Conflicts of law & politics

By convention, the law and politics are kept distinctly separate in the United Kingdom: it is part of our unwritten constitution. But sometimes they can come into conflict, most especially when judicial decisions have a direct political impact. The ruling from three senior judges that the government cannot trigger Article 50 of the Lisbon treaty without first consulting both houses of parliament about the terms of Brexit is a very prominent public example. We await to see the outcome of the government’s appeal to the Supreme Court.   

Behind the scenes, there are numerous private examples of politics and the law can come into further conflict through the legal agencies of government, not least at the Serious Fraud Office (SFO), the UK body which investigates and prosecutes serious and complex fraud. The SFO’s director, David Green QC, reports directly to Jeremy Wright, the Attorney General, who advises the government on legal matters.

The most recent high profile example of such advice given by an Attorney General is that given by Lord Goldsmith to the Labour government in 2003 over the legality of taking military action in Iraq. A former Attorney General, Sir Patrick Hastings, notably wrote that “to be a law officer is to be in hell.” To avoid direct conflict of interest, there is a political convention that no Attorney General may also be a cabinet minister. Instead, Wright is directly answerable to parliament.

But sometimes, there are other potential conflicts of interest in the wider sense – particularly over economic issues that might adversely affect the nation’s financial health. This is arguably most acute in the catalogue of prominent British companies which are currently the subject of an SFO investigation, among them: Airbus, Barclays, GlaxoSmithKline and Tesco. In September, three former senior Tesco directors were charged with fraud in relation to a £265m+ accounting scandal.

Top of the list is Rolls-Royce, a byword for excellence as one of Britain’s most celebrated companies. It too is being investigated by the SFO over international bribery allegations. As a measure of how important Rolls-Royce is considered for the British economy, government ministers have had meetings with the company’s representatives on more than 200 occasions since the coalition government came into office in May 2010, according to the Campaign Against Arms Trade.

In many of the countries in which Rolls-Royce operates, corruption is endemic – and historically seen as a necessary part of doing business. However, enforcement of tough legislation in the US (the Foreign Corrupt Practices Act) and the UK (The Bribery Act 2010) means that companies are subject to prosecution if bribery is discovered. Central to the allegations against Rolls-Royce is the suggestion that the company won very large contracts in foreign jurisdictions through the use of multiple agents to pay bribes.

Inevitably, a prosecution would create enormous reputational damage. One of the challenges facing the SFO is that the government retains a golden share in Rolls-Royce, allowing it to veto decisions that might threaten the national interest. If a prosecution did proceed, the SFO, as an agent of government, would be prosecuting a company which is partly owned by the government. 

This apparent conflict might be circumvented by only prosecuting individual company employees rather than the senior management of Rolls Royce, or indeed, the company itself. If that were the case, then there is an immediate precedent: the prosecution of Libor traders employed by prominent UK and international banks in a series of prosecutions, rather than prosecuting the banks which benefited from the alleged manipulation of Libor, or the senior management of those banks.

Of course, there is no direct evidence that the banks or their senior management were personally culpable. Indeed, there has been uniform denial that any senior banker knew anything about what was routinely going on in their trading rooms in terms of Libor manipulation.  But one only has to look at the list of banks that have already been found guilty of Libor manipulation and fined accordingly by the Financial Services Authority (FSA): Barclays paid £59.5m, UBS £160m and Deutsche Bank €227m.

Initially, the SFO did not prosecute Libor because of a lack of available funding, according to the SFO’s then director, Richard Alderman. The money was soon found via an arrangement called blockbuster funding – an emergency top up granted by the Treasury for large scale investigations. The political pressure to investigate Libor only arose from a storm of adverse publicity over alleged manipulation by Barclays in 2012.  Marcus Agius, Barclays’ chairman, resigned immediately as did the bank’s CEO, Bob Diamond.

However, falling on their swords was regarded as a sufficient price to pay: no bank director or senior employee was subsequently charged with any offence relating to Libor manipulation, despite the fact that the practice was recognised as widespread between the sixteen banks which fixed the daily Libor rate with the Bank of England. The same applies to every other bank in which traders have been investigated and charged by the SFO. Not one bank or bank director has been investigated or charged.

The decision by the SFO not to do so seems highly political, and may have been subject to some external political influence. It remains a matter of conjecture. But a quick look at the background may help. Barclays is the second largest bank in the UK and one of the world’s largest. It is a bedrock of the UK economy, which is itself so disproportionately dependent upon financial services. Prosecution of the bank or its senior directors could have had a very damaging impact on the bank, and more generally, on the City’s reputation. Just as the UK banks were deemed too big too fail in the banking crisis of 2008-9, perhaps they were also seen as too big to prosecute in the ensuing Libor scandal.

It will therefore be of particular interest to see exactly how the SFO proceeds with Rolls-Royce. Just like our biggest banks, the UK’s flagship engineer employs many tens of thousands of people, it has a £73bn order book and supplies more than 50% of the global market for engines of wide-bodied jets. This success may be affected as a result of Brexit.

But even if the legal case against the company and its principal agents (i.e. the directors) were sufficiently strong, it still may not be politic for the SFO to prosecute them. Perhaps, as with the banks, more middle ranking staff may find themselves in the firing line instead. Should that be the outcome, whether any of those 200 ministerial visits might have played any part in such a decision would also remain a matter of pure conjecture.

Dominic Carman,journalist, writer and legal commentator

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