Partner Richard Cannon explores the SFO and whistleblowing in Law360

Partner Richard Cannon discusses the Director of the SFO’s recent speech, in which he announced that the agency will look to pay whistleblowers and borrow ‘cover tactics’ from policing to expedite investigations.

Richard’s article was published in Law360, 8 March 2024, and can be found here.

In a speech earlier this month at the Royal United Services Institute in London[1], Nick Ephgrave – the new director of the Serious Fraud Office (SFO) sought to underline his appointment as a breath of fresh air in the fight against fraud and corruption with commitment to a radical overhaul of the organisation’s approach to building cases ahead of prosecution.

Citing the need to greatly expedite the evidence-gathering process which would impact on the time taken for a case to reach a conclusion, Ephgrave told the audience that he supported the idea of paying individuals who blow the whistle on fraudulent and illegal behaviour. He also referred to the under development of the provisions of the Serious and Organised Crime and Police Act (“SOCPA”) which governs the process by which offenders who have assisted the prosecution can have their sentence reduced.

Ephgrave urged legislators to focus on the process of gathering evidence and intelligence in the run-up to the launch of SFO prosecutions, complaining that under the current system most SFO cases take five years or more to reach trial. Paying whistleblowers to provide “smoking gun” evidence would, he said, greatly expedite the process of collecting evidence of sufficient strength to secure convictions of offenders.

Save for an HMRC reward scheme, UK legislation has never previously provided for the compensation of whistleblowers for their assistance to prosecutors. Ephgrave argued for a change in the law in order to incentivise would-be whistleblowers to come forward and reveal misconduct. He pointed to the example of the United States, which has long-rewarded whistleblowers, noting that “86 percent of the $2.2bn in civil settlements and judgments recovered by the Department of Justice were based on whistleblower information” – the SFO is clearly looking at their counterparts across the Atlantic for inspiration.

However, in the US, co-operators are a regular feature in major criminal cases whilst their use in the UK is extremely rare. Moreover, the culture and practice of plea deals is entirely different in the UK to the US.

How would paying whistleblowers for information play out in the UK?

Firstly, we need better insight into what we are dealing with. At one end of the scale, we have the tip-off where the whistle blower reports the misconduct and perhaps points the investigator in the right direction.

At the other end, we have a participating informant who may be a conduit for obtaining evidence from computer systems, even “wearing a wire” – concealing a recording device or event giving evidence themselves for the Prosecution.

This area is nothing new for the UK criminal justice system. Rules relating to disclosure, public interest immunity and reduced sentences under SOCPA are issues the Courts are well used to dealing with. Previously they have operated largely in the domain of serious and organised crime, but under the proposed SFO plans they would apply equally in fraud or bribery cases.

The distinguishing element here is the potential of whistle-blowers (or informants and co-operators) being paid for their assistance.

This has not historically been part of the criminal justice landscape in England and Wales, and it is currently unclear as to whether this will impact the safety of prosecutions brought by the SFO.

It also remains to be seen what a jury in England and Wales would make of this arrangement where its product is before them in a criminal trial.

As rewards for whistleblowing increase, undoubtedly so too will cases of alleged false or over-reporting, and it is vital that the SFO focuses on bringing effective and safe prosecutions rather than risking time, resources and further reputational damage investigating false reports and pursuing investigations on the back of them.

Similarly, for an agency that has long struggled with issues of transparency, such tactics could be an unwelcome addition to the organisation’s playbook. With the SFO already under fire for issues concerning disclosure in investigations, it is fair to say that disclosure issues have dogged cooperating informant cases in the past.

Ephgrave succeeded Lisa Osofsky as director of the SFO in September, after she stepped down following a string of high-profile prosecutorial failings which hugely eroded professional and public trust in the organisation. The catalogue of recent failures includes the 2021 trial of two former Serco executives[2], which collapsed when the SFO failed to disclose evidence to the defendants.

In October, following the SFO’s mishandling of the Unaoil prosecution[3] which resulted in three quashed convictions, Osofsky apologised to MPs on the justice committee for inappropriate behaviour after she admitted to holding a private meeting with a middleman employed by Unaoil’s founding family.

A report into the Unaoil failings by Sir David Calvert-Smith[4], the former director of public prosecutions, identified a “damaging culture of distrust” between SFO investigators and senior managers. In March, the SFO dropped charges against three former G4S executives following a 10-year investigation. All three were acquitted after the SFO failed to offer evidence against them and stopped the case because “it was no longer in the public interest”.

Under Osofsky, the number of cases pursued by SFO investigators fell by half during her five-year spell at the helm of the organisation.

The litany of recent failures means that Ephgrave is understandably keen to demonstrate that he can usher in serious change for the better following such procedural missteps, and to show that recent calls to increase the resources and manpower of the organisation are justified. However, this must be done in a way which is open and transparent.

As a non-conventional choice for the role as a non-lawyer with background in policing, Ephgrave may thus also be driven by a desire to take an early revolutionary approach in order to shake up the SFO’s case-building procedures right from the outset of his tenure. He draws on 30 years of law enforcement experience, including a four-year stint as assistant commissioner of the Metropolitan police, and is the first non-lawyer to occupy the director’s chair.

Calling for as radical approach as paying whistleblowers and utilising ‘covert tactics’ (as Ephgrave explained in a recent interview to the Financial Times) would certainly align with a desire for root and branch reform, but such a leap into the unknown is fraught with danger.

Against a backdrop of such scepticism of the organisation and its ability to change for the better, implementing extreme measures such as payment for evidence is potentially high risk and could literally leave the new director as a hostage to fortune.

Given the need for legislation to implement this scheme it will be some time before these rule changes can be brought into effect and even longer before we can measure whether they have been a success.

[1] https://www.sfo.gov.uk/2024/02/13/director-ephgrave-speech-at-rusi-13-february-2024/

[2] Serious Fraud Office v Serco Geografix LTD [2019]

[3] R v Akle & Anor [2021] EWCA Crim 1879

[4] https://www.gov.uk/government/publications/independent-review-into-the-serious-fraud-offices-handling-of-the-unaoil-case-r-v-akle-anor