A More Aggressive Serious Fraud Office?

Oct 2008
Newsletter/briefing

On 6 October 2008, the Serious Fraud Office ("SFO") issued a press release reporting that it had used its new powers to obtain "civil recovery" against a major plc. Balfour Beatty plc ("BB") agreed to pay £2.25 million and a contribution to the SFO’s costs over "irregular payments" connected with an Egyptian construction project in which a BB subsidiary was involved as a joint venture ("JV") partner with an Egyptian company.

Few details of the case are publicly available¹, but this could well herald a more aggressive approach by the SFO towards the enforcement of criminal-type sanctions against corporates in the UK. For some time, the SFO has been widely criticised for its poor success rate (especially in comparison to its US cousins), excessive costs and delays and for the UK’s failure to prosecute overseas corruption cases, and on 17 October 2008 the OECD published another criticism of the UK’s record on prosecuting overseas corruption².

Points to note

BB self-reported the issue to the authorities (including the SFO) after it had discovered the irregularities and carried out its own, internal, investigation
BB was not prosecuted for the offence of overseas corruption³, although the suspicions appear to relate to execution of a contract overseas (the nature of the payment irregularities is unclear from the published reports)
BB was not, in fact, subject to any criminal proceedings at all - rather, it agreed to a Civil Recovery Order under Part 5 of POCA. This permits the Director of the SFO to recover, in civil proceedings, property (widely defined) which is, or represents, property obtained through "unlawful conduct" (which must be criminal). The test is the civil balance of probability not the criminal standard of beyond reasonable doubt. The relevant "unlawful conduct" in BB’s case was the offence of a failure to keep adequate accounting records under section 221 of the Companies Act 1985 (now found in sections 386 and 387 of the Companies Act 2006). There is no requirement that the defendant be convicted of, or charged with, the offence representing the unlawful conduct and in this case BB was not charged with any offence. The Civil Recovery Order is a free-standing statutory civil claim
It was BB that was the target of the Civil Recovery Order despite the fact that the irregularities were said by the SFO to have been in the books of a subsidiary involved in a foreign JV. This is because there is no requirement under POCA that the person subject to the Order be the person who carried out the "unlawful conduct"
In agreeing the Order, BB was given credit by the SFO for self-reporting, for providing co-operation during the investigation and for agreeing to a "compliance programme" aimed at preventing recurrence of the problem (with external monitoring)

Comment

All of the above point strongly to a US-style approach to enforcement being adopted by the SFO. The use of "civil penalties" and "books and records violations" have long been very effective features of SEC enforcement practice. The SFO is perhaps understandably keen to use these new tools as an alternative to outright criminal prosecution.

The fact that credit was given for self-reporting, co-operation during the investigation and for a compliance programme going forward may sound familiar to any company which has been subject to a run-in with the US authorities, particularly in the area of overseas corruption and the Foreign Corrupt Practices Act. However, there is no reason why the SFO could not extend this approach beyond the overseas corruption arena and apply it to any situation where a company has benefited from what can be said on a balance of probabilities to have been "unlawful conduct".

October 2008

The Civil Recovery Order itself is confidential and can only be inspected on application to the Court.
The UK and the SFO are taking steps to respond to these concerns. The City of London Police has recently secured the first convictions for overseas corruption through its Overseas Anti-Corruption Unit (which works closely with the SFO). The SFO has recently appointed an new Head of Anti-Corruption and Jack Straw has been appointed the Government’s Anti-Corruption Champion. The Law Commission is expected to bring forward proposals for a new law in November this year following its latest report in November 2007.
This may not have been possible in any event as the activities took place before the coming into force of sections 108 to 110 of the Anti-terrorism, Crime and Security Act 2001 on 14 February 2002, which made it clear that UK corporates and nationals could be prosecuted for corruption carried out overseas.