Justice vs Settlements: Serious Fraud Office Criticised Again For Handling Of Bribery Case

The UK’s Serious Fraud Office has an unenviable task: tackling fraud and money laundering and related activities, in all their various forms.

Whilst attempting to tackle these white collar crimes, the Serious Fraud Office (SFO) has come under great criticism for recent failed cases, and its own activities. The cessation of a case against ‎a firm accused of bribery for a fine in excess of £6m once again brought the Office under unfavorable scrutiny.

In details released to the media, the ‎UK subsidiary of an (unnamed) US company recently agreed to pay in excess of £6m for bribery and corruption offences. This is the second deferred prosecution agreement (DPA) that the much criticised SFO has arrived at with a company under investigation for fraud related offences. ‎The deal struck between the unnamed company (identified due to ongoing legal proceedings only as ‘a UK SME’) and the SFO was formally approved in a court hearing ‎by Lord Justice Leveson.

Th‎e charges against the comp‎any include alleged conspiracy to corrupt – ‎contrary to Section 1 of the Criminal Law Act (1977) – conspiracy to bribe – also contrary to Section 1 of the same Ac‎t – and failure to prevent bribery – contrary to Section 7 of the Bribery Act (2010). These and other charges are ‎all in connection with contracts to supply products to customers in a several overseas countries. ‎
Further details released of the case and the DPA indicate that allegedly the company’s employees and agents were involved in systematically offering (or paying) bribes to secure contracts overseas. These offences happened between 2004 and 2012. In 2011, the parent company started a global program of compliance and similar checks; that is when the alleged fraud first came out into the open, with questions raised over how some foreign contracts were obtained. With concerns raised internally, a law firm was hired by the SME to conduct an independent internal investigation. In turn, the law firm passed the results of its findings to the SFO, which began a two year investigation into the alleged activities of the UK company in February 2013. When sufficient evidence had been gathered, the SME was taken to court by the SFO on fraud charges.

In line with the DPA earlier this year, legal proceedings concerning the alleged offences wereimmediately suspended. In return, the ‎the company will pay financial orders of £6,553,085. This includes a £6,201,085 payment of gross profits, and a financial penalty of £352,000. Of the main payment, £1,953,085 will be paid by the US registered parent company, as a reflection of the dividends received by them from the UK subsidiary.

What helped in the negotiations towards the settlement was the fact that the company had effectively self – reported the misconduct, and investigated the alleged fraud itself, involving an external party and the relevant authorities at an early stage.

Indeed, following the settlement bei‎ng formally approved in Southwark Crown Court, Lord Justice Leveson said of the settlement that ‘[this conclusion] provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.’

‎SFO Director David Green attempted to silence critics of the deal by saying of the case that it said ‘raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation.’‎

The SFO has been greatly criticised in recent years, after a string of high profile fraud cases that either resulted in no prosecutions, or cases that revealed glaring errors or issues with the SFO. Fraud and money laundering are never easy cases to prosecute; such cases are inherently complicated, and regularly involve money changing hands globally, shell companies, and more often a degree of legality and legitimacy. The relevant laws and regulations do not make things easy for the British authorities, with unclear definitions of various offences, and a lot of latitude in how various laws can be interpreted. Further, communication between the various government investigative agencies is rarely effective; the sand can be said of communication between the financial and legal sectors involving suspected fraud.

Although that issue of communication is being addressed (with some success), th‎e fact remains that fraud by its very nature is a hard area to prosecute successfully. As such, quite often an agreement similar to a deferred prosecution agreement can be the only way to see justice done. Instead of risking a lengthy and expensive trial, which could very well result in no convictions, it could be argued that a DPA does see justice done, in that the alleged perpetrators of fraud and money laundering in effect admit to their guilt. Although there are no jail terms or stiff fines handed down, a fine is handed down, and a degree of guilt is reached at.

Admittedly, though, there are many who would see such agreements as a miscarriage of justice. The case is dropped, the charges dropped, and the party at fault walks away free, and with only a fine to pay in reparation for their wrongdoing. Morally and ethically, such agreements remain questionable.

Although not ideal – a DPA or similar does make the fraudsters suffer, and sees them make at least some reparation for their crimes. The question is though, whether it is better to see justice done with a trial that could result in no prosecutions – or whether such a deal and indirect acknowledgment of guilt is better for justice.

This case and settlement with the unnamed UK based US subsidiary company is the second of its kind. ‎Whatever the morals and merits of such agreements – rest assured it will not be the last. With the Serious Fraud Office under increased pressure and scrutiny to tackle and successfully prosecute fraud and money laundering in all its various guises – DPA’s are a welcome method the Office can use to resolve complex and uncertain fraud cases.

The final word goes to ‎Christopher David, legal counsel in WilmerHale’s white collar crime team. Commenting on the case, he said of the judgement that it ‘‎may well give comfort to lawyers and companies that the DPA regime is going to provide a meaningful alternative to a guilty plea in cases of corporate misconduct – not least because the penalty has been carefully designed to remove the benefit of the criminality but not force the company into insolvency.’ Further, Mr David noted that the case‘does… reinforce the SFO’s stated view that companies that self-report and provide full co-operation will be see this co-operation recognised by a favourable resolution’.

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Small Businesses not Seeking Professional Legal Help

According to the Legal Services Board, the majority of small businesses tend to avoid seeking professional legal support unless they feel they have no option. Many small businesses, the Board said, see legal advice as expensive and as something to be kept as a last resort.

In a recent report, the Legal Services Board identified considerable reluctance among small businesses to make use of solicitors’ services, largely because of the costs involved. According to the research presented in the report, most small businesses have had little or no professional contact with the legal sector in the past year.

The report, The Legal Needs of Small Businesses 2015 Survey, identifies a number of trends among small businesses when it comes to seeking the help and support of lawyers. For the purposes of the survey, small businesses were defined as those employing 50 people or fewer – a group which, the report says, represents 99% of all UK businesses, 48% of employment, and 33% of the nation’s total business turnover.

Less than 10% of all small businesses in the UK, the report showed, had either an in-house lawyer or an external legal services firm with which they held a retainer. When businesses did pursue professional help and advice with their legal challenges, this was more often the advice of an accountant rather than of a solicitor.

Nearly half of all small businesses responding to the survey either agreed or strongly agreed with the statement that professional legal services represented a “last resort” when it came to dealing with relevant problems faced by their business. This compares to a mere 12 % who said that they either disagreed or strongly disagreed. This is perhaps explained b the fact that a mere 13% of respondents said that seeking the help of a lawyer was, in their opinion, a cost-effective solution to problems.

Usage of legal services from external providers has also declined since 2013. However, the report says the past two years have seen a significant reduction in the number of legal issues that small businesses encounter as a result of “better trading conditions,” so this could partly account for the decline. Nonetheless, legal issues remain an expensive problem for smaller businesses, costing them an estimated total of £9.7 billion annually.

Legal Services Board chair Sir Michael Pitt expressed disappointment at the survey’s findings. “Access to good-quality and affordable legal services,” he said, “helps small businesses to start up and grow.”

The findings of the Board’s new research, he continued, “provides further worrying evidence that their legal needs are not being satisfactorily met.”

Major Insurer Enters Legal Market

One of the UK’s biggest insurers has announced its imminent entry into the legal market. Liverpool Victoria, better known as LV=, is to launch LV= Legal Services which will provide assistance in a number of specific areas of the law.

LV= is one of the UK’s biggest providers of insurance and related financial services. It currently employs over 6,000 workers and has roughly 5.7 million customers across the country. The announcement that the firm will begin offering legal services makes it the latest company to move into the legal sector under an Alternative Business Structure (ABS) license.

In order to supply clients with advice and assistance in legal matters, LV= will be cooperating with national legal services provider Lyons Davidson. This firm is no stranger to working in partnership with insurance companies, as it has already entered into partnerships with Admiral Insurance and with the AA.

Among the legal areas that LV= will cover are employmant law, conveyancing, and personal injury. The firm’s new legal operations will also provide help and advice on wills, and on matters relating to probate and power of attorney. Legal operations within LV= will be established with the lelp of Lyons Davids onto provide a basic level of legal support which will be sufficient for the majority of customers. Those who require more specialist, involved, or expert assistance on matters such as employment law and personal injury will be passed on to Lyons Davidson’s own legal professionals who will be able to provide this higher level of support.

LV= intends to offer its new legal services through an online quote generator – something that will be familiar to many consumers as a tool used in LV=’s primary industry. Much like an insurance quote generator, the system will allow consumers to enter their personal details and information about their requirements, and will then be provided with an up-front, fixed quote for legal support.

As well as the online quote system, the LV= Legal Services website will contain what the firm has called a “jargon buster,” which aims to clarify legal terminology for consumers. The company will also have advisers available to take calls from 8.00am to 9.00pm, the announcement claims.

LV= General Insurance’s managing director John O’Roarke said that the firm would try to tackle the “confusing, stressful and expensive” nature that currently defines legal advice. The firm’s new venture, he said, “will offer a transparent and affordable solution for those with a genuine need for high-quality legal service and want the security of knowing what their costs will be upfront.”