Ridding the Serious Fraud Office of its curse

Recruiting good professionals is within the reach of the new director of the SFO, and is the only way forward

The Serious Fraud Office’s decision to review the Barclay’s Libor fiddling case will test the mettle of David Green, QC, its new Director, who aspires to make City fraud prosecutions the hallmark of his four-year tenure. But can he escape the curse of the SFO – high vision dragged down by stumbling errors attributable to weak management that undermines investigative and legal professionalism? I hope so, which is why I suggest that the SFO, in considering whether to launch a criminal investigation into Barclays, follows the template for prosecution decision-making set out below. It is a set of questions that I have attempted to answer by using information disclosed in Barclays Non-Prosecution Agreement (NPA) with the US Department of Justice (DoJ).

First, does the SFO have jurisdiction? Yes. Barclays’s admission that some of its London traders and its senior managers fiddled the London Interbank Offered Rate (Libor), a benchmark interest rate used for worldwide trading in futures, options, swaps, etc, set and published in London, satisfies the legal test for jurisdiction.

Next, can Barclays’ admissions of fact in the NPA be used as evidence against it in a UK criminal prosecution of the bank? Yes – this is black letter law.

What conduct has Barclays admitted? In essence, some of its London and New York traders, who are barred from participating in the setting of Libor – which is the job of employees (called Libor submitters) with no interest in trading – colluded with submitters and traders in other banks to set Libor at ‘untrue’ rates. Why? To benefit deal-making activities, trading positions, and, in some instances, obtain higher compensation.

Did they know this was dishonest? The case of Trader-5 indicates yes. ‘This is the way you pull off deals like this’. ‘The trick is you must not do this alone … [D]on’t talk about it too much… [d]on’t make any noise about it please.’ ‘[T]his can backfire against us.’

Is there a criminal offence fitting this conduct? This sounds to me like ‘fraud by abuse of position’, Fraud Act 2006, Section 4, which applies to someone occupying a position that requires him to safeguard, or not to act against, the financial interests of another person, but who dishonestly abuses that position, intending to make a gain for himself or another.

Any other potential crimes? Other conduct by senior managers might possibly constitute ‘fraud by failing to disclose information that there was a legal duty to disclose with the intent to make a gain or cause a loss’ (Section 3) or ‘fraud by false representation’ (Section 2).

Would a prosecution be barred because the Fraud Act 2006 did not take effect until January 2007? No, the NPA discloses fiddled transactions taking place from 2005 to 2009. But before analysing these, decide your targets.

Who might these be? Clearly the traders, low-lying fruit, relatively easy to pick off as the DOJ has likely done much of this work. What about their bosses? Fairness in these circumstances dictates that the SFO should reach for the highest branches. The most likely route to developing evidence against the top of the tree is making witnesses out of those who followed instructions and utilising the provisions in SOCPA, Sections 71, 73 & 74 to ‘flip’ the traders so they give up their bosses, and developing independent evidence to corroborate their credibility.

Can the bank be prosecuted along with its directors? This complex public interest decision is now off the table due to SFO error. Although the SFO was created to prosecute serious company fraud, when the allegations against Barclays surfaced, it referred the case to the FSA apparently because it failed to grasp the huge public interest in investigating Barclay’s potential criminality.

True, at that time it was short of expert staff, distracted by the judicial review of its bumbling investigation into Vincent Tchenguiz, and fighting off a threatened merger with the National Crime Agency. But resources can always be rebalanced to reflect shifting priorities. By abdicating its responsibility to a regulator that did not analyse the case like a criminal prosecutor, the SFO was deprived of input into the decision of American prosecutors to agree an NFA, and its terms, with Barclays, a home-grown British bank headquartered in the UK – a relinquishment of sovereignty that American prosecutors would never have conceded were the shoe on the other foot.

The net result? Even if the SFO was to prove the complicity of directors, a sine qua non for charging the company, Barclays would invoke the doctrine of reasonable expectation, which most judges would consider sympathetically on fairness grounds since Barclays’ full co-operation was based on its understanding that no charges would be brought.

It actually requires savvy, senior lawyers and investigators to apply the seemingly simple decision-making template set out above and these are still in short supply at the SFO. The objective of recruiting good professionals is within the reach of its new director. I hope he pursues it with single-minded focus for this is the only way to rid the SFO of its curse.

The author, a former First Assistant District Attorney in the Manhattan DA’s Office and consultant on criminal justice reform, conducted an independent review of the SFO in 2008 after the SFO’s aborted investigation into bribery allegations against BAE over arms sales to Saudi Arabia.

The review was triggered by capacity concerns arising from the SFO’s aborted investigation into bribery allegations against BAE in connection with arms sales to Saudi Arabia.