In 2018 the UK’s Serious Fraud Office came under new directorship, and professionals across the financial industry watched with bated breath and cautious optimism that the SFO had finally reached a turning point, where it could overcome its most deep-rooted issues.
However, four years later, we are now approaching the publication of the findings from the government-ordered Calvert-Smith probe into the office’s mishandling of Unaoil, which many anticipate will also lay bare the structural issues that continue to plague the SFO.
Indeed, we appear to be approaching something of a ‘where did it all go wrong?’ moment for the agency.
DPAs are not the entire answer
A common criticism of the SFO’s approach to fraud prosecution has centred on its reliance on deferred prosecution agreements (DPAs) and its continued failure to prosecute a number of individuals under the agreements.
The motivation behind the SFO's reliance on DPAs is seemingly financial, rather than driven by results. For example, while last year’s annual report revealed that the SFO has delivered £1.6bn in revenue from only a handful of DPAs, it has not yet secured any prosecutions.
Offering the defence an option of paying reparations for criminal behaviour to avoid the collateral damage of multiple convictions has become a key means of raising revenue for the agency.
While the financial penalties are often significant, this outcome should not be the go-to target for fraud prosecution. It creates a double jeopardy for financial professionals and blurs the line between corporate and individual responsibility. A prosecution body that is reluctant, or outright unable, to secure a prosecution cannot be right.
A change in tactics is clearly needed. Ultimately, for financial professionals, a fraud prosecution body that more readily pursues fraud and avoids the path of least resistance would be beneficial. It would reduce the fallout of rising fraud cases and allow for the correct individuals to be targeted and prosecuted.
Digital age disclosure
Within the justice system itself fraud prosecution is also suffering from a reputational downturn, as fraud cases are often seen as unattractively long and slow. This is, in large part, due to the volume of disclosure that is often attached to high-profile cases.
Legislation governing disclosure regimes predates the digital age, and so it is not compatible with the volumes of material that digitalisation has facilitated.
The more financially supported defence teams are simply able to overwhelm the prosecution with requests for disclosure and criticising the methodology used for sifting the material.
A recent case that our team worked on had more than 50 terabytes of material, which we calculated would take more than 200 years for a single person to read through.
This problem with disclosure pertains to both civil and criminal litigation, so advisers that are involved in any kind of litigation can be affected.
Artificial intelligence could be considered as a possible solution, but concerns linger over whether technology is sophisticated enough to sift through huge amounts of disclosure to the same standards as a human.
For now, AI alone does not appear to be a practically viable solution. Perhaps a mix of AI-produced work coupled with close review by a human eye could help address the issue, but how this protocol might work would need careful consideration.
Problems with disclosure have contributed significantly to the failure of the SFO to prosecute fraud, which in turn has exacerbated public suspicion and mistrust around the financial sector, creating a difficult arena for advisers to work in.
A review of the rules around disclosure and a more streamlined process is desperately needed, however, the solution must not cut corners, or it would risk empowering foul players to discredit the prosecution and void the case.
Funding for fraud prosecution
A final underlying factor that has seen the SFO fail to properly prosecute fraud has been a lack of funding and resources at the coal face. Not only does the agency lack the personnel to properly pursue convictions, but privately funded or insured defendants can financially outmatch the prosecution.
It would be against the principles of justice to cap how much a defendant can spend on their defence, but the disparity in the funding behind defending and prosecuting has a huge impact on the outcome of a case.
Defendants with deep pockets can literally throw money at tactically derailing investigations and prosecutions by mounting judicial reviews and endless expert evidence reports. Once it is drawn into a war of attrition, the under-funded SFO is typically starved out first.
The government can only address this issue by recognising that proper funding for fraud prosecution is an investment and not an overhead. It cannot be expected to achieve results by sending in a five-strong team to bat against a defence team fielding 20 specialist investigators.
Overall, the deep-rooted issues plaguing the SFO have created a difficult working environment for financial professionals, whose reputations are undermined by a lack of public trust in the governing bodies to separate the fair from the foul players.
While the SFO has been under-resourced and under-funded, the tactical approach it has taken in recent years has been its downfall. It must be reviewed, revised, and reformed.
Rachel Adamson is director and head of fraud at Adkirk Law
