The year 2019 has been something of a mixed bag for the UK’s criminal and regulatory authorities. While the Serious Fraud Office (“SFO”) and Financial Conduct Authority (“FCA”) appear to have taken involuntary sabbaticals from successful criminal prosecutions, the National Crime Agency (“NCA”) is quietly lining the national purse with the proceeds of forfeiture orders obtained through Unexplained Wealth Orders (“UWOs”) and Account Freezing Orders (“AFOs”).
Serious Fraud Office
This has been the first full year of Lisa Osofsky’s tenure as Director of the SFO. It is not one she will remember with great fondness, if at all. Indeed, the past 12 months have been more notable for the cases the SFO has failed to prosecute than the convictions it has obtained.
The year got off to an inauspicious start when the SFO offered no evidence against a former employee of Tesco Stores Limited (“Tesco”) following a Crown Court decision that his two co-defendants had no case to answer. This came despite the SFO having reached a Deferred Prosecution Agreement (“DPA”) with Tesco in 2017 in which those individuals were explicitly linked to misconduct that was accepted by the company.1
Perhaps chastened by this experience, in February the SFO closed its long-running investigations into GlaxoSmithKline PLC and individuals associated with Rolls-Royce PLC.2 The SFO justified this move by saying that prosecution was not in the public interest or that there was insufficient evidence to convict, merely restating the Full Code test, though the Tesco prosecutions suggest that such considerations have not always guided the SFO so persuasively.
July brought further disappointment for the SFO, with the acquittal of three individuals linked to its investigation into Sarclad Ltd (“Sarclad”). This case concerned allegations of conspiracy to corrupt and conspiracy to bribe in relation to 27 overseas contracts.3 Sarclad had reached a DPA with the SFO over the same conduct in 2016 and this acquittal means that, despite the SFO concluding five DPAs – three of which relate to bribery offences – it has failed to convict any individuals involved in the wrongdoing to which they relate.
To cap a disappointing year for the SFO, three individuals associated with Güralp Systems Ltd (“Güralp”) were acquitted in December of conspiracy to make corrupt payments to a South Korean public official between 2002 and 2015.4 Marking something of a trend, the acquittals followed a DPA agreed between the SFO and Güralp in October 2019 in which the company accepted the charges of conspiracy to make corrupt payments and a failure to prevent bribery by employees. These results should give greater pause for thought to companies invited to enter into DPA negotiations, who will note the difficulty the SFO has encountered in securing corruption-related convictions.
However, it is not all doom and gloom. The SFO agreed its fifth DPA in July with Serco Geografix Ltd (“SGL”) following allegations of fraud and false accounting regarding a scheme to dishonestly mislead the Ministry of Justice and manipulate the profitability of its contract for the provision of electronic monitoring services. SGL was fined £19.2 million and ordered to pay costs to the tune of £3.7m.5 On the back of this DPA, the SFO announced in December that it would prosecute two former Serco executives in relation to the accusations.6 The upcoming trials may provide some much needed insight into whether the SFO has learned lessons from its failures in Tesco, Rolls-Royce, Sarclad, and Güralp.
The year 2019 has also marked the end of two of the SFO’s longest running investigations. The five-year long probe into FH Bertling’s Angola operations came to a close in July 2019 with the company sentenced to an £850,000 fine in connection with a bribery scheme intended to secure freight forwarding contracts worth approximately $20 million in Angola by paying bribes totaling $350,000.7 The investigation had previously seen five individuals convicted and one acquitted in connection with the same allegations.
Another sprawling investigation, into French engineering company Alstom, ended with a UK subsidiary of the company, Alstom Network UK Ltd, ordered to pay £16.4 million – consisting of a £15 million fine and £1.4 million in costs – for conspiracy to corrupt in connection with a contract to supply trams in Tunisia.8 Having run for a decade and covered multiple jurisdictions, the penalty is the final chapter of a case in which the SFO obtained convictions against three individuals and two companies. A further five individuals, and one company, were acquitted.
In addition to these major milestones – and despite the struggle to successfully prosecute many of its on-going investigations – the SFO has announced a limited number of new investigations. Among the key cases are probes into London Capital & Finance plc (in relation to its collapse),9 Greenergy (concerns around the trading of biodiesel),10 De La Rue plc (suspected corruption in South Sudan),11 and Glencore plc (suspected bribery).12
Financial Conduct Authority
Criminal prosecutions continue to be a rarity for the FCA which, despite its ever-increasing caseload, still appears to be reluctant to pursue cases in the criminal courts. The year 2018/2019 saw just 12 criminal outcomes out of an overall total of 238 resolved cases, with the average length of criminal cases rising from 58.2 months to 75.9 months. Although this picture is skewed by one particularly large and complex investigation into insider dealing which concluded in 2018, the fact remains that the FCA still heavily favours the civil route when bringing enforcement action.
In June 2019, two individuals were sentenced to three years’ imprisonment for five offences of insider dealing.13 Fabiana Abdel-Malek, at the time employed by UBS investment bank, passed inside information to her family friend Walid Choucair, an experienced day trader of financial securities. Choucair made a profit of approximately £1.4 million from the trading, which the presiding judge described as a case of game-keeper turning poacher.
The year 2019 also marked the first case of an individual being charged by the FCA for destroying documents which he knew or suspected were or would be relevant to an insider dealing investigation being conducted by the regulator. The FCA allege that the individual, a banker, deleted WhatsApp messages that he had been required to provide to the FCA while he was under investigation.14 The FCA’s approach to the case and its outcome will be keenly watched in the coming year.
National Crime Agency
While the SFO and FCA continue their search for criminal prosecutions disguised as hens’ teeth, the NCA has enjoyed a productive year, most notably in its use of Account Freezing Orders (“AFOs”) and Unexplained Wealth Orders (“UWOs”), which have been at its disposal since their introduction as part of the 2017 Criminal Finances Act.
The NCA began the year positively with a February forfeiture order of £400,000 that had been frozen under an AFO.15 The order was made against bank accounts held by the son of Vladimir Filat, the ex-Prime Minister of Moldova currently serving a nine-year prison sentence for his part in a $1 billion banking fraud.
The NCA obtained a second AFO-related forfeiture order in May against a sum of £25,000 held in the bank account of the niece of Syrian leader Bashar al-Assad.16
These sums pale into insignificance against the £100m that the NCA succeeded in freezing in August.17 The funds, which were held in eight bank accounts, have gone on to form part of the NCA’s most headline-grabbing result of the year when, in December, it announced a settlement with a Pakistani property magnate for £190m. As well as the £100m frozen in August, the NCA also secured £20m from an earlier AFO and seized a London property valued at £50m.18 The total sum will be returned to the state of Pakistan.
The NCA attracted criticism before this year for its limited use of the power to apply for UWOs but has gone some way to remedying that this year. Orders against three properties originally bought for a combined £80m were secured in May against a politically exposed person believed to be involved in serious crime.19
In July, the NCA secured its first UWOs in relation to property that it suspects is derived from serious organized crime without links to a politically exposes person.20 The orders were made against eight properties worth a combined £10m. The NCA believes the funds used to purchase the properties were raised through drug trafficking, armed robberies and the supply of firearms.
Finally, in the same month, the NCA secured UWOs against six more properties, worth a combined £3.2m, owned by a Northern Irish woman who the NCA believes is associated with criminals involved in paramilitary activity and cigarette smuggling.21
The challenge now for the NCA will be to convert those UWOs into forfeiture orders as it has done with AFOs.
The SFO can argue that it has been taking stock over the past year and plotting its next moves to avoid the kind of embarrassment that it suffered at the start of 2019. This argument has a limited shelf life and both the SFO and the FCA will want to demonstrate their importance in the fight against financial crime in 2020 or risk being outshone by an agency with a remit that extends far beyond the world of white-collar crime.
1 Deferred Prosecution Agreement between the SFO and Tesco published, 23 January 2019, https://www.sfo.gov.uk/2019/01/23/deferred-prosecution-agreement-between-the-sfo-and-tesco-published/
2 SFO closes GlaxoSmithKline investigation and investigation into Rolls-Royce individuals, 22 February 2019, https://www.sfo.gov.uk/2019/02/22/sfo-closes-glaxosmithkline-investigation-and-investigation-into-rolls-royce-individuals/
3 Three individuals acquitted as SFO confirms DPA with Sarclad 16 July 2019, https://www.sfo.gov.uk/2019/07/16/three-individuals-acquitted-as-sfo-confirms-dpa-with-sarclad/
4 Three individuals acquitted as SFO confirms DPA with Güralp Systems Ltd, https://www.sfo.gov.uk/2019/12/20/three-individuals-acquitted-as-sfo-confirms-dpa-with-guralp-systems-ltd/
5 SFO completes DPA with Serco Geografix Ltd, 4 July 2019, https://www.sfo.gov.uk/2019/07/04/sfo-completes-dpa-with-serco-geografix-ltd/
6 SFO charges former Serco directors with fraud, 16 December 2019 https://www.sfo.gov.uk/2019/12/16/sfo-charges-former-serco-directors-with-fraud/
7 FH Bertling sentenced for $20m Angolan bribery scheme, 3 June 2019, https://www.sfo.gov.uk/2019/06/03/fh-bertling-sentenced-for-20m-angolan-bribery-scheme/
8 Court orders Alstom Network UK Ltd to pay £16.4 million, 25 November 2019 https://www.sfo.gov.uk/2019/11/25/sfos-alstom-case-concludes-with-sentencing-of-alstom-network-uk-ltd/
9 SFO opens investigation into London Capital & Finance Plc, March 18, 2019 https://www.sfo.gov.uk/2019/03/18/sfo-opens-investigation-into-london-capital-finance-plc/
10 SFO opens investigation into Greenergy and biodiesel trading, 16 May 2019 https://www.sfo.gov.uk/2019/05/16/sfo-opens-investigation-into-greenergy-and-biodiesel-trading/
11 De La Rue plc, 23 July 2019, https://www.sfo.gov.uk/2019/07/23/de-la-rue-plc/
12 SFO confirms investigation into suspected bribery at Glencore group of companies, 5 December 2019, https://www.sfo.gov.uk/2019/12/05/sfo-confirms-investigation-into-suspected-bribery-at-glencore-group-of-companies/
13 Two found guilty of insider dealing, 27 June 2019, https://www.fca.org.uk/news/press-releases/two-found-guilty-insider-dealing
14 Konstantin Vishnyak appears at court for destruction of documents offence, 6 September 2019, https://www.fca.org.uk/news/press-releases/konstantin-vishnyak-appears-court-destruction-documents-offence
15 For further information see here: https://www.wilmerhale.com/en/insights/blogs/WilmerHale-W-I-R-E-UK/20190311-the-nca-flexes-its-muscles-with-account-freezing-orders
16 al-Assad family cash forfeited in London court, 21 May 2019, https://www.nationalcrimeagency.gov.uk/news/al-assad-family-cash-forfeited-in-london-court
17 £100m Account Freezing Orders are largest granted to NCA, 14 August 2019, https://www.nationalcrimeagency.gov.uk/news/100m-account-freezing-orders-are-largest-granted-to-nca
18 NCA agrees £190m settlement after frozen funds investigation, 3 December 2019, https://www.nationalcrimeagency.gov.uk/news/nca-agrees-190m-settlement-after-frozen-funds-investigation-3
19 NCA secures Unexplained Wealth Orders for prime London property worth tens of millions, 29 May 2019, https://www.nationalcrimeagency.gov.uk/news/nca-secures-unexplained-wealth-orders-for-prime-london-property-worth-tens-of-millions
20 NCA secures first serious organised crime Unexplained Wealth Order for property worth £10 million, 18 July 2019, https://www.nationalcrimeagency.gov.uk/news/nca-secures-first-serious-organised-crime-unexplained-wealth-order-for-property-worth-10-million
21 NCA secures Unexplained Wealth Order against properties owned by a Northern Irish woman, 31 July 2019, https://www.nationalcrimeagency.gov.uk/news/nca-secures-unexplained-wealth-order-against-properties-owned-by-a-northern-irish-woman