The Conservative Party has published its 2017 Manifesto, entitled “Forward together: Our plan for a stronger Britain and a prosperous future”. The manifesto includes a commitment to 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.
There are numerous reasons to be critical of this commitment. The top ten are:
Incorporation would be very difficult:
The two bodies are totally different entities, performing entirely different functions. The SFO is an organisation created in 1987 for the purpose of investigating, prosecuting and recovering the proceeds of serious fraud and corruption. The NCA, created by the Crime and Courts Act 2013, has two functions: crime reduction and criminal evidence. Section 10 of the CCA 2013 explicitly states that “The crime-reduction function does not include the function of the NCA itself prosecuting offences”.
Incorporation would require considerable statutory change:
It would require the repeal of sections 1 to 3 of the Criminal Justice Act 1987. Section 1 creates the SFO, and permits the Attorney General to appoint a Director and superintend the organisation. Section 2, the legislation that provides the SFO with investigation powers, will need to be repealed but the effect of its powers retained in perpetuity, in order that evidence obtained can be admitted in future trials. This could be put into effect by an amendment to the CCA 2013, but there are three clear problems:
- The primary purpose of the SFO is its combining the investigative and prosecution functions in line with the Roskill model. This is threatened by integration with the NCA, who refer cases to the Crown Prosecution Service.
- The NCA does not have its own statutory powers. Its officers are designated with the powers and privileges of police officers. Any new incorporated SFO would need to be given its own separate powers equivalent to section 2, with their use restricted to fraud and corruption matters, or conduct all investigations using Police and Criminal Evidence Act 1984 (PACE) powers.
- The NCA is an agency of the Home Office. The SFO is superintended by the Attorney General.
It would not improve intelligence sharing:
The SFO already works with a range of other law enforcement bodies, regulators and other agencies, both in the UK and internationally. Some relationships are governed by formal Memoranda of Understanding, agreements on co-operation, sharing expertise and exchanging information. The SFO has published some, but not all of the MOUs “as not to risk compromising our operations or those of our partners”. The SFO website does not publish a specific MOU between the SFO and NCA, but one almost certainly exists, and both are parties to the Memorandum of understanding on tackling foreign bribery. The idea that incorporation would somehow lead to greater intelligence sharing is a fallacy.
It is not obvious why it would bolster the investigation of serious fraud, money laundering and financial crime.
Upon inception, the SFO had a set criteria of cases that could be investigated, including the value of the case exceeding £1m. This criteria has developed, and SFO cases are now taken on according to the following criteria, neatly set down in a recent speech by the SFO’s Joint Head of Fraud Hannah von Dadelszen:
- Whether the apparent criminality undermines UK PLC commercial or financial interests in general and in the City of London in particular.
- Whether the actual or potential financial loss involved is high.
- Whether actual or potential economic harm is significant.
- Whether there is a significant public interest element.
- Whether there is new species of fraud.
The SFO is a small agency dealing with a small number of defined, exclusive cases. Even if the organisation were to be incorporated into the NCA without losing any of its powers or expertise, there is a risk of resources and funding being diverted. No positive case, backed by evidence, has been made in support of this assertion. Jeremy Summers, Head of Business Crime at Osbourne Clarke, described the policy as “a regressive step which will in time prove to be both wrong and costly”.
Now is the worst possible time to consider changing the SFO.
David Green CB QC was appointed Director of the SFO in April 2012. At that time, the SFO was in significant difficulties, beset with low morale, judicial criticism and considerable concerns for its future. A decision to abolish an independent SFO in the post Richard Alderman period had some justification.
Upon appointment, David Green had essentially three key objectives:
- To return the SFO to its original purpose of tacking the most serious fraud and corruption cases.
- To successfully deploy the new Deferred Prosecution Agreement powers, a key pledge of the 2010 Conservative Manifesto.
- To deal with legacy problems and restore the reputation of the SFO.
Patrick Rappo, a Partner at Steptoe and Johnson UK LLP and a former Head of Bribery and Corruption at the SFO, commented:
“David Green has done an excellent job of turning the organisation round, improving decision making and results, aggressively enforcing matters and reaching significant settlements when required. It would be a shame if this momentum were lost”.
The SFO is now a profit making organisation.
Although being profitable should not be an explicit aim of any public service, it is clearly better not to be seen as a drain on government spending. In January 2017, the SFO reached its third DPA with Rolls-Royce, the British and aero-engineering company in respect of allegations of criminal conduct. Under the terms of the DPA, Rolls-Royce agreed to the following terms:
- Disgorgement of profit on the transactions of £258,170,000.
- Payment of a financial penalty of £239,082,645.
- Payment of the costs incurred by the SFO (£12,960,754).
The sum of money recovered from this single case was approximately £500m. For more information see Legal update, Third deferred prosecution agreement approved between SFO and Rolls-Royce (Crown Court). This was swiftly followed by a fourth agreement with Tesco plc, worth £129m.
Sasi-Kanth Mallela, a former SFO Case Controller, commented
“Leaving aside the diminished capacity that disbanding a specialist organisation could result in, in the Rolls Royce case alone, the SFO recovered a sum of money more than half the total funds given to the SFO during its entire existence, or approximately 15 times its 2015/16 budget. Abolishing an independent SFO would be the equivalent of a company abolishing a subsidiary making 15 times its operating costs”.
The SFO’s income is not limited to DPAs. In a recent Parliamentary debate, Alex Chalk MP made the point that the SFO’s track record on recovering sums of money under the Proceeds of Crime Act 2002 was “certainly better than that of equivalent agencies”.
The immediate impact would be significant
The SFO has a lengthy current caseload, including forthcoming trials of Alstom Network UK, Euribor, and Tesco PLC, and of course a number of matters in investigation and vetting. This announcement will inevitably impact current SFO staff, who may seek alternative employment, which will create a loss of skills and specialism, impacting on current matters. Although mergers can be managed successfully, the proposed incorporation, very much a case of a square peg in a round hole, is unlikely to be painless.
Additionally, David Green CB QC is due to step down as Director at the end of March 2018. The search for his replacement would normally commence up to a year in advance. Potential replacements are unlikely to welcome having to concentrate on an incorporation rather than purely casework, and ultimately leading a team within a large organisation rather than the organisation itself.
Fraud and corruption tend to play second fiddle to other criminal offences
The underfunding of the SFO, and indeed fraud investigation in general, has been a concern for some time. Politically, it is easy to understand why commercial fraud or overseas corruption will be seen as a lesser priority than terrorism, child trafficking or firearms. This position is understandable, but makes it all the more necessary to protect some funding, in the form of a specialist, self-funded unit, to tackle fraud and corruption. The danger of incorporation is that both funds and resources will be diverted to other areas of priority for the NCA.
The decision to incorporate the SFO is political, rather than practical.
Sir Paul Jenkins described the decision as “one of Theresa May’s long-held and irrational obsessions. She has rightly been warned for years that this will seriously damage fraud fighting”.
Certainly, when holding the office of Home Secretary, the PM in both 2011 and 2014 tried to bring the SFO into the NCA. The move was resisted by other government ministers, notably George Osbourne. For more information see Blogpost, The Serious Fraud Office at 30: time to settle the debate on both its funding and future
The concern is that the commitment is not backed up by any reason or risk evaluation, but the vague “improving and bolstering”.
The loss of the SFO would damage international confidence in the UK and with external stakeholders:
An OECD report in March 2017 suggested that foreign bribery enforcement in the UK has increased significantly since 2012 notably thanks to the pragmatic and effective approach taken by the SFO to investigate and resolve foreign bribery cases. The report went on to state:
The government should maintain the role of the SFO in foreign bribery cases and ensure it continues to have the resources needed to function effectively, according to a new OECD report. The OECD Working Group on Bribery has just completed its Phase 4 evaluation on the UK’s implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. While the report praises the UK’s enforcement efforts and high-level political commitment to fighting foreign bribery, it also calls on the UK to further improve interagency cooperation, and to ensure the independence of investigations and prosecutions.
Transparency International UK executive director Robert Barrington stated: “The complex, cross-border nature of corporate corruption is best tackled by a specialist agency like the SFO. The SFO has had increasing success in recent years; previous plans to abolish it have been discredited, and it is both astonishing and of real concern to see this surface again”.
Leaving is likely to see the UK fall in the TI Corruption Perceptions Index, and may impact the forthcoming Financial Action Task Force (FATF) mutual evaluation.
Any further progress is of course contingent on the result of the election, and manifesto commitments are not of course legally binding. However, this proposal is deeply flawed, and would be a backward step in the investigation and prosecution of fraud and corruption. It will neither improve intelligence sharing nor bolster investigations, and carries the real risk of considerable long term cost, in both senses of the word.