RegulationNov 27 2019

SFO is just not scary enough

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SFO is just not scary enough

In particular, the twin weapons of corporate enforcement through deferred prosecution agreements and individual co-operation via aggressive plea bargaining have not travelled well.

SFO dilemma

DPAs have been part of UK law since 2014 and enable a company to admit its complicity in criminal conduct – usually bribery or corruption – but avoid a conviction in exchange for a hefty fine and a promise to clean up its act.

Rolls Royce paid over £500m in 2017 and Tesco PLC stumped up £129m shortly afterwards. 

Most recently, Serco Geografix Ltd agreed to pay more than £20m and Sarclad, a British technology company, settled for £17m in 2016.

Key Points

  • Ms Osofksy is planning to introduce US-style plea bargaining.
  • The SFO does not have the same clout as the US Securities and Exchange Commission.
  • Plea bargaining could be misused by prosecutors .

Both Tesco and Sarclad admitted corporate liability on the basis that individuals of sufficient seniority to be described as the “controlling mind and will” of the organisation were personally guilty of the offences.

Some of them were then put on trial but, contrary to what the SFO purported to be able to prove and what Tesco and Sarclad admitted to, they were all acquitted this year.  

Every case turns on its own facts, but these acquittals present the SFO with two significant and connected problems: how can it persuade juries to convict individuals of serious wrong-doing when even a full confession and co-operation from the company is not convincing enough; and, if corporate liability is predicated on the individual guilt of senior directors, who may well be acquitted at trial, why should the company enter into a DPA rather than hunkering down and taking its chances?

The inability of the SFO to convict individuals risks undermining its policy of encouraging corporate self-reporting and co-operation – a serious headache in the long run.

Part of the problem is that evidence that looks overwhelming on paper – enough to persuade the company to enter a DPA – looks very different after forensic deconstruction in front of a jury.

This leads to the apparent paradox of Tesco and Sarclad admitting the guilt of their senior executives beyond reasonable doubt and paying very large fines, only for juries ostensibly looking at the same evidence to reach a completely different conclusion.

Osofsky’s solution

So, how can the SFO make its cases equally persuasive in the courtroom as in the boardroom?

One solution promoted by Ms Osofsky is to look to the US system of plea bargaining and co-operating witnesses, summed up in her words as: “You can spend 20 years in jail for what you did or wear a wire and work with us.”

An insider with first-hand evidence will always be more compelling than 50 dusty files.

While mechanisms to strike deals with guilty individuals in exchange for evidence exist in UK law, they are rarely used and it has been suggested that British juries have a cultural distaste for the ‘supergrass’.

However, the flaw in Ms Osofsky’s proposal is much more fundamental. Simply put, to a prospective co-operator facing criminal investigation, the SFO is just not scary enough.

Size matters and, compared to the US Department of Justice, neither the SFO’s stick nor its carrot is big enough. 

Therefore, it cannot offer the kind of incentives that persuade fraudsters to confess and give evidence against their colleagues.

The stick is measured both by the length of prospective sentence if a potential co-operator refuses a plea bargain and goes to trial, and by the probability of conviction.

In the UK, the maximum sentence for both bribery and fraud is 10 years.

Theoretically, a conspiracy charge carries up to life imprisonment but, in reality, sentences are pegged to guidelines that make Ms Osofsky’s threat of “20 years in jail” a practical impossibility.

Sentences in the US are higher across the board than in the UK, but the crucial distinction is in conviction rates.

In 2018-19, the SFO convicted 53 per cent (17 of 32) of individual defendants it charged. In the previous three years, it was 77 per cent (10 of 13), 87 per cent (13 of 15) and 32 per cent (six of 19).

The headline numbers are less important than the low volumes, large fluctuations and high-profile acquittals, meaning that individual defendants will always believe that they have a chance at trial.

In the US, by contrast, the conviction rate has been over 90 per cent for all forms of economic crime for many years and hundreds of defendants have been convicted.

The reward for co-operation – the carrot – is the discount on sentence. Again, both the size of the discount and the prosecutor’s ability to control it differ greatly either side of the Atlantic.

According to latest US figures, 94 per cent of defendants charged with bribery, corruption, fraud, money laundering or tax offences in federal court in 2018 pleaded guilty, receiving an average sentence discount of over 60 per cent in return.

About a fifth of defendants received an additional discount for providing “substantial assistance to the authorities”.

US judges often will approve a sentence stipulated by the prosecutor pursuant to a plea bargain and an agreed statement of facts.

In the UK, the maximum discount for a co-operating defendant is 50 per cent and prosecutors have no power to recommend a sentence: this is entirely up to the court.

Accordingly, US prosecutors have far more influence over sentencing than their UK counterparts.

Even if US-style plea bargaining could be introduced successfully to the UK, would that necessarily be a good thing?

Prosecutor power can be coercive and might be misused to bolster a weak case.

A high conviction rate is not synonymous with a healthy criminal justice system and every acquittal need not be met with finger-wagging about the initial decision to prosecute or the company’s decision toadmit guilt.

Verdicts of not guilty often demonstrate simply that our system of trial by jury, with the burden of proof firmly on the prosecution, is working just asit should.

The SFO’s problem is that the continued uptake of corporate DPAs relies on a backdrop of individual convictions.

Ms Osofsky’s imported proposal to improve conviction rates will fail. Her challenge is to find a solution that works within the UK criminal justice system.

Nick Vamos is a partner at Peters & Peters