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Lessons for the SFO from the Kaupthing Case – by Keith Wood

In a blaze of publicity in front of the world press on 9 March 2011 the SFO conducted a series of dawn raids on numerous premises throughout the financial heart of Mayfair. The targets were some of the wealthiest and highest profile entrepreneurs that the SFO would ever investigate and this would, in all probability, be the biggest ever raid in the history of the agency. Over 130 investigators and police raided the business premises of R20 and Consensus Business Group as well as eight private residences and a simultaneous operation was launched in Iceland.

A little over 18 months later, on 15 October 2012, two sentences were written on the SFO’s news page. The investigation into the last remaining fragments of this sorry saga was to be dropped.

What on earth happened?

What was striking to me about this case from the very first day I was involved was the feeling I had that the SFO had completely failed to really grasp and understand the very nature of the transactions that they were investigating. It was apparent to me as the first pieces of information came out from the investigation that they did not in all probability understand the factual basis of the complex deals and arrangements that they had targeted as being corrupt. At Bishopsgate Police Station it was clear when I started to question the investigating and disclosure officers, and all too apparent that they did not themselves understand what they were investigating and had little more than a rudimentary grasp of the complex derivative trades and the financial structures and restructuring arrangements upon which they were focusing their questioning. They even failed to understand the actual roles of many of the persons involved in both the business and banking organisations which had been targeted.

It was here I feel the SFO, in my view, got it wrong from the start. Even though they must have had the explanations within the material under their control, which the SFO had accumulated long before the decision to arrest was reached, I felt the agency were determined to flex their muscles and take on this case; a war in which it would be shown in due course that they should never have engaged, as there was nothing to fight for. There was simply no crime. Perhaps the SFO were under pressure to find a villain within the piece, and lost focus in the hunt for such. Where such pressure came from, I am sure will arguably be revealed once the claims for damages for wrongful arrest are finally adjudicated upon.

In the early days there were failings. Information for the initial warrant had not been verified or independently reviewed. It contained factual errors which had not even been checked against the material that had been acquired during the early investigation, including the Section 2 interviews which had been carried out only months before the decision to plan the arrests was made. The information forming the background to the warrant, it was discovered, came largely from Grant Thornton who were themselves acting for Kaupthing Bank against one of the main targets in related civil litigation. Conflicts of interest which needed to be addressed and properly considered were ignored. In the words of the President of the Queen’s Bench Division, Sir John Thomas commented that the Crown Court Judge listening to the application for the warrant, “Needed to know of their [Grant Thornton’s] interest and the lack of independent verification of their conclusions.” He went on further to add, critically, “The Judge should have been put on notice so that he was alert to any possibility that the SFO was being used to promote the interests of one party to civil litigation.”

Unpleasant reading, indeed.

The raids were also very badly handled in my view. More concerned with media coverage, the SFO failed to appreciate that much of what they seized was LPP material, as there was ongoing litigation in this very matter being conducted from the premises that were raided. It is a frightening statistic in this case that over 40% of the material seized in this case was done so incorrectly and was returned shortly after the raids.

I feel that there was an overall inability to cope with the sheer volume of information in the possession of the team and coupled with a quest to find something damning, irrespective of the material which they controlled, a dangerous mix was brewing. A classic example of a theory being allowed to grow unchecked and be used to direct an investigation rather than objectively assessing the weight of the evidence in possession.

Lessons learned?

The case highlights the need for proper information to be objectively and independently assessed before any steps are taken. Government agencies should not be persuaded to take action by either media or other external pressures. Any investigation has to have proper funding, as the long-term costs when it goes wrong – as indeed this case shows it inevitably will – far outweigh any savings which are trying to be made at the front end.

Lastly, in a week in which it was disclosed that the former SFO chief executive at the time of this affair received an unapproved £400,000 redundancy package, it may be that many more lessons are to be learned from this affair. The first of these, I would suggest, is not to spend anything else at the moment as I would be rather concerned that a number of writs for substantial damages arising from this affair are on their way.

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What Progress on UK Libor Criminal Inquiry? – by Siobhain Egan

News that French prosecutors have begun a criminal Libor inquiry begs the question about progress on the UK criminal inquiry announced in July 2012 by the SFO.

Much has been made of the flurry of financial settlements that banks have made with US prosecutors e.g. Barclays’ fine of £290 million and it is rumoured that RBS could face a fine of up to £300 million. It appears that Barclays may have received a discounted penalty because they were the first to come forward, and that there are other banks lining up negotiations with prosecutors both sides of the Atlantic.

So far it looks lucrative for prosecutors, but this approach flies in the face of public opinion. A recent YouGov survey in early October concluded that 90% of respondents believe that bankers found guilty of market abuse should be sent to prison. These results echo the views of Martin Wheatley of the FSA, who has been quoted as saying that anyone who deliberately manipulates markets for their own profit could face up to seven years imprisonment and/or a £multimillion fine.

The simple truth is that these allegations will be impossible to successfully prosecute to the criminal standard of proof.

The roles of the Treasury and the BOE remain unclear in the Libor scandal; were the banks doing as they were told to do?

It is unlikely that any meaningful evidence will be found against those in senior positions at the banks, because of management structure and lines of communication.

The prosecutors may find some damming emails implicating traders, who are very much at the bottom of the pile, but prosecuting them alone will not resolve this situation fairly or reflect what the prosecutors and general public feel has occurred.

In September last year, the Treasury and the FSA had asked the then Director of SFO to begin a full investigation into the Libor scandal. He refused, explaining (correctly) that his budget had been severely reduced as a result of Treasury cuts and because of the current work load at the SFO.

It seems that the SFO have been allowed a sum to fund this inquiry but, let’s be honest, a quick cursory analysis of current criminal statutes and common law offences leads to the conclusion that it will be well-nigh impossible to successfully prosecute these offences. There could be nothing more devastating for the SFO to begin another high profile prosecution only for it to fall at the first hurdle.

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Economic Downturn Leads to More Corporate Corruption

UK businesses are still taking risks in compliance with the UK Bribery Act in the pressure to win business and the belief that regulators will hold back from prosecutions, according to the latest research from FTI Consulting.

The research found that 40% of business people believe the current economic climate is encouraging organisations to risk breaching the UK Bribery Act in order to win business, while just over a quarter (27%) do not believe the government will encourage regulators to pursue prosecutions in the current economic environment.

A further one in five (21%) believe they will not be prosecuted for a breach of the Bribery Act, and a third (31%) believe the act exists mainly for appearance’s sake and ethical guidelines.

Worryingly, the FTI Consulting research reveals that risk taking seems to come from the top down. A quarter (25%) of board-level respondents confess they might breach the Bribery Act in order to win business compared with 16% of middle management.

While many businesses admit to cutting corners in creating the right processes and protocols to comply with the Bribery Act, there does seem to be overwhelming support for the long-term eradication of corporate corruption. Two thirds (63%) of respondents to the survey say that the UK Bribery Act eventually will have a positive effect on prospects for UK business.

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Testing Your Patience: Advice on Delays with Shotgun Certificate Renewals – by Laura Saunsbury

Many readers will no doubt be aware of their local licensing department making redundancies and/or merging with the licensing department of the adjoining force. An inevitable consequence of these cutbacks in staffing levels is that long delays in processing shotgun and firearm certificate applications – and also renewals – are fast becoming the norm. I have heard accounts from members that police in some parts of the country are advising certificate holders that their usual timescale for processing even routine renewals is now six months.

What is all the more troubling is that some licensing departments seem to be taking an overly relaxed approach and assuring shooters they need not worry if they do not receive their new certificate before their current one expires; they can continue to store their guns at home and even continue to go shooting. Interestingly, requests for confirmation in writing of such advice have generally been met with a certain reluctance.

In any event, I could not recommend that you follow such advice. In strict legal terms, from the day you cease to have a valid shotgun certificate you will then be in unlawful possession of your guns – which amounts to a criminal offence. Any verbal assurances you may have been given by your Firearms Enquiry Officer (FEO) that they would not seek to prosecute you in those circumstances may be cold comfort if you find yourself languishing in the cells of a police station, having been stopped and had your vehicle searched by a police constable on your way to a shoot. That officer may be unable to verify what you say immediately with your local licensing department or even that you submitted your renewal application some time ago. The chances of your protests falling on deaf ears are all the greater if you happen to be stopped outside the county or licensing area in which you live. You simply cannot count on the police or their lawyers to exercise their discretion sensibly not to prosecute you and, even if they do, you will probably have spent several hours at least in police custody before the issue is resolved and you are released.

A further practical difficulty with continuing to shoot after your certificate has expired is that, while you can legitimately possess shotgun cartridges without being the holder of a shotgun certificate, you will need to produce a valid certificate to purchase any more. So, even if you do decide you can safely rely on the assurances of your FEO, it is likely that a point will come when you will run out of ammunition.

So what can be done to avoid getting yourself into such potentially risky situations and ensure you can carry on shooting without interruption? First, make a diary entry six months before the expiry of your current certificate to contact your FEO. Find out from them what current local timescales for processing of applications are and also ask other certificate holders you know in the same area of their recent experiences. Be guided by what you find out and put your application in suitably early. Your FEO should thank you for your forward planning and so reciprocate by doing their best to process your renewal before your current certificate expires. Send your renewal application by recorded delivery so you have firm proof as to when it was submitted. If you are going to hand-deliver the paperwork to the licensing department or local police station, make sure you get a receipt from whomever you hand it to.

Once you have lodged your application, do not simply leave it and hope for the best. I’m not suggesting you make a nuisance of yourself, but it is worth following up your application periodically (once a month, say) to check on progress and whether there is any further information the police require from you. It is preferable to do this by email or letter rather than by telephone, so that you have a record of all further contact with your licensing department.

If there is still no sign of your new certificate two to three weeks before the expiry of your current one, send a letter or email to the head of your licensing department pointing out how long ago you submitted your renewal forms and asking them to issue you with a temporary Section 7 permit if they really can’t process your renewal before the due date. A Section 7 permit will not authorise you to acquire shotguns or ammunition, but you can lawfully continue to possess those you already have. You may therefore want to consider stocking up on ammunition while you still have a valid certificate enabling you to purchase it (obviously ensuring you do not exceed the quantities authorised on your certificate).

The police may decide it is just as easy to process your renewal and issue you with a new certificate rather than a temporary permit. But, in case you still have neither by a few days before your certificate expiry date, ensure you have arrangements in place to either put your guns into storage with a dealer or, ideally, to transfer them to a friend who has sufficient space for your guns in their cabinet. You should obviously notify your FEO of any temporary transfer and, in the case of a friend, enter your guns on their certificate. If you are going shooting on private land with a friend who has been granted shooting rights over it by the owner of the land or you are attending an organised clay shoot where the organisers have been granted a Section 11(6) exemption by their licensing department, you can legitimately shoot without holding a certificate. Check with the shoot organisers if you are in any doubt as to whether they have the relevant exemption.

In an ideal world such long delays ought to be treated as unacceptable, but these are not ideal times. In the current economic climate, the government is bound to look for savings wherever it can find them. Perhaps it is better to recognise that and adapt accordingly, rather than being hopelessly optimistic.

For readers who have been following my series of articles on the issue of extending the members’ insurance to cover legal costs in the event of certificate revocation, research by the CPSA is ongoing and I hope to be able to return to this topic early in the New Year.

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Community Sentences Now to Contain Higher Punative Levels

The Government has published new legislation, in the Crime and Courts Bill that will mean adult community sentences will now contain a punitive element.

Adult community sentences will now have to include some form of punishment, such as a fine, unpaid work, curfew or exclusion from certain areas. The new measures will mean more offenders could be forced to undertake activities such as cleaning up graffiti, clearing litter, and helping to rejuvenate their communities.

Currently only around two-thirds of community orders contain a punitive requirement, such as a curfew or community payback. Under the new reforms that will rise significantly to almost all adult community sentences.

Alongside the punitive element, community sentences will be reformed to:

  • Make use of new technology to track offenders during their sentence to protect the public and help prevent criminals committing further offences.
  • Make clear that courts can take into account criminals' belongings as well as their income when setting financial penalties. The Government will also review whether existing court powers to seize property (including items of significant value) in lieu of unpaid financial penalties give the courts the tools they need, or whether further powers are required.
  • Give the courts access to benefits and tax information from Department of Work and Pensions and Her Majesty's Revenue and Customs, so financial penalties can be set at level that will bite on offenders and be more effectively enforced.
  • Remove the £5,000 cap on compensation orders in the magistrates' courts.
  • Give courts powers to defer sentencing so that restorative justice can take place between victims and offenders, to encourage criminals to face up to the consequences of their actions.
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