Serious Fraud Office
Future Challenges in Economic Crime: A View from the SFO
Lisa Osofsky yesterday spoke at the Royal United Services Institute.
[Please note the delivery of the speech may vary slightly.]
Thank you for inviting me to speak today on “future challenges in economic crime”. There are quite a few of them, and of course, that means many opportunities as well. Some of the challenges are the familiar ones with which we have been wrestling for years – some go as far back as my secondment to the SFO from the US DOJ over 25 years ago. Some are newer.
I want to start by acknowledging positive developments in this area; for instance, economic crime has moved higher up the political agenda than it has been for some time, with a renewed focus on tackling fraud. This highlights the importance of strengthening the UK’s economic security and prosperity as we respond to the way that criminals of all types exploit both the global pandemic and the changes in our relationships with the EU and the rest of the world. The SFO has a unique role to play in the UK’s wider law enforcement and prosecution agenda. Of course, no one is suggesting we can simply prosecute our way out of today’s problems-this will require all parts of the justice system to do their part. But bringing strong cases to court – and negotiating airtight deferred prosecution agreements to ensure good corporate citizenship – are key parts of protecting our citizenry, our economy and our national reputation.
And in the past year the SFO has shown how it can do this – for example achieving, hand in hand with our American and French partners, the largest ever bribery and corruption resolution, a record breaking E3.6bn global deferred prosecution agreement with Airbus. Our part of the agreement covered conduct in 5 jurisdictions and involved concerted engagement with impacted countries around the world. This exemplary co-operation offers a blueprint for the future, the gold standard in tackling global economic crime.
And, this summer, we convicted three defendants over the course of case that straddled the Covid lockdown like no other. In Unaoil, which involved corrupt oil contracts in Iraq, we completed our case against the three defendants who went to trial (one had pled guilty at the outset) just before the lockdown bit, leaving only closing speeches and the summing up outstanding. God bless our jury. They came back 3 months later to one of the first Covid-safe courtrooms and rendered guilty verdicts as to two of the defendants but couldn’t agree on the last one remaining. We will retry him in January. The Judge imposed sentences of 5 and 3 years; and the third is being sentenced today.
Moving on from these recent examples (Airbus & Unaoil) I want to focus on some broader topics. First, how can our government as a whole combat economic crime more effectively and what is our role in ensuring law enforcement success?
One of the key challenges is that economic and financial crime covers a broad spectrum encompassing multiple types of threats. Our collective response must be coherent and strategic. But it must also take into account the very different harms that exist — each of which demands specialist response: what works for volume fraud is different to what works for fraud that are complex.
Looking back over the past two years, much has already been done to recognise these differences:
For example, 2 years ago, the government established the National Economic Crime Centre; it has successfully brought together various domestic law enforcement partners, the private sector and the government to share intelligence and inform operational activity to combat economic crime. I am proud of the SFO’s contribution to the NECC. Not only did we play a critical role in helping to build that organisation but we now have 5 secondees embedded there, working closely with our partners to ensure casework is joined up, and that we are each using our respective skillsets to the fullest. The secondees represent our ongoing commitment to the NECC, and our firm belief that we won’t deliver justice effectively unless we all work together.
The NECC recently launched a national law enforcement campaign known as Otello, which initially targeted crimes like romance, investment and payment diversion frauds. Its goal is to raise awareness and encourage more reporting, which in turn should translate into successful outcomes and prevent further offending. More recently, the NECC adapted Otello to address COVID-19 fraud, bringing together over 30 public and private partners to understand the nature of the threat and disrupt the sorts of criminals who sell fake testing kits and PPE.
In July 2019 the government published a refreshed Economic Crime Plan which recognised that economic crime is a significant threat to the security and prosperity of our country and that it impacts all areas of society-people, businesses and government. The plan represents a step-change in our Government’s approach to economic crime; it maps out the UK’s future response by requiring joint action by the public and private sectors, working together to protect our country from economic predators. The SFO has supported the ECP from the start.
Meanwhile, government departments like ours are improving how we work with our partners to tackle specific economic crime issues. One sterling success has been the work of JMLIT, the Joint Money Laundering Intelligence Taskforce, which links law enforcement with the private sector-our FI partners-to share information effectively. Another is the NCA-led Foreign Bribery and Corruption Clearing House which co-ordinates foreign bribery cases to ensure that the most appropriate agency takes the lead and that we don’t duplicate efforts.
We have also engaged with our partners to inform their efforts on Companies House reform and the development of new legal tools; such as Overseas Production and Listed Assets Orders – both part of the Criminal Finances Act 2017. We used the latter for the first time last month to seize jewellery worth £500,000 (half a million pounds) bought with the proceeds of crime in an SFO mortgage fraud case.
Even more recently, we have coordinated with our partners across government to ensure there is a consistent approach to the current spending review on a system-wide basis – meaning that we are bidding for resources in a way that enables us to collaborate more effectively while also enhancing our individual capabilities — in areas such as tech infrastructure. We all agree that, without the technological tools we need to do our jobs, making a significant dent in financial crime will remain elusive.
So, what would be on my wish list for the SFO, if I had a magic wand?
Unsurprisingly, a “failure to prevent” offence still tops it. The need for change in this area became more acute in light of the Barclays Qatar judgment, which confirmed a narrow application of the “controlling mind” test, making it very difficult to hold companies with complex governance structures to account for their fraudulent conduct. Many of you have been part of discussions about this over the years and like you, I will be watching developments with interest.
Another item on my wish list would be legislation to allow the SFO to use Section 2 powers before I open a formal investigation in fraud and domestic bribery cases, the way we now can in overseas corruption cases. It may sound technical but it would solve a problem that our Intelligence Division repeatedly faces, where we strongly suspect criminal activity but don’t have quite enough evidence to open an investigation. A bit more latitude for preliminary enquiries would help us make an informed, early “proceed or abandon” decision, saving scarce resources if we’re not on the right track.
I’d also like to see a “tipping off” offence in relation to Section 2 notices. Currently, our Section 2 powers allow us to compel information from individuals and organisations that is relevant to an investigation. This tool is available in cases that I have accepted but which must remain covert – outside the public domain. We’re concerned that the recipient of the Section 2 Notice may “tip-off” the subjects of the information we seek, thereby jeopardising the covert status of the investigation and potentially interfering with it. Without a “tipping off” offence – similar to the one found in the Proceeds of Crime Act 2002 (for money laundering investigations) we are forced to choose between remaining wholly covert and potentially prejudicing our investigation. A new offence would mitigate this tipping-off risk and in some cases, allow us to advance our investigations more quickly.
These are some of the changes that would improve our ability to fight crime.
What does get in our way in this fight?
When you look at the obstacles the SFO faces, I think it’s fair to say our job is simply difficult: not necessarily because of specific constraints but because of the environment, our reality. When I was last here some 18 months ago I talked about the challenges posed by what I called the “shrinking world.” That is, the increasingly transnational nature of serious economic crime and especially the ease and speed with which criminals move money and information around the globe. I spoke about our response to these challenges, which I’d now like to re-examine in light of our progress:
I begin with the obvious – the data explosion. There is more and more material to interrogate. We have recently seen a phone with over 300,000 WhatsApp messages and a single computer housing in the region of 8 million emails. Company servers come into our labs which have the capacity for up to 80 terabytes of data – the equivalent of 600-700 mobile phones. The SFO, like many others in law enforcement, must transform its IT infrastructure to keep pace with the changing technical nature of criminality; we must be better equipped to manage this exponential growth in digital evidence. Investment in digital tools and the digital skills of staff is just as important as having crack forensic investigators and prosecutors. We are prioritising our budget towards this investment but it will take us some time to deliver on fully.
Many of the companies we investigate are influential and very well resourced; they use every legal and lobbying avenue at their disposal to fight us, as is their right. We have the capability in terms of our staff and their skills but the capacity of the organisation to fight on competing fronts requires constant prioritisation.
Similarly many SFO cases involve sophisticated and well-funded individuals who may go to great lengths to hide their actions from investigators, as well as distance themselves from the assets they control; they are usually well versed in exploiting the UK’s legal and regulatory framework to do so.
Virtually all our cases involve multiple jurisdictions – some, as many as 20 or 30. We pride ourselves on our ability to work well with partners in these countries to obtain evidence, and also to follow money trails around the world with resourcefulness and determination.
I’m not complaining about any of this. It would be like the captain of a ship complaining about the sea. It’s our honour and our job to use the tools and expertise we have to meet these challenges and to remain optimistic and passionate while we do so. We are also working with government to identify any gaps so that we can close them.
What further challenges does the future hold for us?
Separate and apart from these existing, what you might call baseline, challenges, there are of course the coronavirus and Brexit. Obviously these events have had – and will have – comprehensive, complex and multiple impacts. How exactly and how much society will change because of them is a rich area for speculation. But some of the effects are predictable, and one thing is clear—neither Brexit nor the pandemic is likely to leave law enforcement short of work.
Criminals are nothing if not opportunistic. Any change, for better or worse, can be that opportunity; we all know criminals are early adaptors.
We also know that crime rises when money is tight and, further, that economic uncertainty or turbulence puts pressure on markets, companies, individuals, governments, and law enforcement, among others.
While, so far, the SFO is not the place where the earliest pandemic-inspired crimes have landed, as criminals find more sophisticated ways to squeeze money out of the pandemic, we will see them come our way.
Investment fraud is one area that is likely to soon. Action Fraud has seen a significant increase in investment fraud reports compared to last year and we expect it to rise further in the post pandemic world. People who face the stress of a difficult investment climate may consider placing their pensions and savings into high risk schemes, some which will be outright fraudulent. We’ve previously witnessed the ethical investments and property schemes that are subject to fraud. We, alongside our partners, are continually horizon scanning and analysing intelligence to identify the next-Gen versions of schemes like these.
In addition to individuals, the pandemic has put many business sectors under extreme stress – whether by driving down demand, creating operational difficulties, or both. There may be more temptation to win contracts by any means necessary and public officials may be more hungry for bribes in exchange for awarding benefits, including facilitating existing operations.
Closer to home, in terms of our own operations, we have adapted well to the challenge of remote working and we have continued to deliver during the lockdown:
I already mentioned the convictions in the Unaoil case. In addition, we brought charges against one company and 13 individuals across four different cases. Perhaps most worthy of note is that against GPT, which stands accused of entering into corrupt contracts for work done for the Saudi Arabian National Guard. This case is currently in the Criminal Justice System so I will say no more about it now.
We secured confiscation orders totalling £5.45m against former executives of Afren, who were convicted of fraud and money laundering in Nigerian oil deals worth $300 million dollars.
And we obtained a Deferred Prosecution Agreement with real teeth, with G4S – openly admitted fraud in its electronic tagging contracts with the Ministry of Justice.
We accomplished these achievements despite the pandemic but realism inevitably dampens our expectations about getting our cases to court. Post pandemic, there is no such thing as business as usual. While other parts of the criminal justice system may be more affected on a day-to-day basis, given the pressures to get custody cases in front of juries, for example, and the length of time and space that our trials take up, we are likely to see longer lapses between charge and trial.
For all of us involved in fighting crime, this is worrying because it impacts victims—and can diminish the quality of witness evidence as memories fade with time. It may also lead to the so-called COVID-bonus that some criminals are obtaining in the form of diminished sentences.
One innovation we welcome is the new Economic Crime Court planned for the City of London, which will bring criminal and civil economic crime cases under one roof. But it will be a while before it is ready to list its first cases. It is up to all of us to build our capabilities to meet the ambition exemplified by this worthy project.
Now, Brexit. We work closely with Government, law enforcement and other criminal justice agencies to ensure we are ready for a range of possible outcomes and to ensure our voice is heard. Our priority is to strengthen our international security relationships. It’s a job we relish and for which we are well suited as we have, for many years, built up close partnerships around the world.
The focus of the negotiations is on the UK reaching agreement with the EU. Of course we work hard with our partners to support that, but, at the same time, we continue to enhance our capabilities at a domestic, European and global level. Our overriding goal is to protect the public.
If the UK and EU cannot reach an agreement, the UK has well-developed and well-rehearsed plans in place. We will use tried and tested mechanisms that we already use for cooperation. These include Interpol, the Council of Europe Conventions and bilateral channels. Of course, there’s also the natural bond of those who fight crime regardless of where they’re located, to band together to make sure the bad guys pay.
So, while our challenges – some new and others not so new – are significant, we and our partners are working flat out to raise our collective game to meet them. We do this through better coordination, better understanding of the threats, and better infrastructure. Equally, across our office at the SFO, each and every one of our teams is meeting the particular challenges that it faces, one case at a time, with resourcefulness, resilience and determination.
It is only through this focus and hard work – together across our office, our government, our country and our globe – that we will truly beat back financial crime and deliver the results that our taxpayers and our victims deserve.
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