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Paul Brehony discusses the recent findings of the HMCPSI identifying weaknesses in the Serious Fraud Office’s management of disclosure in Financial Regulation International

By Paul Brehony

Partner Paul Brehony discusses the HM Crown Prosecution Service Inspectorate’s report identifying structural weaknesses hindering the Serious Fraud Office’s  effective management of disclosure in Financial Regulation International.

Paul’s article was published in Financial Regulation International on 28 June 2024, and can be found here

Five-year plans were a mainstay of the old Soviet Union; Russia is currently on its 14th (2021–25).  They have also become a key communication tool for detailing the ambitions and medium-term plans of the UK’s Serious Fraud Office (SFO). The SFO Strategy 2024-29, published in April,[i] is the latest example. 

In his foreword to the Strategy, Nick Ephgrave, who became SFO director last September, describes its “aspiration to be the pre-eminent specialist, innovative and collaborative agency which leads the fight against serious and complex fraud, bribery and corruption”. He concludes: “I hope you get a real sense of excitement and ambition from reading this document and find it a convincing and compelling vision for the future of the SFO.”

Flawed evidence

Ephgrave’s upbeat language contrasts with the tone of another recent report on the agency’s case progression published by HM Crown Prosecution Service Inspectorate (HMCPSI), the independent body which monitors both the SFO and the CPS. Critically, it identifies structural weaknesses that have hindered the SFO’s effective management of disclosure: staff retention problems; a lack of a robust disclosure planning strategy; and ineffective engagement with the defence.

Commissioned because of prominent SFO cases that collapsed in the wake of flawed evidence sharing with the defence, the HMCPSI report recommends that the SFO introduces an independent disclosure review process after every charge is brought. Although it acknowledges that some progress has been made by the SFO, the report confirms that much still needs to be done in reforming the agency’s disclosure procedures.

The SFO’s record reveals consistent shortcomings in meeting its statutory obligation under the Criminal Procedure and Investigations Act (CPIA) 1996 – to disclose all relevant unused material to the defence. In accumulating huge volumes of electronic material during investigations, it has often found the disclosure regime in its present format simply impossible to satisfy.

Arguably, the CPIA itself may be part of the problem: if the SFO needs reform, then so does the CPIA regime. When Ephgrave’s immediate predecessor Lisa Osofsky called for a radical overhaul of the disclosure regime in 2022, there was evidently merit in her argument. But given the extensive catalogue of SFO errors that had occurred, it looked more like an excuse.   

Money, of course, remains a problem. Calls for adequate long-term SFO funding have a long history, stretching back to the last Labour government under Gordon Brown. The HMCPSI report reiterated the funding point, recommending better incentives for SFO staff to assume disclosure roles, further corroborated by the SFO’s current staff vacancy rate of 20 to 25 per cent. 

Sue Hawley, the executive director of campaign group Spotlight on Corruption, recently told City A.M.[ii] that: “The government urgently needs to take heed of the HMCPSI’s recommendation that it come forward with a long-term funding plan for the SFO to ensure it has the resources to tackle disclosure issues.” She added that disclosure is “… not just the SFO’s problem, however, but rather an Achilles heel of the justice system as a whole, particularly prosecutions of complex economic crime.” 

Among other challenges facing the SFO are the agency’s software systems. It is currently reviewing cases to ensure that technology problems in sifting evidence have not interfered with document searches that could potentially undermine historic convictions.

In another report[iii] published last year, the Institute of Economic Affairs’ (IEA) Director of Research, Dr James Forder, criticised the SFO for its “history of unprofessional behaviour and spectacular prosecutorial failures.” Citing a “litany of errors”, he added that the SFO has been “responsible for a series of expensive and high-profile failed prosecutions, unlawful prosecutions and breaches of the Civil Service code” and that its “long record of failure demonstrates the need for reform, which could include abolition and reallocating its powers to other government agencies”.

Systemic failure

Closer analysis of the SFO’s track record invariably points to systemic failure. Among the most egregious examples are the failed prosecution of two former directors, and the Court of Appeal quashing three Unaoil convictions[iv] and criticising the SFO over its handling of the case for “wholly inappropriate” contacts with a “fixer”. Respectively, the Unaoil and Serco cases led to the Altman[v] and Calvert-Smith[vi] reviews, which outlined in excoriating detail the disclosure-related errors of judgment that were made.

Since then, there have been further examples, such as the SFO abandoning its prosecution of three former G4S executives for allegedly defrauding the Ministry of Justice in relation to electronic monitoring services contracts. Failure to disclose all the material gathered by the agency resulted in its case being dismissed. Last December, the ENRC saga finally reached a denouement when the High Court ruled[vii] that the Kazakh mining group was entitled to receive damages from the SFO over its decade-long investigation which ultimately had to be abandoned.

According to the HMCPSI chief inspector, Anthony Rogers, delivering on its disclosure obligations “is a significant undertaking” for the agency. In the HMCPSI report, he notes that the cost of disclosure compliance amounts to 25 per cent of the SFO’s operational budget, taking up to 40 per cent of its overall staff capacity.

Jonathan Fisher KC of Red Lion Chambers made recent headlines in another review[viii] when he suggested that if the average volume of material in an SFO case were printed, it would stack considerably higher than the Shard. Responding to Fisher’s review, Ephgrave confirmed that he supports “a disclosure regime that works for the digital age and ultimately speeds up cases’ outcomes”.

Inadequate funding

Most of the SFO’s problems can be attributed to inadequate funding – a theme consistently echoed by numerous City commentators. Prominent among them is Peter Binning, a partner at Corker Binning, who has noted that the HMCPSI report “does not shy away from the urgent need for more government funding.”[ix] Manifestly, the SFO cannot realistically be expected to improve its performance without increased resources being made available, allowing for properly trained staff with the right technology at their disposal. Like other parts of the UK’s publicly funded legal system, the government alone bears responsibility for sustained underfunding over many years.

Like the audit reform programme, which has been subject to repeated delays, the effectiveness and integrity of the UK’s regulation and law enforcement are pivotal in underpinning UK Plc’s future prosperity.  In considering recent events, it is abundantly clear that disclosure-related, high-profile SFO blunders must stop.  

Without doubt, adequate funding is essential to achieve that. But there is also benefit to be derived from reviewing best practice in other, better functioning jurisdictions which have comparable agencies. The most obvious is the US Department of Justice (DoJ), which fulfils a similar role to the SFO: investigating and prosecuting serious or complex fraud, bribery and corruption. Notably, the DoJ partly self-funds in some areas, recovering its costs through fines, enforcement actions, stipulated administrative orders, and settlements.

Take Airbus as an example: it had to pay a €991 million fine under its deferred prosecution agreement (DPA). But rather than the money disappearing into Treasury coffers, the potential for the SFO to benefit directly by adopting the DoJ approach would be enormous. Much reform is still needed in the SFO’s disclosure review process, but to use Ephgrave’s words, there would be a real sense of excitement and ambition if the agency’s funding could be turbocharged by future DPA fines.

[i] SFO, Serious Fraud Office Strategy 2024-2029, 18 April 2024, https://www.sfo.gov.uk/2024/04/18/serious-fraud-office-strategy-2024-2029/.

[ii] Lucas, B and Ward-Brennan, B, “SFO makes strides on disclosure but funding crucial to fixing problems, report finds”, City A.M., 30 April 2024, https://www.cityam.com/sfo-makes-strides-on-disclosure-but-funding-crucial-to-fixing-problems-report-finds/.

[iii] Forder, J, “Fraud Focus: Is the Serious Fraud Office fit for purpose?”, IEA, 28 March 2023, https://iea.org.uk/publications/fraud-focus-is-the-serious-fraud-office-fit-for-purpose/.

[iv] See Akle and Another v R [2021] EWCA Crim 1879; R v Bond [2022] EWCA Crim 427; and [AQ: Do we have a neutral citation for Whitely? Unable to find it online]

[v] Altman QC, B, “Report to the SFO: The collapse of R v Woods & Marshall on 26 April 2021”, July 2022, https://www.sfo.gov.uk/download/review-of-r-v-woods-marshall-by-brian-altman-qc/.

[vi] Calvert-Smith, Sir D, “Independent Review into the Serious Fraud Office’s handling of the Unaoil Case – R v Akle and Another, July 2022, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1092872/DCS_report_-__FINAL_-_21_July_08.31_.pdf.

[vii] See Eurasian Natural Resources Corporation Ltd v The Director of the Serious Fraud Office and Others [2023] EWHC 2638 (Comm) and Eurasian Natural Resources Corporation Ltd v Dechert LLP and Another [2023] EWHC 3280 (Comm)

[viii] Independent Review of Disclosure and Fraud Offences: preliminary findings, 24 April 2024, https://www.gov.uk/government/publications/independent-review-of-disclosure-and-fraud-offences-preliminary-findings.

[ix] Supra note 2.

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