Regulation  

SFO reform won't make a difference without better resources

Neil Swift and Diana Czugler

Despite the recent turmoil in Westminster, the ongoing drive to tackle financial wrongdoing in the UK shows no signs of slowing down. 

The government’s new economic crime and corporate transparency bill, which is going through the House of Commons, promises to significantly increase the scope of the Serious Fraud Office’s powers by enabling it to compel third parties – including individual witnesses, suspects’ employers and other corporate entities such as financial institutions – to hand over materials and provide it with explanations at an earlier stage of its enquiries.

If enacted, the proposals would hand the SFO a considerable investigative tool, however, it remains to be seen how much advantage the embattled agency could take of any such new measures as it struggles for survival.

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A new era

The SFO, the UK’s prime law enforcement agency for investigating and prosecuting complex and/or serious fraud cases, was established in the 1980s following decades of dissatisfaction with the previous system.

At the time, its novel structure of combining investigators and prosecutors was seen as revolutionary. Its newly created ability to require individuals and corporates to answer questions and produce documents – in contrast with traditional police investigations – was considered the cornerstone of the SFO’s toolkit and signalled a new era for law enforcement.

The SFO’s statutory power to compel third parties to produce information after service of a “section 2 notice” is draconian: a section 2 subject must attend the SFO’s premises and cannot rely on their right to silence to not comment during their interview.

Furthermore, section 2 notices require the production of material to the SFO that would otherwise be protected by business or professional confidentiality – only stopping short of forcing the disclosure of legally privileged information, such as advice given by a lawyer to their client.

The main restriction on the SFO’s use of information and documents obtained via section 2 is that they cannot be relied on as evidence to charge and prosecute the person providing them to the SFO (unless they mislead the agency or give inconsistent statements).

 

In practice, this has meant that the SFO has frequently used section 2 powers to interview witnesses and those on the fringe of its horizon (as opposed to suspects), as well as regularly evoking section 2 to obtain suspects’ electronic, employment and financial records held by third parties.

Given its draconian nature, at present, the SFO can use section 2 powers only where it appears to its director that there are reasonable grounds to suspect that an offence involving serious or complex fraud has been committed (and once an internal checklist of criteria has been met).

In other words, the SFO will have had to do the groundwork first (and officially open an investigation) before being able to rely on section 2 to further build its case.