The Serious Fraud Office at 30: time to settle the debate on both its funding and future

The time spent discussing and commenting on the future of the Serious Fraud Office (SFO) is extensive. No other investigation or prosecution agency seems to attract the same level of speculation as to what it should do, how successful it should be, who should superintend it, how much money it should receive and whether it should exist at all.

Often missing from this debate is the changing role of the SFO during its 30 years. Originally its remit was, as the title suggests, the investigation and prosecution of serious fraud. Over time, it has become the lead agency in England and Wales for prosecuting bribery and corruption, developed a substantial unit dedicated to recovering the proceeds of crime, and more recently been the lead agency for the introduction of Deferred Prosecution Agreements (DPA). As HM Government’s call for evidence on the reform of corporate liability progresses (see Blog, Or the beginning of corporate prosecution? 3 February 2017) and the “failure to prevent” offence is gradually expanded, the SFO’s current workload is only going to increase.

The issue of abolition, or merging the SFO into another government department, re-emerged in late 2016 when Theresa May MP became Prime Minister.  When holding the office of Home Secretary, the PM in both 2011 and 2014 tried to bring the SFO into the National Crime Agency (NCA) . The move was resisted by other government ministers, notably George Osbourne. Although Ms May’s in-tray has been overflowing since taking office, her past record may have caused some nervousness in the SFO. This coincided with the SFO’s worst performance, at least in terms of conviction rates, to date (see Blog, Lies, damned lies and conviction rates, 26 May 2016).

The SFO was discussed in Parliament in February 2017. In opening a Parliamentary debate on the SFO, the Labour MP Stephen Timms commented:

“I agree with Transparency International UK, which says that it strongly opposes the abolition of the SFO unless an alternative is proposed which is demonstrably better. We believe that is highly unlikely given the SFO’s recent success, the instability and damage to caseload that would be caused by abolition, the detailed analysis that went into the creation of the SFO, and the lack of expertise and track record in any other government agencies regarding prosecutions of corporate corruption. I therefore hope that the model will be maintained”.

The SFO received support in the Commons from two prominent MPs with a legal background. Sir Edward Garnier QC MP, the former Solicitor General, commented that:

“I hope that the Solicitor General can give me the reassurance that the SFO is safe from interference and distraction, and that we can look forward to another period of success, and well-funded success, for this most impressive organisation”.

Alex Chalk MP made a further point that the SFO’s track record on recovering sums under the Proceeds of Crime Act 2002 was “certainly better than that of equivalent agencies”.

On the other hand, Mark Field MP was less complimentary:

“Reform of the entire workings of the SFO is overdue…I contend that an effective financial enforcement system requires the promotion of deterrence and competition, in order to boost consumer protection. Although over the past year or so the SFO has finally secured LIBOR convictions, it is in all honesty a body that I am afraid has long lacked clout and the respect of those who are most engaged in the financial industry”.

Mr Field went on to say:

“The SFO’s problems are not necessarily personnel problems (but) having spoken to experts in this field, I have come to ​believe that one of the organisation’s main problems is in finding cases to investigate. Only when the police or the Attorney General has firm cause to believe that a criminal act has occurred is the SFO permitted to get involved. Moreover, when a case does get under way, its prosecutors routinely face months of battling defence lawyers before they can even get to trial. I support a more robust economic crime policy, which would place the promotion of commercial competition at the heart of a new code of enforcement designed to deter fraudulent, anti-competitive or criminal activity. Such a policy should centre upon a new agency in place of the SFO, which would combine the SFO and the FCA’s enforcement division…we should now look to place the SFO’s responsibilities within the remit of the Department for Business, Energy and Industrial Strategy, (BEIS) so that the SFO would work alongside the Competition and Markets Authority (CMA).  By associating consumer protection with fraud and trust-busting, we would give competition its correct place as a central priority in the future commercial landscape”.

Although the argument consistently missing from any debate about the future of the SFO is what should it be replaced with, Mr Field’s observations and plans seem misguided. A “more robust economic crime policy” emerging from an amalgamation of a government department with an industry funded regulator, within the remit of BEIS but working alongside the CMA seems a recipe for disaster, lacking direction and competing for resources.

Too often, a disappointing result in an individual case is cited as a reason for rolling the SFO into another organisation, missing the obvious point that every prosecutor has seen cases they would rather forget. Even if the performance of the organisation is in question, the more obvious approach is to remove the individuals running the organisation (it should be noted that the previous Director of the SFO, Richard Alderman, was not offered an extension to his four year term, unlike the current Director David Green CB QC).

Perhaps more importantly, the current SFO has a clear remit to investigate, prosecute and recover the proceeds of serious fraud and corruption cases. Any merger, or even working alongside other agencies, will dilute that remit, putting it alongside either a wider criminal investigation remit or, under the Field model, business, energy and industrial strategy.

On funding, there has been a shift over time away from core funding towards blockbuster funding, where payments are made directly to the agency on a case specific basis. In 2008, core funding was £52 million. In 2015-16, the total budget was about the same, but core funding was only £34 million. For each of the last three complete financial years, the blockbuster funding element was large: £24 million in 2013-14, £24.5 million in the following year and £28 million in 2015-16.

The SFO’s total expenditure has been at a similar level to 2008, but the shortfall made up from blockbuster funding. This of course has the consequence of fewer permanent and more temporary staff at the SFO.

Mr Timms MP sought the Minister’s comments on whether blockbuster funding is an effective way to run an organisation as important as the SFO, citing Her Majesty’s Crown Prosecution Service inspectorate 2016 report:

“The blockbuster funding model is not representing value for money and it prevents the SFO building future capability and capacity. Temporary and contract staff are often more expensive than permanent staff and managing surge capacity is a constant drain on Human Resources (HR) and other staff. Increasing core funding would provide the SFO with the ability to build capacity and capability in-house and lead to less reliance on blockbuster funding.”

In response, the Solicitor General did not deal with the capability and capacity issues (although acknowledged the appointment of a chief operating officer) but replied that “No application for blockbuster funding has ever met with a refusal”.

The Solicitor General did not comment on the wider issue of monies gained by the SFO. Certainly, the sums recovered under POCA would not have been possible without the investment in a POCA division within the SFO. Similarly, the Rolls-Royce settlement makes it clear that some cases are potentially highly lucrative. Clearly, the more resources available to the SFO, the greater the likelihood of significant DPAs.

For a small government department the SFO has done well to reach the age of 30 largely unscathed, with a respectable record of conviction behind it. Its current caseload involves a number of significant names, all for, in the words of Alex Chalk MP, “less than the cost of one joint strike fighter”. It is now time to put the arguments about the existence of the SFO to rest, it clearly deserves to remain an independent, properly funded, government department, and should be supported in any forthcoming burden arising from changes to corporate liability.

The author of this blog was a lawyer at the SFO between 2006 and 2012.

Practical Law David Bacon

Leave a Reply

Your email address will not be published. Required fields are marked *