DRAFT
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Confidential & Covered by Legal Privilege
From:
Chris Aujard, General Counsel
cc. Belinda Crowe
To the Directors, Post Office Limited
[Date]
2.
2,
Project Sparrow — Paper on Prosecutions going forward
Introduction
This paper relates to whether, and if so how, we prosecute criminal cases in the
future.
There are various entry points by which a possible issue with a financial loss in a Post
Office branch becomes apparent to us as a company (see Appendix A for how an
issue may be raised with us, and Appendix B for an example of how we may progress
an issue through the company).
Historically we have prosecuted a large number of cases alleging theft, fraud and/or
false accounting. Subpostmasters (SPMs) or their employees are the main persons
prosecuted. We have on occasion investigated the conduct of our own Crown
employees.
Over time, defendants have increasingly sought to raise issues with the Horizon
system as a defence to the allegations against them, e.g. by saying that an apparent
financial loss was caused by an error in the Horizon system rather than by the SPM’s
conduct.
This has led to MP and interest group lobbying, the Second Sight report, and most
recently the Mediation Scheme to try to resolve historic complaints about Horizon.
Numbers of cases: Typically, we:
a.
b.
conduct on average 250 criminal investigations a year; and
end up bringing around 50 criminal prosecutions a year.
By comparison, in 2012-2013 we had 100 civil debt recovery cases in the civil courts.
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3. Losses: The financial losses in question in the cases we prosecute ranged between £1,738
and £175,260 per incident in 2012/2013, and £2,347 and £192,990 per incident in
2013/2014.
4. Costs of prosecuting
The average cost to bring each criminal prosecution in 2012-2013 was approx.
£7,500 (£3,600 for the costs of our internal security investigators, plus £3,900 for our
external solicitors).
In 2012/13, the Court ordered payments totalling £45,705 be made towards our
costs of prosecuting, averaging £2,078 per case (£6,947; £1,737 in ytd 2013/14).
However it is not clear how much of these awarded sums are actually recovered as
cash in to the company.
The average cost to bring each civil debt case in 2012-2013 was approx. £1,200 (£400
for the costs of Former Agent Accounting Team, plus £800 for our external
solicitors).
In these civil proceedings we get judgments for our losses, plus interest and a
contribution to our costs. [[Chris — we’re trying to get a breakdown of the costs
component]]
5. Our current process & policy:
a.
Possible issues with a financial loss become apparent to us as a company through
various entry points, including the Finance Service Centre, the National Business
Support Centre, and Field Support and Branch Standards Teams (see Appendix A).
Where criminal conduct is suspected, the case is referred to our Security team for
investigation. The Security team’s investigations typically include witness interviews
(often under caution) and branch audits. This may lead to a formal criminal
prosecution being commenced. Freezing of assets may also occur.
In parallel to a security investigation the management of the subpostmaster’s
contract will also be reviewed, which may lead to their suspension and/or
termination.
Normally our debt recovery teams will wait until the security investigation has
concluded before deciding whether or not to take civil debt recovery proceedings.
An example of how we may progress an issue with a financial loss is set out in
Appendix B.
Currently we do not prosecute for losses under £5,000.
We have been prosecuting to a policy inherited from Royal Mail (see Appendix C).
We have also drafted an improved, revised policy which has yet to be adopted,
pending the outcome of this paper - see Appendix D. This revised draft policy can be
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amended as appropriate to reflect the Board’s direction on our future prosecution
practices.
Brian Altman QC has undertaken a legal review of our criminal prosecution
practices, and concluded that:
- our approach to prosecutions has been appropriate and robust;
- _ if we want to prosecute criminal conduct, in the majority of cases we should do
so in-house rather than through a public prosecuting authority, e.g. the Crown
Prosecution Service (“CPS”).
Brian Altman’s review did not consider commercial, reputational or non-legal
strategic factors which may influence our criminal prosecution practices.
We continued [29] “in flight” prosecution cases already underway at the time of the
Second Sight July Report. Currently, there are only 61 live criminal cases before the
courts (of which 3 concern post-conviction financial recovery only). We have also
“stacked” [40] potential prosecutions, which are the subject of the “Project Sparrow
— Paper on Stacked Cases”, also for this Board meeting.
6. We choose to do this
We are not mandated by any law to bring criminal prosecutions. We choose to do so, and
have since 1985 used the right to bring a private prosecution (in our company name), which
is a right available to other companies. Criminal prosecutions are brought to punish and
deter wrongdoing. Criminal prosecutions can also assist recovery of misappropriated assets
through the Proceeds of Crime Act procedure.
7. The Alternatives
The options open to us to deal with criminal conduct include:
e.
All POL - Prosecute all cases ourselves (using external lawyers), i.e. the status quo.
AILCPS - Send all cases to public prosecuting authority.
Some CPS/Some POL - Prosecute some cases ourselves (using external lawyers) and
send others to a public prosecuting authority.
Fewer Cases - Prosecute some cases ourselves (using external lawyers) by reference
to new, more stringent criteria (see further at para. 11 below).
Stop - Cease prosecuting all cases.
The main pros and cons of each option are set out in Appendix F. We can also use the civil
courts if we want to try to recover losses. The civil court route can be pursued at the same
time as, or more usually after, the criminal court route.
8. The maii
ifferences between the criminal and the civil routes
10.
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The criminal and civil routes differ in both procedure and consequences. The main
differences are set out in Appendix G. However, the court orders for financial recovery are
broadly similar (£1.5million in criminal; £1.1million in civil).
How might we implement the “Fewer Cases” option outlined in Section 9 above — Possible
new criteria to be applied for criminal prosecutions
a. Allegation
Depending on the facts of a case, we prosecute subpostmasters for Theft, Fraud and/or False
Accounting. The cases broadly fall into two fact patterns, i.e. where we have admissions or
other evidence that the Defendant has:
- taken money directly from us; or
- covered up losses by falsely recording the branch’s financial position (e.g. to
avoid paying losses back and/or to keep their branch), but we don’t have any
evidence that they directly took money from us.
If we decided to prosecute only when we have evidence that the subpostmaster took money
directly from us, the number of prosecutions brought for £5,000 or more might reduce to
[{AA]] a year. [Chris — proving hard to land]
b. Quantum
Currently we do not prosecute cases under £5,000 — giving us a run rate of approximately 50
criminal cases a year. If we decided not to prosecute any cases under:
- £15,000 - the number of prosecutions brought might reduce to around 25 a year.
- £30,000 - the number of prosecutions brought might reduce to approximately a
dozen a year.
- £100,000 - the number of prosecutions brought might reduce to one or two a
year.
c. Special Circumstances
Any revised criteria should still enable us to bring a prosecution if the warranted by the
special circumstances of a case, e.g. where the victims of the conduct are elderly or
otherwise vulnerable members of the public.
We are working to reduce the matters which become prosecutions:
We are seeking to improve the way we support our subpostmasters in the running of their
Post Offices from an operational and engagement perspective, including the way we identify
and respond to accounting losses in our network (the “Business Improvement Programme”).
This work includes:
a. gathering better MI from the network systems;
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providing better training and support to subpostmasters and branch staff;
identifying problem losses earlier;
liaising with the relevant persons sooner; and
reviewing how we respond when a subpostmaster has materially breached their
obligations to us.
If we can deal with issues before they turn in to significant losses, this may be one way of
reducing the number of prosecutions we bring. The likely positive impact of this work
cannot be underestimated.
Appendix E provides an overview of the Business Improvement Programme and the actions
that have and will be taken.
11. Other Considerations
a.
Public Money Duty: We have an obligation to protect public money, including
investigating suspected wrongdoing. The action we take when an investigation
suggests that public money has been put at risk should reflect that obligation, and be
proportionate and necessary having regard to the seriousness of the conduct, the
parties affected, and the sums involved.
Deterrence: It is arguable that the fear of apprehension and prosecution (rather than
the sentence consequences) acts as a deterrent to some people who would
otherwise steal from us, and experience shows that a criminal prosecution can lead a
defendant to make voluntary repayments to try to mitigate the consequences of
their actions.
It is however questionable how much the fear of apprehension and prosecution
deters false recording of branch financial data, which a subpostmaster may not
perceive to be criminal conduct, especially when s/he may not accept responsibility
for the actual financial loss.
Expectations of Corporate Clients: Some of our government clients are comforted
by the idea that we bring prosecutions. Indeed, in our agreement with UKBA we are
obliged as part of the service we provided to maintain “a team of specialist experts
including Forensic Accountants and a Criminal Law Team [who] will advise on all
potential sub-investigation outcomes up to and including prosecution, resultant
from any malpractice, collusion or illegal activity.”
Wasted management time and money: To date, we have spent approximately
£5million seeking to address the concerns raised over our Horizon system and the
criminal prosecutions. It has also taken up a considerable number of man hours of
senior management at a time of significant, strategic and fast change in the
company.
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e. Compliance with Duty of Disclosure: We have a continuing duty to act properly as a
prosecutor. This required us (through our external solicitors) to review the
prosecutions of 325 individuals to ensure that the information which came to light in
the Second Sight report did not affect the safety of any convictions. The cost of this
review was approx. £180,000.
Similar reviews would need to be undertaken every time new information comes to
light which may call into question the safety of a conviction. To seek to minimise the
need for such future reviews, we have instituted a weekly, cross-business
conference call at which attendees (which include our external solicitors) are
expected to raise all Horizon-related issues. The estimated external cost of these
calls is approx. £27,000 a year.
f. Engagement with Subpostmasters: It is questionable whether the systematic
prosecution of agents is consistent with a modern approach to commercial
relationships. Amending our prosecution criteria to focus on fewer, but more
serious, cased could therefore assist developing a less paternalistic, more
commercial working relationship with subpostmasters.
g. Brand inconsistency: this is hard to quantify but enforcing agency relationships
through systematised criminal prosecutions appears inconsistent with our brand and
core values.
h. The risks of getting it wrong: It must be remembered that if we wrongly prosecute
someone there are consequences. These are summarised in the table in Appendix
H. It is worth noting that if we do continue to undertake any prosecutions ourselves,
it would be prudent to use an external law firm to do so to minimise our exposure to
adverse claims.
12. Recommendation:
We recommend that:
a. We continue with the Business Improvement Programme and implement its actions
as soon as possible.
b. Revised prosecution thresholds be set where cases will be prosecuted only where
we have evidence that money has been directly taken from us, or there are other
special circumstances (to be defined, but could include cases involving elderly or
vulnerable customers, and/or where the financial losses in issue exceed a certain
threshold which will be set out as part of the Board decision).
c. Any remaining prosecutions continue to be undertaken using an external law firm.
d. The Comms team maintain a living strategy for dealing with all PR issues arising
from any and all prosecutions.
e. Weimprove our civil recovery operation to maximise the losses it can recover.
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Chris Aujard
General Counsel, Post Office Limited
[[DATE}]