Thursday, 18 May 2017

The Conservative Party’s Manifesto: The Serious Fraud Office in the Crosshairs... Again

On the 2nd of April here in Financial Regulation Matters, this author discussed the wave of ‘Deferred Prosecution Agreements’ being utilised by the Serious Fraud Office (SFO) – including the £497 million fine given to Rolls Royce and the £129 million fine given to Tesco – and concluded that the SFO represents, possibly, the most effective financial regulator in the U.K. because of its endeavour to punish, albeit based upon the realistic understanding that the financial elite are too protected in their positions to pursue with criminal convictions. Today, in the Conservative Party’s manifesto, the party pledged that they ‘will strengthen Britain’s response to white collar crime by incorporating the Serious Fraud Office into the National Crime Agency, improving intelligence sharing and bolstering the investigation of serious fraud, money laundering and financial crime’; so, for this post, the focus will be on whether this move to merge the two agencies is justified, or whether it is yet another example of the financial elite being protected.

The SFO has had, in the words of a BBC article on the Office, a ‘chequered history’. Set up in response to a string of financial scandals in the 1970s and 1980s, the Serious Fraud Office was established as part of the Criminal Justice Act of 1987 and was operational a year later. Although the SFO have, over the years, been involved in a number of high profile cases, not all were successful and, as part of a media campaign criticising the Office, the SFO was branded as the ‘Seriously Flawed Office’ – particularly because of the high profile acquittals like that seen in the case against the Maxwell Brothers. A number of cases pursued by the SFO have hit the headlines because of the costs involved compared to the rate of conviction, with notable examples being the 1994 Brent Walker Trial, and the 1992 Blue Arrow case, which cost £40 million each and resulted in acquittals or successful appeals for all those accused. Although there have been some successes, the appointment of David Green signalled a sea-change in approach, with Green recognising that, rightly or wrongly, the chances of obtaining serious white-collar convictions are extraordinarily low. In response to this realisation, the SFO adopted the American practice of Deferred Prosecution Agreements – better known as ‘settlements’ -  and have been steadily punishing and retrieving monies for the national fund with which, theoretically speaking, they could continue their approach in punishing fraudulent companies and individuals.

However, in 2011, the then Home Secretary Theresa May campaigned, unsuccessfully, to dissolve the SFO and merge it with the National Crime Agency (and also send some of its lawyers to the Crown Prosecution Service). Criticism was aimed towards the SFO for not being proactive enough, and for also settling with the accused before trial. However, the reality of the situation is that the SFO is particularly underfunded, with the reality being that the SFO currently has an operating budget of £53 million which, when contextualised against the National Fraud Authority’s claim that there is £73 billion worth of Fraud in the U.K. every year (the equivalent of £1,030 for every British citizen), is demonstrative of the uphill battle facing the SFO. The OECD, only in March of this year, recommended that the British government provide more funds for the SFO in order to better combat the spread of bribery; the fear is that the U.K., and London in particular, is becoming a money-laundering capital – and this is before the U.K. officially leaves the E.U. where the fear is that the U.K. will dispose of its regulatory standards to attract business.

So, can we say that the decision to dissolve the SFO is one that is in the ‘national interest’? Can we say that the dissolution of the SFO will deter fraudsters, white collar criminals, and money launderers, from operating within the U.K.? Time will tell, of course, but this author suggests not. It appears that Theresa May has gotten her way, finally, and will see a department that is attempting to make some headway into an arena that no government department has made headway before be dissolved for doing so – what sort of statement does that make to the regulators of the present and of the future? A partner at the law firm Eversheds, Neil Blundell, is quoted as saying ‘after 30 years in existence, the SFO was just starting to show it had teeth in the fight against fraud’ and now its existence is being threatened. The passive will probably surmise that the National Crime Agency may stand a better chance at battling fraud and corruption, but there is a much bigger issue at play here. Theresa May, in whatever official capacity she has been in, has realised that the financial elite are being punished and has made it her personal business to disrupt that punishment. She had placed the push to lighten the load of white-collar criminals squarely within her manifesto, and very little is being made of it. Any news cycle will contain the threats posed by terrorism, immigration, people in receipt of state benefits, and now even the ideology that pensioners need to contribute more to the system – but white-collar crime barely gets a mention. Need one say any more?

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