The UK’s Serious Fraud Office can’t be seen as both prosecutor and regulator

Corporate plea deals can be useful as bridge between negligence and criminal behavior, but they should not form part of the SFO’s main arsenal.

The UK’s version of the corporate plea deal, Deferred Prosecution Agreements (DPAs), came into being exactly a decade ago. Reached between a prosecutor and an organization which would otherwise be prosecuted, they allow a prosecution to be suspended for a defined period – provided the organization meets certain specified conditions.

The UK’s Serious Fraud Office (SFO) has embraced the concept wholeheartedly and  has managed to levy £1.6 billion ($2.1 billion) for the public purse via these plea deals. However, I am not a fan, and here’s why.

SFO role before DPAs

Being a bit of a policing dinosaur who has specialized in the investigation of fraud and other financial crimes since 1998, I am very familiar with the role of the SFO prior to the implementation of DPAs. I always recognized the SFO as being comprised of serious investigators and prosecutors tackling complex fraud and bribery cases. In some ways, these investigators and prosecutors were seen as the leading voices in their field and in the prosecution of the top tiers of financial crime.

I am fortunate (I think) to have experience of investigation of all types of major crime, including terrorism, organised crime and homicide. However, the toughest crimes I have had to investigate have been complex frauds. They aren’t as sexy as the other three in policing terms, and they are unlikely to achieve the same sense of attention or importance. Yet investigating complex fraud has probably been my most challenging policing experience.

Conversely, those who mastermind complex frauds are extremely bright.

The analogies I use are many, but when a drug dealer uses a gun to demand respect, they are generally not the brightest spanner in the box. Conversely, those who mastermind complex frauds are extremely bright and, in most cases, extremely well-educated and, in all likelihood, accomplished business people who may have shifted towards criminality.

These adversaries build their defences as they go. They muddy the waters with “red herring” tactics to thwart investigations and are well versed in using international boundaries and layering techniques to delay pursuit. They will tend to use nominee directors of front companies and trusts, alongside bribery, corruption and opaque ownership techniques to thwart investigators. As a fraud detective, you soon realise that you are going to face the steepest of learning curves when dealing with cases involving these sorts of individuals.

DPAs are a regulatory tool

This is where I have a problem with DPAs. You can sail very “close to the wind” in terms of layering ownership of assets without necessarily becoming a criminal. That in turn can make a criminal prosecution very tricky to succeed. If a company or individual is reckless or negligent in their business dealings, then I have no issue with a regulator taking them to task and fining them accordingly.

For me the SFO is different. It should investigate and prosecute offenders on behalf of victims. I perceive DPAs to be a regulatory tool, to be utilized where wrongdoing does not reach the criminal threshold. I do not believe DPAs should be used as a shortcut to circumvent a meaningful investigation and prosecution. I certainly do not agree with them being held up as a trophy by which the SFO’s performance is measured.

For me, DPAs are the easy way out of what is likely to be a long, costly and resource-heavy commitment to investigate and prosecute fraudsters. Not all crimes can be investigated, of course. Finite resources means that each case needs to be assessed before committing to an investigation. I undertook this particular role at two police forces. There is an art to evaluating a serious fraud and, where necessary, explaining to victims when you cannot proceed with a case.

There needs to be a demarcation

It may seem that I am arguing against myself. I don’t think so. I am merely suggesting that there should be a demarcation between the SFO investigating and prosecuting fraudsters, and then using DPAs as an easy solution to solve resourcing problems.

Could the SFO refer some of these DPA-suitable cases to a regulator such as the FCA? If the FCA or other regulators are not suitable, or if the problem lies outside their current remit – then tweak the remits. If not, could the SFO set up a new wing that specifically deals with DPAs?

My fear otherwise is that DPAs will become the norm and the SFO will simply be seen as another regulator. We need the SFO to be seen as an accomplished investigator with the determination to prosecute those who would defraud and corrupt others – otherwise the deterrent factor will be lost.

When a drug dealer uses a gun to demand respect, they are generally not the brightest spanner in the box.

If you’re a wealthy organization overseen and managed by those prepared to bribe or defraud their way to profitability, and you know that individuals such as yourself are unlikely to be held accountable or face any serious sanction, the “risk vs reward” equation can look that much more attractive. In a real sense, companies cannot commit fraud – only the individuals who run them can.

The SFO is on the ropes and in the last chance saloon after a series of high-profile mishaps. It appears to me that it is using sleight-of-hand to try and confuse the public: “Dont look over here at all the failings, look here instead where we have obtained £1.6 billion in DPAs.

DPAs are all well and good as long as they are used to bridge the gap between negligence and criminal behavior. But they should not form part of the SFO’s ability to portray itself as being successful.

Tony McClements is head of Investigations at Martin Kenney & Co (MKS), an investigative litigation practice based in the British Virgin Islands.