Last year marked a key transition in the UK in relation to bribery enforcement. David Green departed from the SFO in April 2018 to be replaced (on an interim basis) by his COO, Mark Thompson, and finally succeeded in the autumn by Lisa Osofsky.
2018 also marked eight years since the royal assent of the Bribery Act 2010 (UKBA) and saw the first contested corporate trial under that Act.
This update is aimed primarily at non-English lawyers who work on international matters and looks back at 2018, explaining key UK enforcement trends and the most notable legal changes. The post also looks forward into 2019, summarizing the likely impact of Brexit and recent changes to prosecutorial priorities.
The total number of SFO investigations during 2018 is believed to be in region of 70-75. In addition to which Lisa Osofsky has confirmed that there are “dozens of bribery and corruption cases in the investigative pipeline — just over half of our docket.” In other words, 2018 was a very busy year for the SFO and perhaps to date it’s most active.
In relation to prosecutions, despite the well-publicized collapse of the case against Barclays Bank in October, 2018 did see the first successful prosecution of a company for failure to prevent bribery under section 7 UKBA. In that landmark matter, Skansen Interiors became the first case where the “adequate procedures” defense available under section 7(2) UKBA was pleaded (unsuccessfully). The SFO also notably announced the prosecution of oil company, Unaoil, after a two year investigation into alleged systemic bribery in the energy industry.
Outside of criminal prosecutions, while many corporates have been in discussions with the SFO in relation to deferred prosecutions in 2018, none of those discussions led to a Deferred Prosecution Agreement (DPA). This might seem a significant anomaly when compared to activity in the United States but it is important to remember that DPAs only entered English law in February 2014. Since then there has often only been one DPA per year and the two latest DPAs, the DPA in 2017 for Rolls-Royce and Tesco, were the most significant to date.
Looking forward to 2019, with the position on English privilege more settled (see below) and a new and highly committed Director at the start of a five year term, it is at least possible that this year well see as many or more DPAs than we have seen in any year since their introduction.
2018 witnessed the collapse of the SFO’s case against two previous directors of Tesco — in fact the Court of Appeal held in December that there “was no case to try.” Nevertheless, the SFO secured a total of four convictions against individuals in relation to Alstom Power Ltd, with the most recent guilty verdict handed down on December 19, 2018. In addition, by November 2018, nine individuals had been successfully prosecuted in relation to the FH Bertling bribery related cases and preparation had been made for the trial in 2019 of senior individuals previously at Barclays.
As a result, despite the tenacity of defendants fighting UK prosecutions and some important wins for their legal teams, there can be little doubt that the SFO’s focus on individuals, as well as corporates, will continue into 2019.
Recovery of Criminal Assets (CROs and UWOs)
In England and Wales, Civil Recovery Orders (CROs), can be obtained under Part 5 of the Proceeds of Crime Act 2002. Recovery, however, has always been perceived as slow and difficult. Despite that, in 2018 a notable CRO of £4.4 million ($5.7 million) was recorded against diplomats involved in the “Chad Oil” deal and a further significant CRO made in relation to alleged corruption in Uzbekistan. In addition, 2018 marked the first use of a new tool; Unexplained Wealth Orders (UWOs).
UWOs were introduced by section 1 of the Criminal Finances Act 2017 and require an individual to explain their interest in a property, including how that property was obtained. Getting off to a quick start, UWOs were used three times in 2018, including a contested UWO against a Mrs. Hajiyeva during which it was revealed that respondent had reportedly spent £16 million ($20.5 million) in Harrods over ten years.
England’s Court of Appeal’s decision in SFO v ENRC in September was one of the most important English judgments of the year; overturning cases that had systematically weakened or removed litigation privilege. As a result of the appeal, as in other common law countries (including the United States), companies carrying out a financial crime investigation are again much more likely to be able to create litigation privilege (for English law purposes) over confidential communications. However, companies will need to act in accordance with criteria set out in the ENRC judgment and their case will be strengthened by retaining relevant external counsel.
2019: Prosecutorial Priorities and Brexit
Unfortunately this post is too short to set out every UK predictions for 2019. Instead three issues of interest are focused on below:
The SFO has indicated that it intends to place greater emphasis on obtaining its own cases, rather than relying on referrals from other UK/U.S. agencies. As a result, we anticipate an increase in UK surveillance relating to corruption and fraud over the course of 2019. In terms of the SFO’s ability to fund this development, we note both that the SFO’s core funding has previously been increased from £34.3 million ($44 million) to £52.7 million ($67.8 million) and that the SFO Director has indicated an intention to focus and streamline the SFO caseload (presumably freeing up funds from cases that are not a priority).
The new Director Lisa Osofsky’s recent background in a compliance consultancy is expected to result in greater compliance awareness in the SFO. This is after all the first time that the SFO has a Director with practical experience advising companies on compliance programs and also of leading U.S. monitorships and s166 assignments. As a result, we anticipate that the SFO will be increasing the focus on adequate procedures and we suggest that all companies should be prepared to discuss their compliance with UK requirements when they either approach or are approached by the SFO.
Based on statements by the SFO, positive interaction between the EU states, EU bodies and the UK on anti-corruption is likely to continue post any form of Brexit. However, a very legalistic approach to obligations and rights could create short-term difficulties, particularly if the UK leaves in March 2019 with “no deal.” The bigger anti-corruption related impact of Brexit is expected to be that it is taking up all free UK government time.
As a consequence, although 2019 will see more calls to make it easier to prosecute large companies by changing the UK law on corporate criminal liability and requests for the Ministry of Justice to provide updated compliance guidance, there may not be the time to make meaningful progress until after critical Brexit related tasks are completed.