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Written evidence from Eurasian Natural Resources Corporation Limited

About the Author

1. This submission is made by the law firm Hogan Lovells on behalf of its client, Eurasian Natural Resources Corporation Limited ("ENRC").

2. Hogan Lovells is a global law firm with over 2,400 lawyers in over 50 offices on 6 continents.

3. ENRC is part of Eurasian Resources Group ("ERG"), a diversified natural resources group headquartered in Luxembourg. ERG has some 75,000 employees and contractors in 15 countries worldwide. ENRC (then a plc) listed on the London Stock Exchange in December 2007, and became a FTSE 100 member in March 2008. It was taken private and de-listed on 25 November 2013.

4. ENRC has interacted extensively with the Serious Fraud Office ("SFO") since August 2011, when the SFO invited ENRC to consider entering into a so-called 'self-reporting' process, including (as addressed further below) in the context of a criminal investigation announced by the SFO in April 2013.

Introduction

5. This submission is made in response to the call for evidence by the Justice Select Committee in the context of the Committee's inquiry into Fraud and the Justice System. It seeks to address the following terms of reference:

(a) The role of the Crown Prosecution Service and the SFO in the prosecution of fraud;

(b) How the Justice System conducts fraud investigations and prosecutions;

(d) The experience of the impact and prosecution of fraud among those working in the legal system and victims of fraud.

6. This submission focuses on the role of the SFO in the prosecution of fraud. In that context, it highlights issues that have arisen in the context of the SFO's interactions with ENRC.

7. In April 2013, the SFO announced that it had opened an investigation into ENRC. That investigation is now in its ninth year without a single charge having been brought against the company or any of its current or former directors or employees. The SFO has been unable or unwilling to articulate whether its case theory is that the company was a perpetrator or victim of suspected wrongdoing. This is of particular concern in light of the March 2019 recommendation by the House of Lords Select Committee on the Bribery Act 2010 that there needed to be improved communication with the subjects of SFO investigations.

8. In 2019, ENRC filed a civil claim in the High Court against the SFO. The trial of that claim was heard last year by Mr Justice Waksman in the Commercial Court (the "ENRC trial"), and a judgment is expected in the coming months. That claim is sub judice and this submission does not seek to address disputed matters which are for the courts alone to decide. However, certain themes have emerged during the course of ENRC's interactions with the SFO that are both consistent with other high-profile examples, and are of relevance to the Committee in the present inquiry.

The role of the Serious Fraud Office in the prosecution of fraud

9. The SFO was created by the Criminal Justice Act 1987, which provided that the Director of the SFO "may investigate any suspected offence which appears… on reasonable grounds to involve serious or complex fraud". On its website, the SFO characterises its role as "a specialist prosecuting authority tackling the top level of serious or complex fraud, bribery and corruption". The Committee should consider critically whether the SFO is achieving its statutory purpose. Further, it should consider whether it has defined its role too narrowly.

10. The SFO has secured a series of deferred prosecution agreements ("DPAs") in recent years. The SFO has emphasised the value to the Exchequer of the fines and other penalties that have been secured under these settlements. However, the SFO's ability to contribute to HM Treasury should not be its raison d'être. It should instead be only a collateral consequence of the successful pursuit – which should first and foremost be through the courts – of what the SFO calls the "top level" of fraud, bribery and corruption. Yet the SFO has repeatedly been unable successfully to pursue prosecutions.

11. Director Osofsky has been vocal in her support of the DPA framework. The Director considers that DPAs work. Her view is that companies have to come clean to the SFO, improve their compliance systems, meet a deadline and over time their behaviour improves. Since the UK's DPA regime has been in place for less than 10 years, it may be premature to draw any conclusions about whether the companies that have entered into DPAs have improved their behaviour. But the evidence from the US – where DPAs have been part of the system for much longer – is not encouraging. Multiple companies have entered into more than one DPA in the US, suggesting that DPAs may not in fact prevent future offending.

12. The SFO's track record of securing DPAs must be examined in the same context as its frequent inability successfully to prosecute the "top level" of complex fraud being committed by companies and individuals. There has not been a single successful prosecution of an individual involved in the underlying wrongdoing that has given rise to DPAs. Director Osofsky has said that securing convictions is difficult because the governance of modern global companies makes identifying responsible individuals "challenging or impossible". The truth, however, is not that the SFO has been unable to identify individuals to prosecute, but that it has repeatedly been unable to secure the convictions of those individuals. The Tesco DPA is a case in point: three former executives were cleared after the Crown Court ruled that the SFO's prosecution case was so weak that there was no case to answer.

13. The Tesco case, like other DPAs, raises questions not only about why the SFO has been unable successfully to prosecute individuals, but also as to whether – and if so why – companies are in at least some instances concluding that they should reach an agreement with the SFO despite the fact that the SFO would have been unable to prove criminal wrongdoing in court. In some DPA cases, no individuals have even been charged with wrongdoing. This risks creating the unfortunate impression that the SFO is pursuing easy wins for a collateral fiscal and reputational purpose, at the expense of justice.

14. The present situation has unfortunate echoes of the SFO's approach to cases under former Director Richard Alderman before his departure in 2012. Under Mr Alderman, the agency developed a reputation for entering into unprincipled settlements with large corporates. During the ENRC trial, this approach was characterised by the SFO's own witnesses as a "haggle" whereby the SFO would reach out to corporates and ask them to "pay up". The Committee may wish to consider whether the DPA regime has fostered a not dissimilar approach.

15. The SFO itself seems to have recognised that many of its long-running investigations were not destined to succeed. Director Osofsky has been responsible for the closure of around 30 investigations since she became Director in 2018, double the total of the preceding five years. That occurred notwithstanding the limited caseload of the SFO, which takes on only a "small number of large economic crime cases".

16. The present inquiry is particularly concerned with cyber fraud, such as phishing and text scams, which has surged during the COVID-19 pandemic. Notwithstanding the technical and sophisticated nature of such crimes, the SFO appears to consider that they do not fall within its purview of tackling "serious or complex fraud".

17. The SFO is an agency which has not been able successfully to prosecute the economic crimes it does investigate, and which is not pursuing the frauds which are causing such harm to society. The Committee should consider whether, at the very time that levels of economic crime have surged, the SFO has lost sight of its purpose of tackling serious and complex fraud.

How the Serious Fraud Office conducts fraud investigations and prosecutions

18. There have been clear shortcomings in how the SFO has conducted investigations into fraud and corruption cases in recent years. These shortcomings raise questions as to the SFO's ability to act objectively, independently and in good faith. These problems have manifested themselves during the SFO's work in:

(a) inappropriate engagement with third parties who have ulterior motives;

(b) a failure to create and maintain appropriate records and communications relating to its work;

(d) significant issues with evidence and disclosure.

Issues (a)-(c) are addressed in this section, and (d) is dealt with in the context of the relevant term of reference of the Committee.

Inappropriate engagement with third parties with ulterior motives

19. The past decade has seen a number of examples, including the ill-fated investigation of the Tchenguiz brothers and the collapsed prosecution of Victor Dahdaleh, in which the SFO was over-reliant on third parties that, legitimately or otherwise, were pursuing their own agendas.

20. During the ENRC trial, the Court heard evidence from the former Director of the SFO, Sir David Green CB QC. Sir David said that the organisation had come to be known as the 'Nightmare on Elm Street' and the 'Serious Farce Office' by the time he assumed office in 2012. Sir David also spoke of the SFO's engagement in "dangerous", informal "fireside" chats with third parties including companies' representatives.

21. Between 2011 and 2013, SFO officers working on the ENRC case repeatedly met with Neil Gerrard, a partner at Dechert who at the time acted for ENRC, without anyone from the company present, and in informal venues such as public houses and a curry house. Sir David described Mr Gerrard as a person who had "some kind of special relationship" with Mr Alderman, and gave evidence at the ENRC trial that he (Sir David) had asked his staff to compile a list of cases which might be affected by ‘back-channel’ discussions conducted by his predecessor. During the ENRC trial, an SFO witness described Mr Gerrard (ENRC's own solicitor) as having made comments to the SFO that added "petrol…to the flames". The SFO's reliance on Mr Gerrard is further illustrated by the fact that, when he made the decision to open a criminal investigation, Sir David wrote in his notes that "Dechert must have found something". Mr Gerrard himself informed the court that he was "probably" prone to exaggeration.

22. The Committee should consider whether the same pattern is repeating itself under Director Osofsky. In the Unaoil case, officers from the SFO, including Director Osofsky herself, met with David Tinsley, an individual running "a leading intelligence and investigative company" who was described as a "fixer" for the individuals controlling Unaoil. The Court of Appeal found that the SFO's dealings with Mr Tinsley were "wholly inappropriate". As a consequence of the SFO's failure to disclose documents relating to the Tinsley meetings, the Court of Appeal overturned the conviction of a former Unaoil executive and declined to order a retrial.

23. Press leaks were a further concern of Sir David's upon taking up his post. At the ENRC trial, Sir David gave evidence that he had gathered SFO staff in the Guildhall Library and given a speech, in the presence of the Law Officers, about the damage which leaking inflicted on the organisation.

24. Regrettably, the problem appears not to have gone away. In 2020, the SFO was reported to have launched an internal disciplinary investigation and requested the support of the Metropolitan Police in relation to concerns that an employee had engaged in the leaking of sensitive material to the media. There was no transparency with regards to the progress of that investigation. However, ENRC now understands from court filings that the employee in question was suspended on full pay for over two years (between 31 October 2019 and 1 December 2021), during which time the employee was not interviewed by either the SFO or the Met. Leaks of information relating to the SFO's investigation of ENRC are the subject of ongoing proceedings.

25. The inappropriate engagement with third parties with ulterior motives is positively counterproductive to the SFO's goal of tackling fraud and corruption. Such conduct distracts from meaningful investigative work, disregards legal safeguards, violates the rights of suspects, and has the potential to jeopardise prosecutions and tarnish convictions.

A failure to create and maintain appropriate records and communications relating to investigations

26. The SFO demonstrated a poor approach to record-keeping and communications in the early 2010s. The Committee should consider whether its current approach remains wanting.

27. A key feature of the Unaoil case is that the SFO officers involved in the interactions with Mr Tinsley failed to keep records of their discussions with him. The Court of Appeal's judgment records multiple instances where Director Osofsky and other key officers did not take notes of meetings with Mr Tinsley. In addition, one key officer caused "the wiping of data from his SFO-issued mobile phone" just days after being asked for relevant material which would be needed for disclosure in the proceedings. The officer in question entered the wrong password five times despite a warning on the phone to contact the SFO's service desk.

28. Such failure to take and maintain appropriate records prevents proper scrutiny of the SFO's deal-making with Mr Tinsley. Amongst other things, it makes it difficult to resolve the "striking contrast" observed by the Court of Appeal between the Director's account of her limited contact with Mr Tinsley, and Mr Tinsley’s assertions (in contemporaneous documents) about the extent and success of his dealings with her.

29. During the ENRC trial, the Court heard evidence that Mr Alderman had instructed his staff to keep the investigation "off the books". His successor Sir David, gave evidence that the SFO management team's records were "inconsistent, incomplete and poorly kept". The SFO was unable to locate a notebook of its former Chief Investigator.

30. Text messages, all record of which is liable to be lost if devices are 'wiped' or replaced, are a manifestly inappropriate means of communication for a law enforcement agency which is subject to document retention and disclosure obligations. Yet text messages are seemingly still deemed to be an acceptable form of communication under Director Osofsky, as they were in 2012-2013. During the ENRC trial, the Court heard how one SFO officer, using a personal mobile device, sent a settlement proposal to ENRC's then solicitor by text. In the Unaoil case, Mr Tinsley introduced himself to the Director by text, asking to meet "privately first to provide some background and follow on with official meeting”. The Director replied that she was "super honoured" he had got in touch.

Legal professional privilege

31. Following the High Court's ruling in the judicial review proceedings commenced by Tchenguiz brothers, the SFO put in place a process of using independent counsel to make determinations on whether privilege was being properly asserted. Legal professional privilege is a fundamental right, and the use of independent counsel is therefore appropriate and proportionate.

32. Regrettably, the SFO at times appears to regard privilege as an unhelpful obstacle to be challenged or disregarded. This was seen most obviously in the high-profile privilege dispute commenced by the SFO against ENRC, which ended with the Court of Appeal upholding ENRC's claim to privilege over substantially all of the documents at issue. Satellite litigation of this nature – pursued at the taxpayer's expense (in addition to its own legal costs, the SFO was ordered to pay over £1.6 million in respect of ENRC's costs) – is a distraction from the SFO's statutory purpose.

33. Further examples of the SFO's approach to privilege emerged during the ENRC trial. The Court heard how a "brown envelope" containing obviously privileged material was passed to the SFO in 2013 and was not returned to ENRC until 2018. The independent counsel process was not followed. In another instance, it emerged that ENRC's privileged information, divulged in the course of an interview under s.2A of the Criminal Justice Act, has been available for use in the investigation for years. This despite the fact that, as a former SFO investigator said during the ENRC trial, it was "really quite obvious" at the time of the interview that the information was privileged.

Problems with evidence and disclosure

34. There appears to be a regrettable tendency within the SFO of documents going missing, either to be discovered late in the day or forgotten altogether. This is not a new problem. During the ENRC trial, the Court heard that in 2016, the SFO did not inform the High Court that the notebook of its Chief Investigator had gone missing, and that it had done exactly the same thing in proceedings brought by the Tchenguiz brothers in 2014.

35. Two key cases from 2021 suggest that urgent action is needed to solve a systemic problem in relation to disclosure.

36. The first is the trial of two former Serco executives, which collapsed in April 2021 after the Crown Court concluded that the failure to provide a key report had "undermined the process of disclosure in this case to the extent that the trial cannot safely and fairly proceed", and refused the SFO's application for an adjournment to allow them to remedy the position and to facilitate a retrial. One of the executives, Simon Marshall, has commented publicly that the SFO "worked backwards in trying to retrofit" a case against him and spoke of the "mental torment" of having endured an eight-year SFO investigation. The SFO announced that it had commissioned an independent review in July 2021 to investigate the failings of disclosure in the Serco case. It is unclear what, if any, progress that review has made.

37. The second example is the Unaoil case. In December 2021 the Court of Appeal found that the failure to give proper disclosure of the meetings with Tinsley was a "serious failure by the SFO to comply with their duty" and that this was "particularly regrettable given that some of the documents had a clear potential to embarrass the SFO". As noted above, the SFO was denied the chance of a retrial in the case. Others are now appealing their convictions, and the Attorney General has announced an independent review into the SFO's handling of the investigation, saying she was "deeply concerned" by the appeal judgment. It is unclear whether that review has commenced.

38. Plainly, the SFO cannot advance the cause of tackling fraud and corruption if it does not comply with its basic disclosure duties. Disclosure failures give rise to profound unfairness to defendants. This is a structural problem that needs to be fixed soon, or more investigations will be jeopardised. The independent reviews that have been announced must be progressed and must lead to proper reform.

The experience of the prosecution of fraud among those working in the legal system

39. There has been an erosion of trust and confidence in the SFO among members of the legal profession. The Unaoil ruling and other recent setbacks have led many of those working in the legal system to reach the conclusion that the SFO needs to be disbanded or merged into an expanded National Crime Agency. In the words of a former SFO prosecutor, the organisation's current approach risks "institutional failure".

40. It is not in the interests of justice for the SFO to be held in such low esteem by the legal profession. This deters talented lawyers from applying to join the organisation, but it also informs how those lawyers advise their clients. It is also to be expected that this will impact upon the morale of existing SFO staff (it is notable that a number of senior members of SFO staff have left in the past two years), which will also not have been helped by the fallout from the unedifying dispute surrounding the dismissal of Tom Martin.

41. The UK needs a fraud-fighting organisation that acts as a deterrent to serious and complex fraud. The Committee should ask whether the SFO is able to fulfil that role.

24 JANUARY 2022