The Serious Fraud Office (SFO) often employs all of the tools at its disposal in order to investigate any suspicion of fraudulent activity. In its work, the SFO will only act if it is convinced that there is real evidence of suspect activity, in order to bring a successful investigation and if need be, legal action against the perpetrators. It is surprising therefore when the SFO fails to identify fraudulent activity, and is ordered to repay others for the impact of being under investigated as was the case with Celtic Energy Ltd in February earlier this year.
What was the SFO investigating?
This case has quite a complicated history. In 2013 the SFO had brought charges of conspiracy to defraud against two senior executives at Celtic Energy Ltd, a company specialising in opencast mining, and four lawyers that were advising the company. Through its operations Celtic Energy had come into possession of a coal mine in South East Wales. However when a company ceases mining activities, certain obligations are imposed on it to restore the site to the condition it was in before mining began – so to be the case with Celtic Energy.
There was an allegation from the SFO that Celtic Energy along with its legal advisors had planned to create a company that would be based in the British Virgin Islands, and to transfer the leases of the four minds that it operated to this company. The SFO claimed that this was with a view i.e. a conspiracy to defraud not only the city councils in the area, but also the Coal Authority in allowing it to avoid its legal obligations to restore the pitts, and to pay the cost involved which was estimated to run into several million pounds.
What was the decision?
This case was ultimately dismissed by the courts on the basis that there was no evidence had acted unlawfully – regardless of whether or not they had acted dishonestly. The SFO attempted to restart the court action against Celtic Energy by using a specialised procedure known as “voluntary bill of indictment”. This was refused by the High Court. In nearly a year since the case was dismissed by the courts, the High Court in Cardiff issued a judgement that the legal costs of the claim i.e. the cost of the barristers arguing the case and two High Court hearings, estimated at around £7 million, was to be paid by the SFO. The order to pay legal costs has significant consequences for the SFO, whose role in the UK has come under increasing criticism in recent years.
Why wasn’t the court persuaded that there was a conspiracy to defraud?
Fraud is an inherently difficult crime to prove, and conspiracy to defraud is equally complex to establish in a court of law. The Fraud Act 2006 sets out precisely what is required in order to prove that fraud had taken place:
- • Fraud by representation;
- • Fraud by failing to disclose information; or
- • Fraud by abuse of position
The ‘conspiracy’ element is not actually contained in the legislation, but is part of the common or ‘judge-made’ law. It was created to make up for the fact that the legislation had certain loopholes that had been exposed in later cases. In order to prove ‘conspiracy’ the SFO, in conducting its investigation and prosecution, would have to prove that there is a plan between parties to commit fraudulent activity.
In the case of Celtic Energy, the court was not convinced that there was any fraudulent activity for the following reasons:
- The plan of Celtic Energy to transfer the leases the leases it held for the coal mines could be deemed dishonest, but were not illegal; and
- In order to prove that there was a conspiracy to defraud the local councils and the Coal Authority, the court needed evidence that they had suffered financial loss as a result of the transfer of the leases. This was not proven. The court drew special attention to the fact that as criminal courts, they are not concerned with the “commercial morality” of Celtic Energy’s dealings. While the plans of the company and its legal advisors may be subject to criticism in the marketplace, this did not amount to criminal activity. Furthermore the court also criticised the SFO for failing to point out what was in fact demonstrable illegal activity, and only identifying what it thought of as illegal. Fraud cases, no matter how they are presented, are incredibly difficult to prosecute. Allegations of a ‘conspiracy to defraud’ make the work of the SFO much more difficult: they must prove that a party had planned to do something illegal.
The case of Celtic Energy is one of the two most notable instances where the SFO has failed to prove its case, and have been ordered to pay several million pounds in compensation.
Contact Lewis Nedas
At Lewis Nedas we have a long and successful history of advising clients concerned with investigation by the SFO and other regulatory bodies. Our dedicated team of Financial Crime lawyers are very familiar with this area of the law, and regularly advise and represent clients in their dealings with regulatory agencies. If you are concerned that your organisation may face an investigation, contact us now. We understand that the prospect of legal action against you or your firm can have a tremendous impact not only on you personally but also the reputation of your firm. We will work in partnership with you to ensure that you understand your rights, and that you are represented by expert lawyers who will handle your case with professionalism and integrity. If you have any questions please contact us on 020 7387 2032 or complete our online enquiry form.
