On 16 May 2022, the Commercial Court (Waksman J) handed down perhaps one of the most closely watched judgment of the year for the SFO, ENRC v Dechert LLP, David Neil Gerrard and the SFO.
Between 2011 and early 2013, ENRC instructed Dechert to conduct an internal investigation in connection with the company's activities (via a subsidiary, SSGPO) in Kazakhstan, following receipt of an email from an apparent whistleblower, containing allegations of "corruption and financial wrongdoing". Subsequently, the scope of the retainer came to include liaison with the SFO on behalf of ENRC. Between August 2011 and March 2013, a number of damaging newspaper articles relating to ENRC were published in the British press, which evidently relied on information that was confidential. An article in The Times in August 2011 prompted the SFO to write to ENRC, to urge the company to consider the SFO guidance on corporate self-reporting in the context of an internal investigation. Between November 2011 and March 2013, ENRC, on advice, voluntarily engaged with the SFO. Throughout its instruction, Dechert, charged total fees of £13 million in connection with the investigation.
In March 2013, ENRC terminated Dechert's instruction and in April 2013, the SFO announced that it was conducting an investigation into the activities of ENRC and its subsidiaries in Kazakhstan and Africa. In June 2013, the SFO received a set of papers in relation to ENRC from an anonymous source.
The SFO's investigation into ENRC is still ongoing and, according to its website, relates to "allegations of fraud, bribery and corruption around the acquisition of substantial mineral assets".
ENRC brought proceedings against Dechert and Mr Gerrard in 2017. It initiated proceedings against the SFO in 2019. Those proceedings were subsequently joined. The trial took place between May and September 2021.
In its judgment, the Commercial Court found that:
- Mr Gerrard (the Matter Partner at Dechert) leaked ENRC's privileged and confidential information to the press;
- He was reckless as to statements made to the SFO that prejudiced ENRC's position;
- He was negligent in his advice to ENRC in respect of the SFO investigation and potential criminal liability;
- He sent the anonymous package of documents to the SFO in June 2013;
- The SFO received a tip off from Mr Gerrard in relation to one of the press leaks; and
- Senior SFO officers had unauthorised contact with Mr Gerrard.
The Commercial Court found that ENRC had succeeded in establishing:
- Breach of duty against Mr Gerrard and Dechert; and
- Inducement to breach contract against the SFO.
Although ENRC failed to establish several of its allegations against the SFO, the Court was satisfied that it was in breach of its duties in relation to its contact with Mr Gerrard (much of which was found to have been unauthorised and against ENRC's best interests). The Court felt that the SFO was motivated by "bad faith opportunism". The Court did not grant any declaratory relief against the SFO.
Causation and loss will be addressed at a subsequent trial which is scheduled to start on 6 March 2023.
Coming in a year in which the SFO has also been criticised for its poor results, the ENRC judgment raised questions about Lisa Osofsky's leadership and the culture within the organisation. With Ms Osofsky's tenure coming to an end in 2023, her successor will have a significant task to restore the reputation of the organisation following this judgment.
Corporate Criminal Liability
On 10 June 2022, the Law Commission published its long-awaited report setting out options for the reform of corporate criminal liability in the UK. The report follows years of disquiet with the current model of corporate criminal liability. Widespread criticism, including by successive directors of the SFO over the last decade, centres on the current model presenting a serious impediment to the successful prosecution of corporate entities.
The resulting report stopped short of making specific recommendations for reform but recognised the inadequacy of the current model of liability. It left the Government with a range of options to consider, any of which would be likely to have significant implications for UK businesses if implemented.
Most notably for white collar practitioners, the Commission rejected a widespread expansion of the 'failure to prevent' model, indicating that any expansion of this model of liability should be limited to failure to prevent fraud (and potentially, after further consultation, human rights abuses, ill-treatment or neglect and computer misuse).
Our comprehensive discussion about the report and proposals can be found here.
In October 2022, a former Lord Chief Justice, Sir Robert Buckland KC MP, now Secretary of State for Wales, predicted that new failure to prevent offences were on the way. He suggested that legislation could be enacted that went beyond the recommendations of the Commission.
In November 2022, the Government's Economic Crime and Corporate Transparency Bill, which had its first reading in September, continued its progress through Parliament and a number of amendments were tabled for discussion. The Bill as amended would create an offence of failure to prevent fraud, false accounting, or money laundering, which could be committed by an organisation or its individual directors. The Bill is currently at the Report stage in the House of Commons, so will be subject to further debate in both Houses.
Whilst some commentators have suggested that the creation of such an offence would significantly enhance the UK's efforts to tackle financial crime, it notable that the failure to prevent bribery offence has been utilised on few occasions since it came into effect.