world focusing more closely on matters such as the effect companies’ activities are having on the environment, working conditions, human rights and the responsibilities that a company’s senior figures have for such issues.
In the UK, the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 have placed more obligations on companies. Such developments may mean the SFO has to adapt to conduct investigations into ESG-related allegations – something that will be a new area for it.
The SFO’s 2022 prosecution of mining giant Glencore Energy (UK) led to a £280 million fine that was the highest ever ordered in a corporate criminal conviction. It was also the first use of the section 1 Bribery Act 2010 offence of active bribery, the confiscation order was the largest for an SFO case and the outcome came after close working with the US Department of Justice.
And yet it was another SFO case where there has yet to be an individual conviction on the back of a corporate result, although it is understood that decisions on charging individuals may be taken soon.
By the start of 2023, the SFO had concluded 11 deferred prosecution agreements (DPAs) with corporates, without one subsequent individual conviction. This trend only came to an end in March 2023, when reporting restrictions were lifted and it became known that the SFO had secured the conviction of a project manager in 2022, who had pleaded guilty to violating the UK Bribery Act by accepting bribes to help two UK companies, Bluu Solutions and Tetris Projects, win lucrative office refurbishment contracts. The companies had entered into DPAs with the SFO in 2021.
In 2023, the SFO has to show that it will no longer be responsible for the disclosure failings that led to the collapse of its Unaoil and Serco investigations, both of which led to reviews into its working practices, lots of negative publicity and the SFO facing the task of meeting objectives laid down for it by the reviews.
The SFO must now devise innovative methods of dealing with disclosure when resources are stretched. The current Director has proposed greater use of technology. But this needs tailoring to individual cases and could prove challenging for the SFO.
The fact that March 2023 saw the SFO drop its prosecution of three former G4S executives over claims they defrauded the UK government of tens of millions of pounds has intensified the need for the SFO to address its disclosure problems. G4S had concluded a DPA with the SFO in 2020. But the case against individuals collapsed because of disclosure-related issues – leading to more criticism of the SFO and some calls for changes to the UK’s disclosure regime.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.