Mike Lynch’s extradition to the United States is sure to upset many British businessmen.
Doctor Lynch facing allegations regarding Autonomythe software company he founded and which was bought by Hewlett Packard in 2011 for $11 billion.
The American equipment maker then wrote off $8 billion from the purchase price and accused Dr. Lynch of manipulating Autonomy’s accounts.
A major element of Dr. Lynch’s attempt to avoid extradition was that Autonomy was a British company listed on the London Stock Exchange, subject to UK accounting rules, and whose acquisition was carried out under UK takeover rules.
They therefore argued that the UK courts were the appropriate place to hear such a case.
The UK courts ruled against him on the grounds that Autonomy made most of its sales in the US and that HP’s losses were incurred in the US and by US investors.
To the disadvantage of Dr Lynch, the UK’s Serious Fraud Office discontinued its own takeover investigation in 2015, indicating that the US was the most appropriate jurisdiction in which to conduct such proceedings.
U.S. authorities also argued that Dr. Lynch’s claims about Autonomy’s financial performance in telephone calls and emails to HP’s advisors and executives broke U.S. banking fraud laws.
The implications for UK businessmen are therefore that anyone who sells their business to a US buyer, who obtains some (however small) of their US sales, or whose shares are bought by a US investor may be open to similar treatment if it is found that that he committed an offence.
That’s why Dr Lynch’s MP, chairman of the Conservative Party Greg Handshe had previously argued that the existence of the treaty would deter entrepreneurship and discourage some British companies from selling shares to American investors.
Aggressively pursuing British businessmen
The US certainly has form in aggressively prosecuting British businessmen.
Among the more high-profile cases was that of Nigel Potter, the former chief executive of gambling and dog track operator Wembley Group, who was sentenced to three years in prison in 2005 after being convicted of three counts of conspiring to commit electronic fraud.
He was forced to serve his sentence in a maximum security prison because, as an “alien”, he was considered to be at risk of absconding.
Unlike Dr. Lynch, who fought hard for extradition, Mr. Potter voluntarily traveled to the United States in an attempt to clear his name. The mild-mannered accountant even found himself in leg cuffs during cancer treatment.
Then there was Ian Norris, former CEO of Morgan Crucible, an industrial materials company.
He was accused by the US of conspiring to fix the price of auto parts and avoiding extradition when the House of Lords ruled that he could not be convicted of crimes and therefore could not be extradited.
The US then prosecuted Mr Norris on lesser charges of conspiracy to obstruct a criminal antitrust investigation – and ended up in prison for 18 months.
The most notable were the so-called “NatWest Three” – Giles Darby, David Bermingham and Gary Mulgrew – who were convicted of electronic fraud while working for NatWest and doing business for the failed American energy trading group Enron.
Like Dr Lynch, they argued that as British nationals working for a British bank whose alleged offenses took place in the UK, they should be tried in the UK.
Again, the courts disagreed.
Prior to their extradition, the three argued that they would not receive a fair trial in the US, which was also reported by Dr. Lynch and his supporters.
Mr. Bermingham later wrote in The Times: “It is almost a statistical certainty that someone extradited to the US will be found guilty, most likely through a plea deal rather than a trial, because the US criminal justice system is so heavily biased towards that outcome… a toxic combination political machismo and judges who are appointed by politicians creates a system where few sane people will risk going to trial.
“Nearly 98% of those accused in the federal system will negotiate because the penalties for losing a trial are so disproportionate.”
There is also suspicion that the case against Dr. Lynch was motivated by malice on the part of HP for the way it ultimately overpaid for Autonomy.
Meg Whitman, the former CEO on whose behalf HP filed the civil suit against Mr. Lynch, began her political career and is now the US Ambassador to Kenya. It’s easy to see how the U.S. Department of Justice might be tempted to take the baton on behalf of such a large, well-established American company.
HP’s embarrassment over the Autonomy deal continues – not least because at City, Dr. Lynch has always been a divisive figure.
If HP had done better due diligence when acquiring Autonomy, it wouldn’t have had to look far for the analysts who accused the company of falsifying data.
The case also has a wider dimension.
Many MPs, including former Brexit Secretary David Davis, Security Minister Tom Tugendhat and former Liberal Democrat leaders Sir Vince Cable and Sir Menzies Campbell, say Dr Lynch’s case raises wider issues of UK sovereignty.
They argue that the extradition treaty between the UK and the US, signed by the Blair government in 2003, is unilateral and it appears that more Britons appear to be extradited to the US than the other way around.
This criticism has intensified in the aftermath of America’s refusal to extradite wife of diplomat Anne Sacoolas for causing the death of British teenager Harry Dunn.
So politicians will be watching closely what happens to Dr. Lynch.
So will many British businessmen.