Blog

31 May 2019

The dawn of the SFO supergrass?

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

cb-web__0006_david-corker_6541_final-jpg

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

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Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

By Sangeeta Bedi

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Categories: Blog, Bribery and corruption, Business crime & fraud, Financial Crime, Money laundering,

Lisa Osofsky’s appointment as the new Director of the SFO has been heralded as a turning point.  With a “different kind of Director[1] came the promise of new ideas, attitudes and ways of working, not least the use of “flipped defendants, who later become witnesses.[2] This formed a staple of the Director’s previous tenure as a US federal prosecutor. She has repeatedly advocated its adoption by the SFO.

Flipping defendants into witnesses is an established concept in UK law. Sections 71 and 73 of the Serious Organised Crime and Police Act 2005 (“SOCPA”) are the two primary statutory methods available to UK prosecutors seeking to secure the evidence of cooperating witnesses. However, the SFO’s historic use of these powers, and their historic use by other prosecuting agencies in the UK in financial crime investigations, has been tentative, at least in comparison with their US counterparts.

Section 71 SOCPA – immunity notices

Section 71 affords certain prosecutors (including the SFO) the ability to issue an immunity notice. An immunity notice requires the recipient’s full commitment to a “cleansing” process, including admissions of all previous criminality, provision of all available information and documents, and an ongoing obligation of full cooperation.  A failure to commit to the cleansing process has severe consequences, including the revocation of the immunity notice. The possibility of revocation indicates both the conditionality of immunity notices and the high expectations imposed upon those who enter into them.

The SFO has never published a policy prescribing the circumstances in which it would grant an immunity. As far as is known, the SFO has only issued an immunity notice once, in a case in which this firm acted, but of which there is nothing in the public domain. This happened when the SFO was under the stewardship of Richard Alderman. Under David Green QC, the SFO’s position was that it would never immunise an offender.  Mr Green regarded an immunity from prosecution as appropriate only for cracking serious general crimes, such as gangland murders, where a witness faced a risk to his or her life and would have to spend the remainder of their life living in secrecy.

Will the antipathy to immunity of David Green’s SFO change under Ms Osofsky? The answer is that it probably won’t, for the following reasons:

  1. Whilst SOCPA does not oblige the SFO to seek the Attorney General’s consent before agreeing to an immunity notice, the CPS routinely does so as a matter of practice, reflecting the pre-SOCPA common law position. The SFO would probably do the same, mindful of the Attorney General’s commitment to supporting its future existence and independence. In other words, agreeing to leave serious offending completely unpunished would engage the time-consuming extra-legal sensitivities of the Attorney General’s office, which would act as a deterrent in itself.
  2. The CPS published guidance demonstrates how exacting the criteria are for approving an immunity notice, namely:
    • whether in the interests of justice it is of more value to have a suspected person as a witness for the Crown than as a possible defendant;
    • whether in the interests of public safety and security the obtaining of information about the extent and nature of criminal activities is of greater importance than the possible conviction of an individual; and
    • whether it is very unlikely that any information could be obtained without an offer of immunity and whether it is also very unlikely that any prosecution could be launched against the person to whom the immunity is offered.
  3. In relation to the last of these criteria, the SFO will usually be able to obtain the same evidence by way of a lesser concession, i.e. a section 73 agreement.

For all of these reasons, it is highly likely that the SFO’s reluctance to grant immunity notices will continue under Ms Osofsky, with her apparent willingness to engage in flipping to be realised, not by her powers under section 71, but by way of section 73.

Section 73 SOCPA – cooperating offender agreements

Section 73 provides a means by which certain prosecutors (including the SFO) can induce an offender’s cooperation by creating an expectation of a greatly reduced sentence.  It requires the offender to enter guilty pleas to their criminality, giving rise to convictions that would not have been obtained had an immunity notice been issued instead. The recipient’s full and continuing cooperation is required to the same degree as it would pursuant to an immunity notice. Section 73 thus enables the exact same information and cooperation to be leveraged at a much lower cost.

The attraction for a prosecutor to take this route is manifested in the number of section 73 agreements recorded by the CPS relative to the number of immunity notices issued under section 71. Since SOCPA came into force on 01 April 2006,[4] 218 section 73 agreements have been entered into, this being 30 times the number of immunity notices issued during the same period.[5]

Given the SFO’s unwillingness to publish official data as to its use of the SOCPA provisions, it is impossible to determine how many section 73 agreements it has entered into over the same period. The most famous example of such an agreement is the one which the SFO entered into with the now notorious LIBOR trader, Tom Hayes. That deal however unravelled when, after 75 hours of interviewing pursuant to the deal, Hayes repudiated it and opted to contest his prosecution. It is probably fair to say that the use of section 73 has been limited.[6]  What explains the SFO’s continuing reluctance to use section 73 agreements?

First, where the SFO has used them, they have not necessarily facilitated the successful prosecution of others. Prosecutions such as the one against a Victor Dahdaleh collapsed despite the SFO’s reliance on a witness whose testimony was purchased with a section 73 deal. Secondly, in the sphere of financial crime generally, the experience of law enforcement agencies using similar powers is patchy, particularly the CMA, which in its two most recent cartel prosecutions failed to convict anyone other than the cooperating offender.[7] In the first cartel prosecution, the CMA’s star witness torpedoed the prosecution by asserting that he did not regard his erstwhile cartelists as dishonest. In the second, the CMA took fright and never prosecuted anyone.

Thirdly, basing a contested fraud or corruption trial on the evidence of a person whose integrity is easily undermined – and whom the jury is specifically directed to treat with scepticism – is riddled with risk. In the US, by contrast, few investigations into suspected fraud or corruption ultimately rely on a cooperating witness in a contested trial, with defendants tending to enter into plea bargains instead with the DOJ. Fourthly, any competent defence lawyer will advise his or her client about the huge burden and risk that seeking a section 73 agreement entails, not least the possibility that everything said to the SFO in any interview is admissible against the client if the agreement falls through; as per Tom Hayes whose interviews constituted the prime evidence against him and who ended up being mercilessly sentenced to 14 years (reduced on appeal to 12).

In most cases, these problems outweigh the main benefit to an offender of a section 73 agreement, which is a reduction in sentence – and even that benefit involves considerable uncertainty.

The Court of Appeal propounded the extent of the sentencing discount in a section 73 agreement in R v Blackburn [2007] EWCA Crim 2290. The Court held that a discount of between 50-66% should be awarded in normal circumstances, with the reduction only exceeding 75% in the “most exceptional” cases. These guidelines mean that the reward on offer via section 73 is substantial. An offender who cooperates from the outset stands to be awarded the standard one-third discount for an early guilty plea, followed by 50-75% discount off the nominal residual sentence.

In R v Dougall [2010] EWCA Crim 1048, an appeal against sentence which remarkably was supported by the SFO, the Appellant contended that the sentencing judge had been parsimonious in the award of the section 73 discount by refusing to suspend a 12-month custodial sentence. The Court of Appeal agreed and held that for most white collar offenders, a suspended prison sentence should be the norm, whereby the custodial term was one of 12 months or less. The decision in Dougall acknowledged that the avoidance of imprisonment entirely constituted the principal inducement for cooperating white-collar offenders. In other words, a de facto 100% discount should be the prospect for a white collar offender in order to make their co-operation option sufficiently enticing.  In both of the cartel prosecutions already mentioned, which were decided after the decision in Dougall, the offender walked free from court.

In R v Cano-Uribe & Ors [2015] EWCA Crim 1824, however, the Court of Appeal cast doubt on whether a sentence of between 12 and 24 months, which section 68 of the Legal Aid Sentencing and Punishment of Offenders Act 2012 encourages a sentencing judge to suspend, should be suspended where it is imposed pursuant to a section 73 agreement. In certain cases, therefore, a cooperating offender faces the uncertainty of being unable to predict whether the court will suspend his or her sentence. This uncertainty goes some way to explaining why section 73 agreements are not as appealing to suspects as they might seem.

Conclusion

At first blush, it is not difficult to understand why Ms Osofsky is keen to increase the SFO’s use of cooperating offender agreements under section 73. They deliver a newsworthy guilty plea which can be presented as a “success” and which might not otherwise have been obtained. Relying on a cooperating witness may also be the only evidential path to successfully prosecuting white collar crime, especially if contemporaneous records of decision-making are sparse or non-existent.

The challenge facing the new Director is how to superimpose her US experience onto a UK statutory model, despite the differences that exist between the two jurisdictions. Already the SFO has announced guilty pleas in one major corruption case, and is contemplating charges against others apparently based, at least to some degree, on the evidence of the guilty cooperating offender. The age of the white-collar supergrass has reached these shores. Whether it can deliver convictions of others is a far more difficult proposition.

[1] Lisa Osofsky ‘Ensuring our country is a high-risk place for the world’s most sophisticated criminals to operate’ (Speech at the Cambridge International Symposium on Economic Crime, Jesus College Cambridge, 3 September 2018)

[2] Lisa Osofsky ‘Keynote Address’ (FCPA Conference, Washington DC, 4 December 2018)

[3] Immunity From Prosecution 09 November 1981, Volume 12

[4] SI 2006/378, Art 5(1)

[5] Data available until 30 April 2018

[6] SFO section 73 agreements inclusive of: R v Dougall [2010] EWCA Crim 1048; R v Ford [2011] EWCA Crim 473; R v Hall (Southwark Crown Court, sentenced July 2014); R v Kerrison, Jennings, Papachristos and Turner (Southwark Crown Court, sentenced August 2014); R v Cano-Uribe & Ors [2015] EWCA Crim 1824; R v Clay and Clark (Southwark Crown Court, sentenced October 2015)

[7] The galvanised steel tanks case (R v Snee) and the reinforced concrete draining products case (R v Cooper).

This article was published in Fraud Intelligence and can be found here.

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