The Soma Oil and Gas judgement: is the SFO going to have to get a move on with its investigations?

The Soma Oil and Gas judgement: is the SFO going to have to get a move on with its investigations?

On 12th October the full High Court ruling refusing Soma Oil and Gas’s judicial review challenge to an SFO investigation was published. The hearing was held back in August.

The SFO launched an investigation in July 2015 into allegations of corruption and bribery surrounding ‘capacity building payments’ by Soma in Somalia. This was prompted by a report by the UN’s Somalia and Eritrea Monitoring Group which was leaked alleging that payments made by Soma to the Somali government were used to make “systematic payments to senior ministerial officials” within the Somali Ministry of Petroleum and Mineral Resources. The report also raised serious conflict of interest issues outlining how Soma had paid the Somali government’s independent legal advisor nearly $500,000, while the legal advisor was giving advice on the contract with Soma.

Soma’s background

 Soma was established in early 2013 specifically to pursue oil and gas exploration opportunities in Somalia and is chaired by former Home Secretary and Conservative Peer, Michael Howard.It is 50% owned by a British Virgin Islands based company, Winter Sky. One of Soma’s board members is Russian oligarch, Georgy Djaparidze, whose family own Winter Sky. Another non-executive director is Mohamed Ajami, a London-based Lebanese businessman who has been under investigation by the US Department of Justice for placement fees to the Libyan Investment Authority (LIA) on behalf of hedge fund manager Och-Ziff. In late September 2016, Och-Ziff admitted engaging a third party agent in relation to securing investment from the LIA knowing that the agent “would need to pay bribes

In August 2013 Soma was awarded a lucrative contract with the Federal Government of Somalia to conduct seismic surveying and a subsequent right to exploit 12 offshore blocks of its choosing. Soma contested the UN group’s findings stating that its payments were all related to building much needed technical capacity.

Soma’s challenge

 In August 2016, Soma launched the judicial review against the SFO claiming that the investigation was casting a shadow over Soma’s business and gave rise to a risk of insolvency. In particular it claimed that the investigation would prevent it from concluding a Production Sharing Agreement (PSA) with Somalia and raising finance in order to be able to meet its obligations under a PSA.

In its challenge Soma claimed that the SFO’s investigation was irrational, a breach of its Article 8 rights under the ECHR (right to private life) and that the SFO’s failure to disclose information on its other strands of inquiry was contrary to minimum standards of disclosure under EU law on the rights of accused or suspected persons.

The outcome

 The SFO will be relieved that the Court took a dim view of the Soma challenge and restated the wide discretion available to investigators and prosecutors. Lord Justice Gross and Mrs Justice Andrews wrote: “it is not for this Court to blur the roles of Court and investigator by compelling the SFO, by way of a remarkable, unwarranted and mandatory order, to terminate its investigation”. The Judges awarded 80% costs against Soma. It is yet another of a string of victories the SFO has been having in challenges brought by companies to its investigations or procedures.

But it is not all good news for the SFO. The judicial review of the SFO by Soma was a particularly aggressive strategy for a company,that according to the judgement,“cooperated extensively with the investigation.” But it is also a strategy that partially worked. Five days after launching the challenge, on August 15th, the SFO issued as a “unique exception” a letter to Soma providing an update on its investigation which stated that there was “insufficient evidence of criminality” in relation to the ‘capacity building payments’ but that ‘other strands of the investigation’ were continuing.

The Judges found that it was “fair, responsible and most welcome” for the SFO to do this and concluded that “it would plainly be desirable if the other strands investigation was concluded as expeditiously as possible – hence the Court’s exhortation at the conclusion of the hearing.”

In other words, where commercial deals are at stake, the SFO needs to get a move on.

Getting a move on with Airbus – another unique exception in the making?

On the same daythat the Soma judgement was published, SFO Director David Green was quoted by Reuters as saying that the SFO would “proceed fairly quickly” with its investigation into Airbus.

In August 2016, the SFO announced that it had started an investigation in July into “allegations of irregularities concerning third party consultants” . This followed an announcement by Airbus in April 2016 that it had passed to the UK authorities “its findings concerning certain inaccuracies relating to applications for export credit financing.”These inaccuracies are thought to concern discrepancies over the amount of agent’s commission disclosed and missing names of third parties which could represent a potential fraud on the UK tax payer.

A few days later Reuters reported that UK Export Credit Finance (UKEF), the UK government export credit agency had referred information to the Serious Fraud Office and temporarily frozen all Airbus cover pending a review. The French and German export credit agencies followed suit a few days later. That raises the question whether the SFO will be under pressure to conclude its investigation quickly so that uncertainty over Airbus’ export credit cover can be resolved.Commercial deals will be at stake though Airbus is unlikely to face bankruptcy as a result of the delays.

It is worth remembering that Airbus is facing investigation in both the UK and Germany for a string of corruption allegations. The SFO’s investigation into allegations that Airbus’ UK subsidiary, GPT, paid bribes via a Cayman Islands based subcontractor on a government to government contract with Saudi Arabia, was opened in August 2012. The German public prosecutor announced an investigation in March 2012 into allegations of bribery and corruption among other offences in relation to the use of third parties by Airbus in a contract to supply the Austrian government Eurofighters. German prosecutors are also looking at irregularities in contracts to provide border surveillance to Romania and Saudi Arabia; and at alleged bribery by a company owned jointly by Airbus and ThyssenKrupp, Atlas Elektronik, on contracts in both Greece and Turkey. Greek and Romanian authorities are also investigating allegations.

David Green told Reuters it was too early to say whether Airbus would qualify for a Deferred Prosecution Agreement – one potential way of getting a quick result. Given the scale of the wrongdoing alleged against Airbus around the world, even if Airbus did self-report its export credit misdemeanours, anything short of a full investigation into wrongdoing by Airbus would be a serious travesty. On the other hand, the fact that the GPT investigation has been drifting on for over four years now makes people nervous that nothing is actually happening. The SFO badly needs to see some results particularly on its investigations into big players, but the pressure on the SFO to do deals and enter into Deferred Prosecution Agreements to avoid upsetting commercial deals and get quick results needs to be resisted.