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UPDATE 1-UK fraud prosecutor launches review into Dahdaleh case collapse

Kirstin Ridley
Wednesday, 11 Dec 2013 | 12:20 PM ET

LONDON, Dec 11 (Reuters) - Britain's leading fraud prosecutor is launching a full review of the circumstances that led to the collapse of a high-profile corruption trial that has embarrassed an agency attempting to restore confidence in its crime-busting abilities.

A day after the Serious Fraud Office (SFO) called off the prosecution of British Canadian businessman Victor Dahdaleh, the agency underlined the high-risk nature of the complex, cross-border cases it pursues.

"As with all our casework, the SFO will undertake a full review of the circumstances of this case with a view to learning any lessons that can be applied to future cases," it said in an emailed response to questions.

The SFO on Tuesday called off the prosecution of Dahdaleh, who was accused of paying some $67 million in bribes to former managers of Aluminium Bahrain (Alba), including a member of Bahrain's royal family, in return for a cut of contracts worth over $3 billion.

But after two key witnesses from the United States refused to attend the UK trial and face cross-examination and a key witness changed his evidence, the agency said there was no longer a realistic prospect of a conviction.

The sudden collapse of the trial, which began on Nov. 5 and had been expected to run into 2014, is the latest blow to the cash-strapped SFO which narrowly avoided being swallowed up by a new FBI-style body by Home (Interior) Secretary Theresa May in 2011.

Notable SFO successes, such as last year's conviction of fraudster Asil Nadir 19 years after he fled the UK, have been eclipsed by failures, such as a botched probe into the Tchenguiz property moguls that left it nursing a 300 million pound ($493 million) damages claim.

SFO head David Green, who took over as director in April 2012, has been tasked with restoring confidence in the agency by bringing top criminals and companies to book after a period of mismanagement that has left its reputation in tatters. But he faces greater challenges than the aborted Dahdaleh case.

He has staked his reputation on the success of "top tier" investigations, such as a global inquiry into the manipulation of interest rate benchmarks such as Libor (London Interbank Offered Rate).

A key suspect in that case returns to court in London next Tuesday. Tom Hayes, a former UBS and Citigroup trader, allegedly conspired with 22 staff from at least 10 banks and brokerages to rig rates between 2006 and 2010.

"It (the Dahdaleh case) obviously doesn't help the SFO at all - but I don't see it as the straw that breaks the camel's back," said Alistair Graham, a partner at law firm Mayer Brown.

"The big test will be Libor and on the outcome of the Tchenguiz case - those are the real issues. This is a wound, but it is not a fatal wound."