Litigate, Equivocate, Marmelise: Gray and Kroll in Flaux J’s dock

Former barrister and Dubai based (now suspended) solicitor partner of Gibson Dunn, Peter Gray, has hit the news for all the wrong reasons.  Flaux J has given judgment in Mahmoud Boreh v  Republic Of Djibouti and others [2015] EWHC 769 (Comm) as to whether he was deliberately misled by Gray. The judge found he deliberately and dishonestly mislead the court and his opponents.  He also makes interesting allegations against Kroll, the security consultants.  For those not willing to wade through the 46,000 word judgment it may be worth summarising some of the key talking points.  It is still, I am afraid though, a long post.

What did the judge think Mr Gray did wrong?

Mr Gray had conduct of the Republic of Djibouti’s application for a freezing order against Mr Boreh. Boreh was a political opponent of the regime and had been convicted in absentia for terrorism offences in Djibouti.  It seems this was almost entirely on the transcripts of a telephone call. The original transcripts dated that call as 5th March 2009. A conversation took place which Djibouti alleged proved Boreh had organised an explosion that took place that day. The timing of the call and the explosion were crucially aligned and formed the basis of the conviction in absentia. This conviction formed one of the bases on which the freezing order was sought against Boreh. Importantly, it also formed the basis of an extradition request so that Boreh could serve his sentence.

During the conduct of the case, it became clear that the telephone call took place on the 4th March. There was no explosion on the 4th March.  Djibouti security and police forces and their lawyers could not find reliable evidence to support that claim.  According to the judge, Gray described the discovery of this date difference, as “massive” at the time he discovered it.  It called into question the conviction in absentia of Boreh,  it would call into question the basis on which the freezing order was subsequently made.  It also called into question the basis on which the extradition request was made.

Mr Gray did not make plain the error, but instead is recorded as saying he was: “Going to fudge the error of the date, it doesn’t  effect the underlying evidence”.  He was trying to run the argument that the transcripts still evidenced terrorism on the basis that they remained, at least, suspicious even if they could not be linked to the specific attack for which Boleh had been convicted.  The judge disagreed: they looked significantly less suspicious in the absence of the explosion which it was claimed the transcripts discussed and they fatally undermined the conviction.

One reason for Gray holding the line, according to the Judge, was to ensure Djibouti (and Gibson Dunn) could maintain pressure on Interpol to get Mr Boreh extradited.   To make matters worse, even though Gray knew of the flaws in the evidence, counsel instructed by him relied extensively and with emphasis on the transcripts as providing significant and persuasive evidence of Mr Boreh’s involvement in terrorism.  At the hearing, the judge relied on this evidence, and indicated he accepted the likelihood that Mr Boreh had been involved in terrorism.  The judges words were then used by Gibson Dunn lawyers, under Mr Gray’s direction and supervision, as a finding of fact to try to persuade Interpol that the extradition request should be taken seriously.

After this hearing it became apparent to the solicitors for Mr Boreh that there was an error in the transcript date and that the transcript could not then be relied upon in the way it had been. The court had been misled. The question was whether this was done knowingly. In seeking to ascertain this, Boreh’s solicitors challenged Gibson Dunn to provide details of who knew what when.  Mr Gray then engaged in what he described subsequently to the court as an “acceptably evasive” attempt to conceal his own knowledge of the matter from his opponent. The judge described this as “breathtaking”: an  attempt “by an English solicitor and partner in a City firm to justify a positively misleading letter to the other side’s solicitors.”  He also seems to have sought to downplay the seriousness of what was going on internally within Gibson Dunn as the truth started to come to light.   At one stage, to the judges horror, he pretended to a colleague that it may have been the fault of other lawyers in the firm, not him.

Mr Gray’s case was that he, “had been guilty of serious errors of judgment, but he maintained throughout his evidence that he had not intended to mislead the court and had certainly not done so deliberately.”

There are a few points worth dwelling on.

Readers familiar with the Alistair Brett case will recall a problem with ‘compartmentalised thinking’, Brett’s way of trying to explain how he took an overly client-focused view of the truth and how to represent it in litigation.  A similar lack of independence may be at work here.  The judge’s view was that once Mr Gray had realised the problem with the transcript evidence he had a duty to think much more independently about the case he was making. What Gray did was seek to maintain a line between the original case and the discovery of the flaw in the evidence which ignored the substance of the flaw. He could not say Mr Boleh is a terrorist and rely on the conviction or transcripts as evidence of that if that evidence was presented in a misleading way.  Gray said he could do so as the transcript remained suspicious even if it did not directly link the suspect to the specific attacks which had formed the basis of conviction in absentia.  The judge said this:

 That suggestion that, even when the telephone calls were given their correct date there was still a case to answer, became something of a mantra in Mr Gray’s evidence. I find that explanation of the approach Mr Gray adopted hard to accept. It seems to me that any competent and reputable solicitor faced with the “big issue” and potential “disaster” of the misdating of the transcripts would have been anxious to scrutinise the transcripts carefully and critically to see if, when they bore the correct date, they supported a case that Mr Boreh had instigated terrorist attacks.

The judges view is that rather than rethink the validity of the extradition request, which could not in his view be supported on the basis of what was now a fatally flawed conviction, Mr Gray persisted with an extradition request where only the date of the transcript was altered.

I consider that any competent and reputable solicitor faced with the misdating issue and an appreciation that the conviction and the confession were unsafe would not have been embarking on an exercise of trying to tinker with the dates in the extradition request or, as he put it at a meeting the following day, 27 August 2013: “fudge the error of the date”, but would have advised his client that the only appropriate course was to give the full information about the dating error to the Dubai court and to inform that court that the extradition request could only be justified on the basis that there would be a retrial, because both the conviction and the confession were unsafe.

The judge also says:

In my judgment, the failure to inform the court about the unreliability of the conviction and the evidence on which it was obtained is quite remarkable.

Now up to this point litigators may be feeling some sympathy for Mr Gray (although I suspect that reading the judgment may dissuade most of that). He does not wish to do his opponents job for him. One is not ordinarily obliged to reveal damaging facts and (as is argued later in the judgement somewhat inconclusively) the application for the freezing order may be a situation where full and frank disclosure was not required of the solicitor in his affidavit (in contrast to an ex parte application).

The difficulty is underlined however by the persistent reliance on the transcripts and conviction in affidavits before the court and in extradition documents as evidence of terrorism justifying extradition and the freezing order.  The problem reaches its zenith when counsel for Djibouti (Mr Qureshi QC) in the freezing order application seeks to dismiss Boreh’s claims that he is the victim of politically motivated oppression not justice.  The judge quotes extensively from Mr Qureshi’s submissions and summarises the problem:

It is difficult to see how this position of righteous indignation could have been maintained, at least as regards the terrorism conviction, if that conviction was unsafe and the evidence on which it had been based was unreliable, which Mr Gray knew, even though Mr Qureshi QC did not. It is tolerably clear that if Mr Boreh had found this out, he would have exploited it to suggest that Djibouti was acting from illegitimate political motives to oppress him. Again, on the basis that Mr Gray was listening to and concentrating on the submissions, this must have been something he was acutely conscious of, particularly given the discussion with Al Tamimi [Djibout’s local lawyers] at the meeting only two weeks previously about the importance of not implying, in the context of the extradition request, that the Djibouti judgment was incorrect.

The judge points out that opposing counsel appears also to have been misled. And then he turns to the crucial issue of whether this amounts to deliberate dishonesty using the two stage test of finding objective then subjective dishonesty:

It seems to me that any honest solicitor with the knowledge of Mr Gray as to the dating error and its impact on the safety of the conviction, who was listening to and concentrating on the exchange between the court and counsel would have appreciated that both counsel and the judge were proceeding on the misapprehension that the telephone calls were on 5 March 2009, after the Nougaprix attack, and would have taken immediate steps to correct that misapprehension. On that basis, the limb of the test in Bryant of objective dishonesty is satisfied, but the critical question which remains is the one of subjective dishonesty, what was Mr Gray’s state of mind at the time of the 10 and 11 September 2013 hearing.

In his sixth affidavit sworn for the present hearing, Mr Gray says that he has no independent recollection of the exchanges between the court and counsel. He ascribes his failure to correct the misapprehension both the court and counsel were under to a number of factors: exhaustion and a lack of focus; his failure to notice that the wrongly dated transcripts rather than the corrected ones had been exhibited to the extradition request and, thus, the third affidavit; not appreciating the significance of the transcripts because of his firm belief (which he thought the court seemed to share) that the whole political persecution case was irrelevant to whether a freezing order should be granted; that from an early stage the court seemed to be receptive to Djibouti’s submissions, so that from the early afternoon of 10 September, as his emails indicated, his thoughts had turned to issues of the steps to be taken in multiple jurisdictions if freezing relief was granted; that he sent and received a number of emails during the hearing, the majority concerned with this litigation, which may have affected his focus on the detail of the submissions and an assumption that Mr Qureshi QC would bring to the court’s attention anything which should be brought to its attention, believing as he says he did that Mr Qureshi QC was aware of the misdating issue which meant that he paid less attention than he should have done to what was said at the hearing.

Mr Gray’s explanation is not accepted by the judge for a number of reasons: the strategy of non-disclosure was deliberate; Mr Qureshui was not given the full picture on the inaccuracies about the transcript; there was a pattern of what he regarded as evasive communication; but also, that Mr Gray, immediately after the hearing, was keen to recycle the judge’s comments about Mr Boleh arguably being a terrorist in support of the extradition process at work against Mr Boleh:

 … once Mr Qureshi QC started making the submissions he did on the morning of the first day of the hearing quoted at [81] above, Mr Gray must have appreciated that the discussion with the court was proceeding on the false basis that the phone calls had been after the Nougaprix attack, not before, as he knew was in fact the position. It beggars belief that he did not realise that counsel and the court were under that misapprehension. Furthermore, as the passages from the transcript of both days of the hearing which I have set out at [81] to [95] above demonstrate, the issue about the telephone calls being evidence that Mr Boreh was implicated in a grenade attack on the Nougaprix supermarket the night before the calls was not the subject of some passing reference, but was an issue to which counsel and the court returned again and again. In those circumstances, I simply do not accept Mr Gray’s evidence that because he was tired or doing his emails or leaving it all to Mr Qureshi QC, he was not listening or concentrating. On the contrary, the fact that immediately after the hearing had finished on 11 September 2013, he asked Ms Kahn to include in the draft Interpol letter references to the transcript of the previous day where the court had said there was an arguable case that Mr Boreh was involved in terrorism, demonstrates that he was listening and concentrating as one would expect of the partner in charge of a case of this seriousness, sitting behind counsel in court. Of course what I had said about the case being arguable was on the basis of my reading of the transcripts, which was that they were on 5 March 2009, referring to the Nougaprix attack the previous night. Mr Gray knew that the court was proceeding on the wrong basis.

Furthermore, at Mr Gray’s request, Ms Ngo Yogo II highlighted in yellow extensive sections of the transcripts of the hearing which I am quite sure he did go through and discuss with the associates which passages should go into the draft letter to Interpol.

…Even if, contrary to the findings I have already made, Mr Gray was not aware at the hearing that the court and counsel were proceeding on a false basis, he was aware of it when he read this and it was incumbent upon him to come back to court straightaway to correct the error.

Instead of raising the fact the court had been misled, various correspondence was sent seeking to emphasise that a High Court judge supported the claim that Boleh was a terrorist and that the transcript evidence supported these claims.

Once Mr Boleh’s solicitors discovered the error on the transcript and pursued the issue of the court being misled Mr Gray emails counsel with this:

“I think we’re on thin ice if we say we didn’t ever know about this from the beginning until their letter [of 4 September 2014].  Remember, they know we’ve been to see Interpol lots of times.

I think it’s better we say we were not alive to the distinction at the hearing, which is true.  I’ve re-read the transcript, and it’s only Butcher who cites the wrong date…”

Here we see an example of the difference between something which is technically true but misleading.  I wonder if all litigators would see a problem in the language used. The judge says:

In my judgment, Mr Gray’s attempt in cross-examination to justify this letter or the email he sent was hopeless. On any view, the reference to being on thin ice was not the comment of an honest solicitor, but of someone who was practising equivocation.

…Mr Kendrick QC put to him that the letter of 7 November 2014 was “straight dishonest” which he cavilled at but his response about the letter gave an important insight into his real state of mind:

“Well, I don’t think that, no.  We were only answering a question — as I said, we were only answering the question on the hearing.  I accept it was a very evasive letter, but I thought it was acceptably evasive because — and that’s why — but I realised it was important, and that’s why I was very careful to run it past leading counsel.  This is not the sort of letter that I would have sent out by myself, as it were, because I recognised that it was important.”

Quite apart from the unedifying attempt to pass at least some of the blame onto leading counsel, who of course did not know that Mr Gray had sat through the September 2013 hearing knowing about the full implications of the misdating error, I found the attempt by an English solicitor and partner in a City firm to justify a positively misleading letter to the other side’s solicitors as “acceptably evasive” breathtaking.  This letter was clearly dishonest and it was designed to deceive Byrne & Partners into thinking that Mr Gray had not been aware of the dating error at the September 2013 hearing. It had the desired effect, because Byrne & Partners wrote back on 9 November 2014 saying: “You have now told us that Mr Gray and leading counsel were not aware of the misdating and we accept that.”

Now at this point in the judgment I found myself wondering whether that leading counsel for Djibouti should have done more.  Was Mr Gray’s attempt to finesse his knowledge about what/when he knew of the transcript error in the ‘evasive letter’ a red flag which should have alerted Mr Qureshi to the potential that he had, albeit inadvertently, misled the court? The court does not delve in it, but Boleh’s legal team and the judge are at pains to point out that no allegation of misconduct is levelled at anyone other than Mr Gray in the application before the judge.

Motivation

The judge suggests Mr Gray may have been too invested in winning the case or the broader tactical aims of the client, in a passage which has deeper resonance when we come to consider the role of Kroll:

It seems to me that the answer is to be found in something that was recorded as the priority at the meeting at Kroll’s offices on 27 August 2013 to which I refer in more detail below: “Avoid at all costs for Boreh to be released and passport given back”. His desire to ensure that the terrorism allegation stuck against Mr Boreh, irrespective of whether the original conviction was a safe one, seems to have outweighed all other considerations and coloured his conduct at that time and thereafter.

Kroll are described in the judgment as security consultants and private investigators who were instructed by Djibouti.  Interestingly the case strategy adopted by Mr Gray appears to have been agreed with them and the client:

It seems to me that what emerges from the notes of the meetings at Kroll and Al Tamimi is in effect a strategy of not disclosing to any court (in the first instance in Dubai for extradition purposes then in England for the Freezing Order Application) that the conviction in Djibouti was unsafe and the evidence on which it was based was unreliable.

There is another element to Kroll’s involvement which is -if the judge’s view is correct – serious and deserves emphasis:

 At the same time [after the freezing order was granted] as these efforts by Djibouti to have the Red Notice [an international notice sseking he locatin and arrest of suspects] fully reinstated and to persuade the Dubai authorities to extradite Mr Boreh were taking place, Djibouti was seeking to put what can only be described as improper commercial pressure on Mr Boreh to settle the present litigation. This took the form of threats to continue and expand the campaign against him through use of the terrorist charges made on behalf of Djibouti by Kroll. These threats were made in without prejudice discussions in January 2014 which Mr Boreh recorded secretly. However, Djibouti has not objected to their being disclosed and used in the present hearing which is perhaps not surprising, since the threats would fall within the exception to privilege identified by Robert Walker LJ in Unilever Plc v Procter & Gamble Plc [2000] 1 WLR 2436 at 2444, where exclusion of the evidence “would act as a cloak for perjury, blackmail, or ‘unambiguous impropriety’”. It is not necessary to go so far as to say that Kroll was blackmailing Mr Boreh, but contrary to the submissions made by Lord Falconer to the effect that what was said did not go beyond the permissible in settlement of hard fought commercial litigation, I have concluded that there was unambiguous impropriety given the nature of the threats.

The judge refers in detail to a conversation between Kroll and Boleh where, in the judges view:

…it became clear that Djibouti was seeking to extract a “price” in excess of the amount of the claim in the Commercial Court proceedings for not pursuing criminal proceedings against Mr Boreh…

And then after going through the transcripts in some detail

It is not suggested by Mr Kendrick QC that Mr Gray or Gibson Dunn were party to these discussions or aware of what Kroll was saying on behalf of Djibouti. However, I have referred to them extensively because, as I have already held, contrary to Lord Falconer’s submissions, the threats made to Mr Boreh go way beyond what is permissible even in the hardest fought commercial litigation. What was being said was that, if he settled the litigation (in fact for more than it was worth) he could avoid the risks of extradition to Djibouti, being in prison there for the rest of his life, money laundering and similar criminal-related actions in the US and elsewhere which would force his “money out of the system”, those actions being expanded to members of his family, restrictions on travel and having to spend the rest of his life; “looking over [his] shoulder”.

It is not suggested that Gibson Dunn or, more specifically, Mr Gray were party to the conversation, or the specifics of this “unambiguous impropriety” but it is shown in the judgment elsewhere that Mr Gray was engaged in advancing the strategy of applying pressure to keep Mr Boleh in jail [correction 01/05/15: I understand he was not in jail but on bail, with his liberty somewhat limited] which was in accordance with strategy being agreed with Djibouti at a meeting with Kroll.  Indeed the judge sees this as a key motivator for Mr Gray’s conduct.  It would be interesting to know whether Kroll is being investigated by the police in the light of the judge’s findings (which do not determine whether Kroll did anything wrong, just give us the judge’s view of it).  It should also be important for the SRA, in considering Mr Gray’s conduct, to look into this aspect of the sorry tale too. [note added 01/05/15: It has been suggested this might be read as implying Mr Gray was part of a conspiracy to apply inappropriate pressure to Mr Boleh. That is not my intention. I do, though, think the SRA might want to look into the question as to whether in general Mr Gray/Gibson Dunn lacked the necessary independence in their dealings on the case and their relationship with Kroll would I suspect form part of any such investigation.] Commendably, Gibson Dunn reported the case to the SRA: perhaps they too have considered the detail of the Kroll connection.  If they have not, perhaps they should.

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Corporate Lawyers + Corporate Clients: Power, Practice & Privilege

Birmingham Law School are hosting an ESRC sponsored two-day symposium on ‘Corporate Lawyers and Corporate Clients’, organised by Dr Steven Vaughan,  June 29 and 30.  You can book here.  I’m giving a keynote, but the rest of the programme is excellent!

Over the two days, we will explore various aspects of large law firm practice, including: the relationships between corporate lawyers and their clients; lawyer’s ethics; lawyer independence and the rule of law; legal professional privilege; law firms, businesses and human rights; legal risk; the changing role of General Counsel; bribery and corruption; lawyers’ duties; talent and inclusion; and conflicts of interest. Thanks to the ESRC, the conference is free to attend.

Paul Philip (Chief Executive, Solicitors Regulation Authority) will open the conference. Our keynote address on the Monday evening will be by Richard Moorhead, Professor of Law and Ethics at University College London. There are, in addition, 33 other speakers, from the Legal Services Board, the SRA, the Law Society, partners in large law firms, in-house lawyers, consultants and academics from the US, Australia, UK and wider EU. A full programme will appear in due course on the project website:https://limitsoflawyers.wordpress.com

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Organised irresponsibility? How lawyers can make it worse

This morning the too big to manage arguments about HSBC again hitting the newspapers. Robert Jenkins, a former banker and member of the Bank of England’s Financial Policy Committee and now a senior fellow at the Better Markets lobby group has called on the Chairman of HSBC to resign in the FT.  The too big to manage argument always strikes me as a bit of an odd one.  If there is a problem in a sub-part of an organisation, selling off that sub-part will not make it better managed, it will just distance the parent from the problem. And if the parent cannot manage its sub-parts, it is not immediately obvious why getting rid of one bit of it will help.  True, it may reduce the load, so a board required to scrutinise (say) 23 sub-parts only has to scrutinise (say) 22 next time – but the more pressing issue is the quality of risk, compliance and audit functions.  The responsibility and integrity of those have to be right at every level of the organisation.  Without that the divisions of labour inherent in corporate life operate, deliberately or accidentally, as a form of organised irresponsibility.

Lawyer’s role in these processes can sometimes be acute and they sometimes contribute to organisational irresponsibility.  The way General Motors dealt with claims related to their faulty ignitions may be a case in point.  Standard Chartered Bank is an example where the role of the lawyers deserves some scrutiny.  The following account is gleaned from the Order of the US regulator/prosecutor that investigated the matter.  In that case SCB want to take Iranian Transactions and process them quickly into dollars.  US sanctions law was a problem but they formed the view that the transactions were not banned if they qualified as U-turn transactions.  As I understand it, US law required due diligence on such transactions be done in the US.  SCB did not want to do that because it slowed things down.  Why due diligence in the US would be slower than due diligence outside the US is not immediately obvious.  They formed a plan to do due diligence outside US and then strip the transactions of Iranian identifiers. Internal lawyers advised on ‘enforcement proofing’ this approach.  The Prosecutor’s Order put it like this:

As early as 1995, soon after President Clinton issued two Executive Orders announcing U.S. economic sanctions against Iran, SCB’s General Counsel embraced a  framework for regulatory evasion. He strategized with SCB’s regulatory compliance staff by advising that “if SCB London were to ignore OFACs regulations AND SCB NY were not involved in any way & (2) had no knowledge of SCB Londons [sic] activities & (3) could not be said to be in a position to control SCB London, then IF OFAC discovered SCBLondons [sic] breach, there is nothing they could do against SCB London, or more importantly against SCBNY.” He also instructed that a memorandum containing this plan was “highly confidential & MUST NOT be sent to the US.”10 (emphasis in original)

Part of the plan included advising that they get another (competitor) bank to clear the funds into the US.  The Order quotes:

Email from SCB’s General Counsel to SCB’s Group Compliance Manager dated June 1, 1995, SCB- 00038523 (emphasis in original). SCB’s General Counsel added that “when dealing with OFAC countries that are not on the UK’s list SCB London should use another US Dollar clearer in NY. It should not in any event use SCB NY.” In fairly mercenary terms, he recommended that “SCB should use eg [National Westminister Bank] who in processing the transactions would breach OFAC regulations & would expose themselves to a penalty.”

SCB staff outside of the US were told explicitly not to let SCB in the USA know of the plan: if they were aware of the plan or the fact that any of the transactions came from Iran, then SCB in New York could be enforced against.  SCB’s head of Legal and Compliance Wholesale Bank, UK/Europe, commented to other legal and compliance staff by email that the document, “read in isolation, is clearly . . . designed to hide, deliberately, the Iranian connection of payments.”  The Bank also got advice from outside counsel who advised that the scheme “did not comport with the law or spirit of the law”.

So much so very interesting.  Perhaps there was a legitimate and tenable difference of view about the legality of the scheme, but in the context of the debate about oversight at HSBC, whilst teaching the SCB case to my students this week I noticed this very interesting passage in the Prosecutor’s Order.

A 2006 memorandum from SCB’s General Counsel advising SCB’s Audit and Risk Committee that “certain US$ clearing transactions handled in London were processed with the name of the Iranian Bank excluded or removed from the ‘remitter field’” despite the “requirement that due diligence in respect of ‘U-turn’ payments should be undertaken by our office in New York.” SCB’s chief legal counsel strategized, much as he had in 1995, that “it is reasonable to undertake due diligence on behalf of New York outside the US” even though “we are potentially placing our SCB New York office and the Bank at risk if our due diligence procedures are not fully effective.”

The presentation of the wire-stripping strategy  states the legal requirement.  In this sense the risk committee are seized of the risk, yet the legal requirement (which outside counsel is clear is violated) is reshaped as a question of reasonableness and a question about the quality of the due diligence process.  The point being made may be that it is unlawful, but reasonable, to do due diligence outside the US and we may not get into trouble because our (non compliant) due diligence system is good.  It is like a magicians trick, diverting attention from the relevant to the irrelevant.  Arguments are being reshaped as facts and those facts are of questionable relevance to the legal risk in question.  The lawyers may have begun to believe their own hype or the work of organised irresponsibility may have been forgotten in the time from strategy formulation to review all those years later.

Whether I am right in that analysis or not there is a further uncomfortable fact for all those involved in design, approval and maintenance of SCB wire-stripping .  There were doubts about the extent to which the transactions being cleared in this way were in fact U-turn transactions – due diligence (no matter where it was conducted) could not solve the problems of all these transactions:

An executive SCB compliance attorney made the point more sharply, observing that SCB’s London staff believed “that any payment that could conceivably give rise to an OFAC problem should always be dealt with [in a way to avoid detection].”

The prosecutor was even blunter in his assessment:

Consistent with its historical views, SCB apparently decided that regulatory compliance would impede any such business expansion. Summarizing the bank’s linchpin consideration, SCB’s chief legal and compliance officer for its wholesale banking business explained that SCB wire stripped because “there would be a delay in the OFAC que [sic] if an Iranian name was spotted by the OFAC filter in New York and the payment would get held up.” Any such delay, he concluded, would be “a deal-breaker” in SCB’s efforts to develop new business.

To avoid such deal-breakers, SCB instituted a system of so-called “offshore OFAC due diligence.” The entire concept was a sham. Any off-shore substitute for OFAC compliance would have necessarily caused the exact delay threatened by OFAC compliance at the New York branch. Under the law governing at the time, any legitimate due diligence was premised on investigative delay. SCB undertook its off shore due diligence program, however, specifically to escape OFAC’s watchful eye, not to be examined by it.

SCB’s overseas due diligence staff members were responsible for both SCB’s UTurn “repair procedures” and OFAC “compliance” – a paradoxical task to say the least. These staff members did not know the elements of a lawful U-Turn transaction other than that the payment “had to be offshore to offshore,” and they were not trained to determine whether the underlying transactions were valid according to the Iranian Trade Regulations.

In fact, as late as August, 2006, SCB’s operations staff still “resolve[d] ‘hits’ on sanctioned names directly with the customer” – a method ill-designed to detect client misconduct. (emphasis added).

Yet senior SCB management knowingly embraced the bank’s fraudulent U-Turn procedures.

Of course we cannot be sure that the Prosecutor’s account is an entirely fair or balanced one.  It is though based in large part on documented sources (emails and the like), and -at the very least – it provides an interesting insight into how lawyers can contribute to, manage even, organisational irresponsibility in an attempt to be ‘reasonable’ when dealing with legal risk.

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Galloway’s solicitors defend themselves

​An interesting story into today’s Times (£) deepening the row about George Galloway’s solicitors.  They are reported to have threatened RTers of an allegedly libellous tweet about Mr Galloway with £5,000 + VAT for costs.  Carter Ruck are instructed by Chambers’.  The firm is claiming its fees were based on a £500 an hour charge out rate and (a little less clearly) that Galloway agreed to pay that rate under “usual solicitor/client fee arrangements”.   They also say they did more than the £5,000 per letter work on an urgent and out of hours basis.

Interestingly, the solicitor for Chambers, confirms that the letters before action that are the source of the controversy were “seen and approved” by Mr Galloway.  This suggests Mr Galloway gave his permission for this information to be disclosed, as it would otherwise be privileged.

One wonders where this waiver of privilege will lead.  Mr Lewis, solicitors for one of the tweeters,  has reported Chambers to the police and to the SRA.  We can expect more fireworks.

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Reputational hangover does for former Dir of Legal

Interesting story in the Press Gazette about the resignation of Paul Vickers from IPSO. Evan Harris, associate director of Hacked Off, is reported as saying:

“Only newspaper corporations which care nothing about the damage done to the innocent victims of the criminal abuse in their industry, and even less about the cover-ups or codes of silence which they have been engaged in, could think it acceptable for the body which controls the budget and the rules of the press regulator to have Paul Vickers at its head

“Paul Vickers was the legal director of Trinity Mirror for all the years that the industrial-scale hacking has now been admitted to have taken place across all three of its national titles.”

The problems may stem from allegations made by David Sherborne in litigation against the Mirror (I wrote about them here) and the kinds of criticisms made by Roy Greenslade.  Executives made a series of statements about the Mirror group’s adherences to the law and the press code which Sherborne appears to have alleged are knowingly false (we should bear in mind this is a press story and it may not accurately state Sherborne’s allegations or evidence in support).  An interesting question is a) whether that’s true and b) whether they made those statements on the basis of legal advice.  Greenslade’s story makes the point that there may have also been a failure to properly investigate allegations of hacking internally

The Mirror litigation is hotting up. Whether or not there are other revelations to be made in that litigation, Mr Vickers has paid the reputational price for his legal stewardship whilst at the Mirror group.  It is a salutary reminder that decisions made by in-house lawyers can have significant career consequences.  It is also a reminder that the legal risk around allegations of corporate misconduct have frequently proved to be ticking time bombs for the businesses and their senior legal staff.

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Béar growls but does not roar: the Bank of England and the remit problem

What does the Charles Béar QC opinion tell us about Lord Grabiner’s investigation for the Bank of England apart from the Bar’s increasing engagement in opinion giving as a form of public advocacy designed to heighten political pressure?

He seeks to answer two questions: was the review conducted adequately and were its terms of reference adequate?  The inherent professional tension in a lawyer answering the second question ‘independently’ for a client is apparent in his observation that :

“the general purpose of this kind of review must be to protect the reputation of the Bank and to demonstrate public accountability when serious issues are raised about its officials’ conduct.”

A number of questions can be raised in theory.  How does remit relate to independence, reputational and regulatory concerns?  What say should a lawyer have in their own terms of reference and how they might develop in the light of new facts?  And what obligations does a lawyer owe to the clients (if any) in how findings are presented even when ‘independent’?  Can  – as we have seen elsewhere –client interests shape the presentation of adverse or other findings? An implication from this Opinion might be that short term, client friendly judgments were made about terms of reference that have not (it transpires) been in the long term interest of the Bank where the view was:

 “We cannot come out of this at the back end with a shadow of doubt about the integrity of the Bank of England…”

Mr Béar makes the case that the remit of the Inquiry was inadequate in that it failed to take the approach, “recognised for cases of professional misconduct. No dishonesty or moral stigma is required but simply “serious professional misconduct”.”  His argument is a bit under articulated: “It is hard to understand why any different standard should apply to a central bank” but it is an argument of good sense (and of course some hindsight). Empirically though, I would like to know which other independent client-paid inquiries have applied this standard.  More often the remit is narrower: think of the Mirror Group and hacking, Harbottle and Lewis and hacking, Enron and financial engineering.  What we know about the Grabiner review does not raise the questions that some of these do.

The main bone of contention exercising Jesse Norman MP (who instructed Mr Béar) is whether Lord Grabiner’s findings of fact justified the conclusions that were drawn about them. Given the source of his instructions it is interesting that little if any blood is drawn here.  Adverse findings were not made in relation to a conversation  which, “Lord Grabiner describes this as ‘an event of importance’” whereby a somewhat confusing discussion about manipulation takes place.

“…The trader agreed “absolutely” when Mr Mallett described this as “market manipulation”.

“[yet when] Mr Mallett suggested that the banks were manipulating the market through the brokers said “It’s not that, they’re just trying to build a book”. The denial here is ambiguous and might relate either to manipulation via the brokers or manipulation altogether.

[As a result]

19.7 Lord Grabiner found that the trader was unclear and that neither Mr Mallett nor his deputy understood what they were being told. On that basis he declined to criticise them….

The basis is essentially there is ambiguity and Lord Grabiner gives Mallett the benefit of the doubt. In analyzing whether Grabiner was entitled to come to that conclusion and, “whether, in reaching that conclusion, Lord Grabiner left out of account any relevant information, or demonstrably misunderstood any part of the evidence.”:

23 These are very low tests and they have been satisfied. In order to discharge his terms of reference, it was sufficient for Lord Grabiner to analyse the conversation of October 2011 and decide whether he could be sure that Mr Mallett must have interpreted it as a communication of some market malpractice. Lord Grabiner subjected that conversation to detailed analysis and decided that, giving the Bank the benefit of the doubt, it had not been understood in that way. He asked himself the right question and answered it in accordance with evidence which had been presented to him and as to which there was no irrefutably contradictory material. It follows that tests (i) and (ii) above are met.

One can pause and observe the irony in saying scrutiny of Lord Grabiner’s decision is only subject to a light review test when the Bank’s professionalism should be subject to more searching scrutiny.  In particular, without criticising Lord Grabiner himself, it is worth observing here that this kind of balancing judgment about evidence is one which evidence from social psychology suggests professional agents instructed by a client find it difficult to do objectively.  The fact of instruction appears to influence judgment towards favouring one’s client subconsciously and that influence is an impact quite separate from financial incentives.  Of course there are countervailing pressures: Lord Grabiner would have been conscious of the need to do the job in as independent a frame of mind as possible for his own reputation.  Also, typically, senior lawyers claim enhanced levels of objectivity through years of legal experience and training.  The evidence on objectivity suggests that the more objective one thinks of oneself the less likely one is to be objective, but it is not a theory that has been tested on lawyers as senior as Lord Grabiner (though it has been tested on other lawyers with interesting results).

Overall then Mr Béar gives a lukewarm defence of Lord Grabiner’s judgment: it was a legally valid one.  He does not say the judgment was a good one, in his view, on the evidence.  I do not think one should read into that a view that Lord Grabiner’s judgment was flawed (though Béar seems to think it could have been better reasoned).  The narrow terms of reference, however:

… mean that (1) there has not been an examination of whether Mr Mallett’s failure to act on the conversation was a serious failure, and (2) there has not been an examination of the supervision of Mr Mallett by others in relation to his intelligence-gathering and escalation responsibilities.

…The broader questions do not concern the minute forensic dissection of a telephone conversation but the bigger picture. In this case the chief dealer of the foreign exchange desk of the central bank had a market participant report something to him. That report was introduced by a colleague who expressed serious concern. The participant used the language of manipulation and said banks wanted to “bully the fix”. Brokers were named. These expressions of concern did not come in a vacuum but in circumstances where the chief dealer had already concluded that behaviour was going on which would be difficult to justify to a regulator. The chief dealer did nothing other than ask the trader to keep in touch. He took no steps either to report the matter to anyone else or actively to follow up with the trader.

…The response to potential whistle-blowing is a crucial part of the overall credibility of the Bank. For reasons explained above, a central bank is liable to be seen as having a broad public responsibility, and a broad public reputation, even outside its specific areas of statutory responsibility from time to time. At present the review process has only dealt with part of the general questions raised. It has not addressed all the broader issues which the Select Committee and the Chairman of the Bank’s Court of Directors appeared to agree in June 2014 were part of what ought to be investigated. The broader question of serious professional misconduct which would be a standard part of an equivalent investigation in other spheres of life was not part of the reference.

Now as a statement of principle this has much to commend it.  Inquiries which seek to investigate wrongdoing must not be too circumscribed, particularly if there is a risk that a partial exoneration is presented as a more total exoneration.  Whether we think that is what happened here is likely to be influenced by our own biases: the evidence is a long way from conclusive on either side of the argument in my opinion.   Such reports risk a whitewash or exploding in the faces of the clients designed to be helped by them. Equally, a lawyer is in a tricky situation: the client has to pay for the investigation – they will not want to write a blank cheque.  The lawyer’s concern is not to be misused or complicit in misleading a regulator or third parties and to be truly, rather than notionally, independent.  I do not think whitewashing is the suggestion being made by this Opinion, but it does seem to be suggesting an error of judgment by the Bank of England in setting up an Inquiry with terms of reference which were too narrow.  Or maybe an error by the bank and the select committee, for they agreed the terms of reference.  I suspect we won’t get to hear how thoroughly canvassed the issues were in so doing.

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Lawyers as Independent Investigators

The director-general of the SFO has vigorously criticised the recruitment of independent experts to investigate criminal behaviour in companies.  In August last year the Times reported him as saying, “the practice risks destroying the evidence needed to put rogue business people and bankers behind bars”.  His complaints included:

  • Doubts about the reports that often cleared clients of any illicit activity or minimised their culpability. Perhaps implying investigations are advocacy document for their clients.
  • There was often an “inherent conflict” in lawyers doing investigations for their clients.
  • Legal privilege being mishandled.
  • Crime scenes being churned up.

Enron, the News of the World, money laundering by Bank of Tokyo-Mitsubishi UFJ, the BBC Saville Newsnight affair and concerns about the Royal Bank of Scotland have all involved professional, independent investigations which have prompted criticism or, sometimes, regulatory action against the professionals.  Yet investigations can be seen as a necessary and proportionate step prior to reporting to regulators; key to companies getting to grips with poor conduct; and whether, how and when to report it.

On 6pm, March 25th we will be hearing from Lord Gold at UCL as to How independent lawyer monitors and investigators contribute to corporate ethics.  He will speak from his experience as a leading adviser in business ethics advice building from his appointment by the U.S. Department of Justice as Corporate Monitor of BAE Systems plc and subsequent work for a wide range of blue chip businesses.

You can book here.

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