A new chapter began on June 4 for the U.K. Serious Fraud Office, with the appointment of Lisa Osofsky as the newest director of the SFO. In this role, she will be responsible for all investigations and prosecutions for some of the U.K.’s most serious and complex fraud and bribery cases.
The selection of Osofsky, whose wealth of experience in both the public and private sector on both sides of the Atlantic, appears to be a strategic move at a critical time in the agency’s history. “It is clear that economic crime is committed across national boundaries, and Lisa’s experience of working at an international level will enhance the SFO’s capabilities in this area,” Jeremy Wright, Attorney General for England and Wales, said in announcing Osofsky’s appointment.
Osofsky’s breadth of cross-border, public- and private-sector experience is unmatched by any former SFO Director. In the government, her experience includes serving as Special Attorney in the Fraud Section of the U.S. Justice Department’s Criminal Division, and as deputy general counsel and ethics officer for the Federal Bureau of Investigation.
In private practice, she spent three years at Goldman Sachs as a money laundering reporting officer, where she advised the company’s senior management, bankers, and compliance officers on legal matters relating to money laundering, fraud, and regulatory risk. Osofsky currently serves as EMEA regional leader and EMEA head of investigations at global compliance consultancy firm Exiger in its London office, where she focuses on financial crime and anti-bribery compliance, as well as the firm’s investigative operations.
“Osofsky’s dual U.S.-U.K. nationality got a lot of attention in the U.K. press, but the really significant factor is her past international experience involving compliance-led investigations, forensic-intelligence gathering, and having been a prosecutor and defense lawyer across multiple jurisdictions,” says Neil McInnes, a partner at law firm Pinsent Masons. “Particularly valuable for the SFO will be the insights she can bring about the challenges faced by businesses in different markets and geographies.”
Having someone like Osofsky at the helm of the SFO may prove beneficial for global financial institutions, “because she is much more well-versed in the realities of global banking … than compared to her predecessors,” says Aaron Stephens, an English and U.S.-qualified partner at law firm King & Spalding. She understands first-hand the complexities in running a global financial institution, he says.
Michael Potts, a senior partner in the law firm Byrne and Partners in London, says she “brings a refreshing stance,” in terms of her financial services background. “She may be less inclined to go in like a bull in a China shop,” he says.
Although the SFO already has strong ties with its counterparts in the United States, Osofsky’s enforcement experience in both jurisdiction can only strengthen those ties. “I expect she’ll act as a catalyst for strengthening the relationship between the SFO and overseas, white-collar law enforcement agencies—in particular, in the United States,” says Robert Amaee, head of White Collar Crime & Corporate Investigations in London at law firm Quinn Emanuel. “And we are certain to see more SFO enforcement in coordination and cooperation with its U.S. counterparts.”
An evolving SFO
Osofsky is slated to take the reins from former Director David Green, who stepped down from his position on April 20 after six years at the helm. In the interim, Mark Thompson, the SFO’s current chief operating officer, is serving as acting director, until Osofsky assumes her new post on Sept. 3.
“It is clear that economic crime is committed across national boundaries, and Lisa’s experience of working at an international level will enhance the SFO’s capabilities in this area.”
Jeremy Wright, Attorney General, England and Wales
She is inheriting an agency that has made significant strides since Green took the helm in 2012. “He has made the SFO a much more credible enforcement agency,” Stephens says. “[Osofsky] has an opportunity to continue that positive development and make it even more successful.”
Developments under Green’s leadership include the introduction in 2014 of U.K. deferred prosecution agreements, as well as the implementation of the U.K. Sentencing Guidelines that took effect in 2014 (that draw heavily from the U.S. Sentencing Guidelines) for fraud, money laundering, and U.K. Bribery Act offenses; and the introduction in 2017 of a corporate criminal offense for failure to prevent the facilitation of tax evasion.
In a statement, the SFO noted that it’s in a “strong position,” having secured five convictions for rate-rigging offenses relating to LIBOR, and its first conviction against a company—Smith & Ouzman—for bribing foreign officials. The SFO added that it has also obtained several high-profile DPAs—including those reached with ICBC Standard Bank, Tesco, and Rolls Royce.
Commenting on her appointment, Osofsky said she looks forward to “building on the SFO’s successful record in the fight against economic crime and leading an emboldened SFO to even greater heights.”
To be sure, she will have a full plate. “We have no shortage of work coming through our door,” said the SFO’s Joint Head of Bribery and Corruption, Camilla de Silva. Much of that work comes from an increasing number of companies self-reporting to the SFO.
“From where I sit, we’re increasingly seeing organizations where there has been a change to the board, or an acquisition, taking a look at historic conduct overseen by different board members and coming to report that to us,” de Silva said. “Organizations and, more importantly, individual board members, are deciding that they want to satisfy themselves that predecessors have not made risky decisions that are yet to be uncovered and are doing something about those concerns, for fear of the consequence to their business and themselves of continuing to sit on that knowledge.”
In addition to its caseload, the SFO also recently announced changes to its funding arrangements, which may help to further boost its enforcement efforts. The SFO’s core funding for the 2018-2019 fiscal year has been increased from a planned £34.3 million (U.S. $46 million) to £52.7 million (U.S. $70 million).
Moreover, the SFO has made new arrangements for “blockbuster” funding. It used to be that when a case was forecasted to cost greater than five percent of its annual budget, the SFO had to apply for separate funding and rely heavily on temporary personnel for complex cases.
Under the new arrangement, blockbuster funding will cover expenses greater than £2.5 million on any single case in a given year. “This consolidation of our funding will enable us to build future SFO capacity,” de Silva said. “We will be able to plan our resourcing better to fit our busy workload, which will by design include large-scale investigations, which previously came under the banner of blockbuster cases, such as the LIBOR investigations.”
Despite the strides it has made—and continues to make—the SFO also continues to face a good amount of criticism. “[Osofsky] inherits an agency that has made progress since the previous Director David Green, but still has a fair way to go,” Potts says. The real test lies in the SFO’s prosecution of individuals moving forward. “I think on that front, they haven’t necessarily made much progress,” he says.
CORPORATE CRIMINAL LIABILITY
Below are remarks from a speech given by Camilla de Silva, Joint Head of Bribery and Corruption, speaking at the Herbert Smith Freehills Corporate Crime Conference 2018.
If we are looking to prevent and control economic crime, there are three main problems with the current limited corporate liability:
It encourages bad corporate culture: Our current system creates an obvious incentive to the members of company board to distance themselves from the company’s operations. We have seen the effect of this in our casework, in a number of ways, the deliberate “don’t raise that with me” attitude, or turning a blind eye to risks of crimes taking place; the keeping decisions away from the Board and pushing down significant decision making onto non-exec Board members and associated lack of record keeping. This is the complete opposite of the policy rationale behind the Bribery Act 2010 of good corporate governance and incentivising good governance.
It does not operate a fair playing field: There isn’t a fair playing field, as reliance on the identification doctrine has made it easier to fix a small or medium size enterprise with corporate criminal liability, than a larger, more complex multi-national. This is because it is easier to attribute liability to the directing mind and will of a small company, perhaps with one or two directors who are the decision-makers, than a larger corporate where it is not possible to demonstrate who was “the controlling mind”, either because it was a decision of more than one individual, or because it is difficult to pierce the corporate veil. If you think about it, that’s not that surprising. The basis of the law is over a century old, designed and befitting business as it then was. But if you look at the changes that have taken place in business in the intervening period – it can be no surprise that we are asking the question whether the law remains truly fit for purpose.
It creates a two-tier approach to economic crime which is unprincipled: At present we have a two tier law of corporate criminal liability in this country. The identification principle applies across the economic crime landscape and beyond, including of course to the substantive offences of bribery in the Bribery Act. Then, we have the failure to prevent bribery offence, and the recently enacted offence of failure to prevent the facilitation of tax evasion. If the political and public will existed to ensure corporates became more accountable for criminal behaviour in their commercial practices, it is difficult to understand why, conceptually, this accountability should be limited to only two species of conduct.
Turning a blind eye to fraud and corruption is not good for UK plc, it drags our nation into disrepute. It undermines our financial centre. There is concern that our on-going adherence to the identification doctrine is making the UK a weak link in the fight against international financial crime. This can in turn impact our ability to retain forum in criminal cases which are properly justiciable in England. I think it naïve to think that too rigorous an enforcement of anti-bribery and fraud matters by UK authorities is a bad thing and a burden on business post-Brexit, as others will take on this work, if we don’t.
We remain of the view that a more sensible and just approach is that embodied in S7 of the Bribery Act 2010. This creates the offence of a commercial organisation “failing to prevent” bribery by its employees, and provides a responsible corporate with a statutory “reasonable or adequate procedures” defence. So the typical defence to bribery by an organisation prior to the BA would have been, “we didn’t know anything about the conduct” and that those associated with it “were acting without authority”. Such a statement would now amount to an admission and not a defence. The corporate instead has to demonstrate adequate procedures, which those associated with it, nonetheless subverted and circumnavigated. Extending this approach, a Corporate could be liable for failing to prevent certain types of criminal offence i.e. economic crime by their employees, subject to the important caveat of a statutory defence.
Such an approach would assist in the development of good ethical corporate culture, support growth and encourage clean and stable markets; it would increase investor confidence, assist in more rapid prosecutions and dovetail well with deferred prosecution agreements.
Legal and compliance officers should expect, however, that the SFO will remain steadfast in its enforcement efforts. “We have the stamina and resources to take on these most demanding of cases, and a selection of our publicly known current caseload demonstrates that independence and appetite—for example GSK, Alstom, Tesco, Barclays, Libor, Euribor, Rolls-Royce, Airbus, Unaoil, Petrofac, Rio Tinto,” de Silva said.
In her remarks, de Silva also tried to assuage rumors about the SFO combining with the National Crime Agency, which Prime Minister Theresa May has been trying to make happen since last May. “The position of the office is clear: We are an independent organization and will continue to be so—but we continue to support a multi-agency approach to economic crime, including the build of the new National Economic Crime Centre announced last December,” de Silva said.
She also addressed head-on the SFO’s approach to legal professional privilege—an area that has come under intense scrutiny by corporate counsel. “Recent cases have highlighted that the SFO will challenge overly ambitious claims to privilege and, in specific circumstances, are obliged to do so,” she said.
This issue will be addressed, in part, by the U.K. Court of Appeal in July, when it takes on the Eurasian Natural Resources Corporation (ENRC) case, a mining company at the center of a bribery and corruption case. In May 2017, the High Court found in favor of the SFO, ruling that the agency could gain access to a raft of documents generated during an ENRC internal investigation that the company argued were protected by professional privilege. That case is now on appeal.
“The protection of litigation privilege has not disappeared or been eroded,” de Silva stressed. “Whether or not litigation privilege applies will depend on the facts of the case.”
SFO and AI
Another long-held criticism of the SFO that Osofsky will need to address as director concerns the snail’s pace way the SFO investigates matters and makes charging decisions. For example, the SFO’s criminal investigation into G4S and Serco’s electronic monitoring contracts and the ENRC criminal investigation each are in their fifth year. “I suspect she’ll take a hard look at the number of cases that have been under investigation for many years to try to find ways of streamlining them and bringing them to earlier charging decisions,” Amaee says.
One way the SFO is working to expediate investigations is through its use of artificial intelligence and technology. “The amount of data handled by the SFO’s digital forensics team has quadrupled in the last year,” de Silva said. “Using innovative technology is essential to perform our tasks, as investigators and prosecutors, given the volume of material we deal with.”
The SFO recently adopted a new review platform, Axcelerate, that it’s using on all new cases. “We are confident that our sophisticated review systems can help us consistently and more easily and quickly pursue relevant lines of inquiry that we choose,” de Silva explained. “It is able to recognize patterns, group information by subject, organize timelines, graphically depict search results, and remove duplicates. We think our new technology will allow us to deliver justice sooner, at lower cost.”
Until Osofsky takes up her post, however, many questions will remain: “For example,” McInnes says, “what nuances will develop in the agency’s approach to corporate self-reporting? Will the SFO seek to offer greater certainty to senior managers and boards (as well as their compliance and legal teams) when companies are proactive in their cooperation? Will we see changes in the way the SFO treats companies’ internal investigations?”
In her concluding remarks, de Silva had this advice to leave to companies: “[M]y message is, keep doing the good work on prevention of corruption in your sector, but where prevention fails, think hard about the benefits of coming to see us and coming to see us with genuine cooperation.”