House of Commons Justice Committee
The work of the Serious Fraud Office
Oral and written evidence
13 November 2012 David Green CB QC, Director , Serious Fraud Office
Ordered by The House of Commons to be printed 13 November 2012
HC 740–i Published on 14 February 2013 by authority of the House of Commons London: The Stationery Office Limited £6.00
The Justice Committee
The Justice Committee is appointed by the House of Commons to examine the expenditure, administration and policy of the Ministry of Justice and its associated public bodies (including the work of staff provided for the administrative work of courts and tribunals, but excluding consideration of individual cases and appointments, and excluding the work of the Scotland and Wales Offices and of the Advocate General for Scotland); and administration and expenditure of the Attorney General's Office, the Treasury Solicitor's Department, the Crown Prosecution Service and the Serious Fraud Office (but excluding individual cases and appointments and advice given within government by Law Officers).
Current membership
Rt Hon Sir Alan Beith (Liberal Democrat, Berwick-upon-Tweed) (Chair) Steve Brine (Conservative, Winchester) Mr Robert Buckland (Conservative, South Swindon) Jeremy Corbyn (Labour, Islington North) Nick de Bois (Conservative, Enfield North) Rehman Chishti (Conservative, Gillingham and Rainham) Rt Hon Elfyn Llwyd (Plaid Cymru, Dwyfor Meirionnydd) Andy McDonald (Labour, Middlesbrough) Seema Malhotra (Labour/Co-operative, Feltham and Heston) Robert Neill (Conservative, Bromley and Chislehurst) Yasmin Qureshi (Labour, Bolton South East) Karl Turner (Labour, Kingston upon Hull East)
The following Members were also members of the Committee during the Parliament:
Christopher Evans (Labour/Co-operative, Islwyn); Mrs Helen Grant (Conservative, Maidstone and The Weald); Ben Gummer (Conservative, Ipswich); Mrs Siân C James (Labour, Swansea East); Jessica Lee (Conservative, Erewash); Claire Perry (Conservative, Devizes); Mrs Linda Riordan (Labour/Co-operative, Halifax), Anna Soubry (Conservative, Broxtowe); and Elizabeth Truss (Conservative, South West Norfolk).
Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk
Publication
The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/justicecttee. A list of Reports of the Committee in the present Parliament is at the back of this volume.
The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only.
Committee staff
The current staff of the Committee are Nick Walker (Clerk), Sarah Petit (Second Clerk), Gemma Buckland (Senior Committee Specialist), Helen Kinghorn (Committee Legal Specialist), Ana Ferreira (Senior Committee Assistant), Miguel Boo Fraga (Committee Assistant), Holly Knowles (Committee Support Assistant), George Margereson (Sandwich student), and Nick Davies (Committee Media Officer).
Contacts Correspondence should be addressed to the Clerk of the Justice Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 8196 and the email address is [email protected]
List of witnesses
Tuesday 13 November 20012 Page
David Green, Director, Serious Fraud Office Ev 1
List of written evidence
1 Serious Fraud Office Ev 10
Justice Committee: Evidence Ev 1
Oral evidence
Taken before the Justice Committee on Tuesday 13 November 2012
Members present: Sir Alan Beith (Chair)
Steve Brine Jeremy Corbyn Mr Robert Buckland Yasmin Qureshi Rehman Chishti ______
Examination of Witness
Witness: David Green CB QC, Director, Serious Fraud Office, gave evidence.
Chair: Before we start, I have to ask colleagues if You asked me as well what I have done since I they have any relevant interests to declare. No? Good. arrived. Essentially, I have made a complete structural Welcome, Mr Green. We thought that you had been reorganisation of the office, building in layers of in post long enough for us to start asking you how quality control. By that I mean that the casework is things are going in a number of important respects. now done by four casework divisions. Within the We are glad to have you with us today. I ask Yasmin casework divisions are teams, each led by a team Qureshi to start the questioning. leader. So you have the team leaders and then the heads of division. I have appointed a retired Q1 Yasmin Qureshi: Good morning, Mr Green. I distinguished judge as a Special Adviser, who deals want to explore with you your assessment of the SFO with quality, training and other such issues, a General since you took it over, only about five or six months Counsel, a Chief Investigator, and another Senior ago. Published data show that from 2011 to 2012 there Civil Servant part of whose responsibility is quality have been increases in most aspects of your work. assurance. I have deliberately built in layers of quality The indicators are good, the sole exception being the assurance throughout the organisation to prevent decline in the percentage of defendants convicted in errors, such the one that everyone knows about in cases brought by the SFO. As you are probably aware, Tchenguiz, from recurring. So there is a new senior that is perhaps the area that most people are interested team. I have also recalibrated the mission and in, wanting to know why a relatively small number of approach of the SFO. I am happy to develop that, but cases lead to conviction. With that sort of information there was perhaps historically a feeling or perception in the background, I want to ask what changes you publicly that the SFO was more willing to do deals, have made since taking over as director, and what as it were, than to investigate and to prosecute. your plans are for the future. Would you give your overall assessment of the effectiveness of the SFO Q2 Chair: We are going to explore some of that in over the last few years? It is a long question, but it more detail. gives you a chance to have your say. David Green: Indeed, and I am happy to do that in David Green: Thank you very much indeed. As to due course. I have looked at our intelligence function effectiveness over the last few years, I took over in with great care because, as I shall say later, it is April, as you know, and my take would be that this is enormously important to make that proactive rather a capable organisation operating on difficult ground than simply a vetting capability. We are looking at and in difficult circumstances—and it is an training and at our external relations, where bridges organisation that needs to improve its performance, need rebuilding, and at recruitment. I have opened without question. You raised the issue of key four major new investigations since April. You will performance indicators, in the sense of the number have seen the Oxford University Press civil settlement of defendants acquitted. The only thing that one can and the reasons for it. We are moving to a new absolutely stand on, in terms of statistics, with the building in November. We have made significant SFO is that we have up to 100 cases on our books, progress towards a new funding model for the SFO, we have between 10 and 20 going to trial each year, which is a matter very close to my heart. I like to we have 300 permanent staff and, historically, the think that I have improved morale. At the start, of SFO has something like a 70% conviction rate. course, it would have been quite difficult not to, Having said that, I am, as you will have gathered, because we started from a fairly low base. I hope that somewhat unhappy about the robustness of the data I that answers your question. have inherited. It is something that I want to look at with care. In fact we had the first meeting of my new Q3 Yasmin Qureshi: I was going to ask a question senior management team last month, and one of the about staff morale at the end, but as you have touched things that we decided was that we needed to identify upon that already, may I ask what practical steps have new, absolutely reliable and transparent key been taken to deal with the issue of staff morale? performance indicators. That we are doing, and we David Green: My analysis would be this. It is purely will explain what each one means in due course. my analysis, and it is not meant as criticism of Ev 2 Justice Committee: Evidence
13 November 2012 David Green CB QC anybody. The structure that I inherited—the Q6 Chair: That sort of thing seems to be going on in management—was perceived as being very remote various organisations at the moment. from the office members. I like to think that I have When the Attorney-General came to give us evidence changed that, with a completely new team. I have recently, he talked about your root-and-branch review addressed staff all together on three occasions, of the SFO’s operations. I do not know whether that including, latterly, on the day the other week when was a phrase that you approved of or welcomed. our accounts were published, so that the staff knew David Green: It sounds very exciting. just in advance what was to be said. I am sure that we will come on to that. Q7 Chair: He described some of the changes that It is really all about communication and new you have made. One of the things that I want to leadership within the organisation. As I say, I think explore is how that leaves your relationship with other that we started from a fairly low base, and the signs domestic and international agencies involved in are that morale is improving. If I may, I shall give an serious economic crime detection and prosecution. example. We advertised recently for a small number What mechanisms are you considering that will enable of senior lawyers. I thought that it was a good idea to the SFO to work effectively with the Financial approach the criminal Bar, and we advertised through Conduct Authority and the National Crime Agency? Counsel magazine, expecting a few applicants. We David Green: I like to think that last summer, in June, the debate on the future of the SFO was, for all intents had, I think, 170 applicants. It is a place that people and purposes now, settled and that it should continue. want to come to work in. We can offer the most After that debate the name of the game, in my view, challenging work, and I like to think that it would be is co-operation between all the different elements in a very important addition to anybody’s CV. I hope that the counter-fraud landscape, if I may use that that answers your question. expression. The National Crime Agency will obviously, over time, Q4 Yasmin Qureshi: I have a final question in build an overall intelligence picture and facilitate co- relation to the annual report and the accounts for operation between the various players and actors in 2011–12. They were published only recently, on 1 the landscape. I like to think that the NCA’s job will November. Is there a particular reason why the be to ensure that any particular job is done by the accounts were late? organisation best equipped to do it. I am happy that David Green: I took office on 23 April this year, and we have very good relations with the nascent NCA on my second day I learned of payments that had been and with Keith Bristow, who is in charge of it. I have made around the former chief executive officer’s appointed a very experienced senior civil servant, voluntary redundancy. She had taken voluntary Kristin Jones, to head up our external relations with a redundancy on 16 April, the week before I arrived. view to rebuilding bridges, which I am led to believe Having explored those payments a little, my actions certainly need rebuilding. were to approach my predecessor for an explanation A very good example of the kind of co-operation that and then to commission the Treasury Solicitor to do I am talking about—it is not just talk, I assure you, an inquiry for me. I obtained legal advice on the Sir Alan—is the LIBOR investigation. That is enforceability of the contracts around this agreement, obviously an SFO case, but we are working very and I told the National Audit Office that I would not closely with our colleagues in the FSA. In fact, we seek retrospective approval of these payments because have taken on board a huge amount of its data, and we have had people over at the FSA ensuring that that I considered them to be unjustified. is done. Colleagues at the CPS have provided some Also, it is right to say, I wanted to be satisfied that our additional manpower, and I am very grateful to the accounts, particularly my statement in the accounts, Director of Public Prosecutions for that. We also have properly covered and described liabilities, actual or the City of London police, and also close liaison with potential, around costs and damages. I think that I am the Department of Justice in Washington. That is a right in saying—you will know far better than I do— very good example of how, in the new landscape, we that these accounts are conventionally laid by the end simply cannot work in silos, or whatever. We’ve got of July, but in fact they have to be laid by the end of to work together, and that is happening. January of the following year. We ended up, for the reasons I have given, laying our accounts very Q8 Chair: Clearly, market manipulation is a major recently. issue. Yasmin Qureshi: Thank you. David Green: Yes.
Q5 Chair: Is there anything left over from that very Q9 Chair: Have you been asked to consider whether regrettable incident of the irregular payments? Are you can take on gas market manipulation? there still some continuing consequences from that? David Green: It is a matter that we will consider, as David Green: There is another such agreement with any other case. relating to an individual who will be leaving in the period covered by this year’s accounts. What I have Q10 Chair: I thought that we might get the official done is to ensure that proper procedures are followed, reply. The Attorney-General reminded us—I know and, if that is the case, I am given to understand that that you say very much the same thing—that your the National Audit Office will not have concerns priority is to involve the SFO in the prosecution of about this year’s accounts. the most serious and complicated cases that affect the Justice Committee: Evidence Ev 3
13 November 2012 David Green CB QC
UK nationally, and not to be diverted into doing less that. The money is, of course, ring-fenced and we significant but none the less important work. must continually check our case load to ensure that it David Green: Yes. is not cluttered up with cases that are going nowhere, and which might absorb resources. Q11 Chair: Is there a danger that work will fall into You drew attention, quite rightly, to the reduction of the cracks, or are you confident that whatever SFO our budget. I would put a slight health warning on does not pick up will be picked up by the National those stark figures, just in this respect. First, the larger Crime Agency or another body? sum of £53.3 million in 2008–09 included £9.2 David Green: I am confident that the NCA, once it is million in blockbuster funding. This was not a fully on its feet and with its economic crime command permanent addition to the balance sheet. operating properly, will ensure that that is done and I am very happy to play my part in it. Q14 Chair: Would you just explain what blockbuster funding was? Q12 Chair: My anxiety is that you would spend David Green: Blockbuster funding was in the past some time perhaps considering whether something fell when huge cases came along such as Oil for Food— into your now stricter criteria but that, at the end of you will remember those cases—or Operation it, there would be no automatic mechanism for it to Holbein, to do with procurement of pharmaceuticals. be taken over by somebody else. When such a case came along, previous directors David Green: I have powers to take over a case from recognised that the SFO was without the resources to somebody else, and I can also pass a case to deal with a case so demanding, and investigations so somebody else. I see no reason at all why that should demanding, so agreement was reached with the not happen. Everybody is very much aware of what, Treasury for ring-fenced funding to cover that case in certainly at the time of the debate over the economic any particular year. Does that assist? crime agency, were referred to as “orphaned” cases— cases that did not seem to have a home. I am pretty Q15 Chair: Yes. In fact, indications have been given confident that we now have the mechanisms in place by the Attorney-General that should cases like that to stop that happening. arise again, the resources would be available. David Green: Exactly right. I have given LIBOR as Q13 Jeremy Corbyn: Thank you, Mr Green, for an example, where we are underwritten to the tune of coming to talk to us this morning. I want to raise £3.5 million if we cannot pay it ourselves. The questions about SFO resources. The highest point of Treasury has done that. SFO expenditure was in 2008–09, when the The first thing is that those high figures included organisation had a budget of £53 million. This year it blockbuster funding, which was never a permanent is down to £31 million, and next year it will be down addition to the bottom line. Secondly, we have to an to £30 million. Do you think that with such a massive extent benefited from receipts under ARIS—the Asset reduction in resources you are able to do the work Recovery Incentivisation Scheme—whereby required of the SFO? prosecutors, investigators and other actors get a cut, if David Green: I think, Mr Corbyn, that I would put it you like, of amounts that have been confiscated. I this way. When I took on the job, and as of today, I would like to dispense with ARIS funding as a part of am happy and content that the existing resource is our budget. I think that £2.3 million in ARIS receipts sufficient for what I might call our day-to-day work. is assumed to be part of our bottom line, and I would That does not mean to belittle any of our cases, all of like to do away with that. I hope to consolidate our which are extremely challenging. The existing budget, for the following reasons. First, as has been resource is sufficient, as well, to maintain, as it were, pointed out, the SFO does a small number of cases. a core staff of around 300. The problem comes when Therefore, there is not the turnover of confiscation. one or more exceptional cases come along. LIBOR is Secondly, a lot of the money that we recover goes in a very good example, and—who knows?—there might compensation to victims, rather than confiscation, of be two or three more LIBORs, or the equivalent, which we get a share, with the balance going around the corner. To give you an example, I now elsewhere. Thirdly, I know that elements among the have a team of 40 people working on that. judiciary, for very good reason, are concerned about Of course, the SFO can never refuse to conduct an the possibility of conflicts of interest being perceived investigation on the ground that we cannot afford it, when a prosecutor receives money from confiscated nor will I do that. We therefore need what I suppose assets. would fashionably be called a surge capacity. LIBOR Having said all that, in principle and provided that the is a good example of that. I am very grateful that the right mechanisms are in place, I have no particular Treasury has underwritten us up to £3.5 million, problem with prosecution authorities being, in part, should we fail to absorb those costs, in order to cover funded by confiscated assets from criminals. I hope LIBOR. That is in a sense, I hope, the new model— that that answers your question. obviously, to be developed. If you like, it is a return to what used to be called blockbuster funding or Q16 Jeremy Corbyn: Thank you very much for that. something like it. As a second question from me, have you suffered In saying that, I recognise that of course all from a loss of talent or a brain drain from the departments need to contribute to deficit reduction, organisation? How do you compare the resources that and we need to account for how we are spending you have with those of the FSA or its successor, the blocks of money on specific cases. I am happy to do FCA, which now has £75 million for enforcement? Ev 4 Justice Committee: Evidence
13 November 2012 David Green CB QC
There seems, from the outside, to be a bit of an David Green: I cannot give you that promise, Sir imbalance. The Serious Fraud Office has massive Alan. What I have done is, I like to think, to restate responsibility and a job to do. I go back to my the purpose of the SFO, which had become a bit previous question: if you are short of resources, will woolly and a bit blurred over time, for all sorts of you start speaking sharply to Ministers? reasons. The SFO was set up, as you know, to David Green: If I am short of resources, I will say so. investigate and prosecute serious complex fraud, and The bottom line for me is that, as I said earlier, the now also bribery and corruption. We are primarily a SFO cannot refuse to take on an investigation because crime-fighting agency. The perception seems to have we cannot afford it. That would be completely arisen in the past that the SFO was anxious to do unacceptable. I believe that it would be unacceptable deals, and more willing to do deals, because it had no to Ministers; it would certainly be unacceptable to me real stomach for prosecutions. That cannot be right, and, I am sure, to the public. That is one point. although I can see why that perception, or that The FSA, as you will know far better than I do, is desire—if indeed it was manifest in the SFO—came funded by the industry itself, so it has lots of money. about. All our cases are very high profile and very What I can offer people, as I touched on earlier, is high risk, so it is inevitable that people might look this. I do not necessarily want people for the whole around and be attracted by other things—things that of their careers. I would like a good lawyer, a good might amount to something that has been described as investigator, a good forensic accountant or a good fools’ gold. computer person. I would like them for maybe three In my view, we should do cases that call for the SFO’s or four years. What I can offer them is probably the unique set-up. By “unique”, I mean having all those most stimulating and interesting work in criminal skills that I described earlier—accountancy, litigation—and, as I said earlier, a superb addition to prosecution, investigative and computer expertise, and people’s CVs. People are, believe it or not, queuing so forth—all under one roof, working together. That up to join the SFO, and I am delighted that that is was the original Roskill vision, and it works. I have the case. therefore restated the purpose of the SFO and, while I was about it, I restated and tried to encapsulate the Q17 Jeremy Corbyn: I hope that you will recruit kind of cases, the absolute top end of fraud, bribery and corruption that I think the SFO was set up to do, some from this morning. and the public want the SFO to do. David Green: Who knows? I am genuinely optimistic I have tried to describe those as follows: cases that about the SFO’s ability to attract very good people. undermine UK financial plc in general, the City of They are not going to get huge riches. You don’t get London in particular, and cases that have elements that in Government service—nor, indeed, in politics, such as a strong public interest dimension—perhaps do you?—but that is where we are. cases that are the first of a new species of fraud, cases where very high values are involved, and serious Q18 Yasmin Qureshi: I have a very quick bribery and corruption by British companies acting supplementary question. Maybe I should know the abroad as well as at home. That is why and how I answer to this one, but is your £31 million budget just have restated the purpose of the SFO. For the result for the 300 staff you employ, or does it include money of all that, we will have to wait and see. I have for using external advocates for trials? described the sort of cases that I want to do, but at the David Green: That is all our costs. You touched upon same time that has a knock-on effect in terms of our external advocates. Obviously, our work is very policies around bribery and corruption. However, it all different from that of the CPS, with which I know you comes from the same root, and I am happy to develop are very familiar. I would not wish—it would not be that, Sir Alan, if you would like me to. appropriate—to employ in-house advocates, because it would be a wrong use of resources, so I am very Q21 Chair: We are going to ask you some more happy to use the independent Bar. Indeed, the questions to bring that out, but I am not sure that you relatively small number advocates who have the have quite answered my question. Of those cases that necessary skill set to do our sort of work, which is you will have taken by the end of your period of extremely— office, will the proportion dealt with by prosecution, rather than by non-prosecutorial means, have Q19 Yasmin Qureshi: I am sorry, but maybe I did increased? not express my question properly. Does your £31 David Green: I would have to end as I started: I am million budget include the cost of the lawyers that you not sure; we will have to wait and see. It is probably use externally? inevitable that there will be more prosecutions, and David Green: Yes. That is the whole lot. hopefully we will have other tools in our toolbox to deal with our cases, such as deferred prosecution Q20 Chair: I am going to ask about a number of agreements. Our turnover will be greater, but that is policies that you are either pursuing or have revised as far as I would go at the moment—although in important ways. Would it be right to say that the certainly no one would be happier than I would be if net effect of what you are planning to do will be a we had more prosecutions. greater use of prosecution, and that at the end of your term of office the proportion of matters coming before Q22 Chair: I am not asking about successful or the SFO that are resolved by prosecution rather than unsuccessful cases; I am asking about prosecution by other means will have risen significantly? versus other mechanisms. I sensed from some of your Justice Committee: Evidence Ev 5
13 November 2012 David Green CB QC earlier comments and from comments that you made There is one other thing. I have said that I wanted to when you first took office, including, “Don’t get me restate the SFO’s role as a crime-fighting agency. In wrong, but we’re here to prosecute people”, that you addition, frankly, so far as I am concerned, we are not thought there was a danger of non-prosecutorial routes there to give advice to people. They can get their being taken in too many cases. advice from their lawyers and their other experts, David Green: It is wrong for all sorts of reasons. I which they have in spades. I am not there, nor are my dare say that the public are unhappy if they think that staff there, to give advice. We are there to investigate serious fraud is simply not dealt with. This is what we and prosecute serious fraud, bribery and corruption. are supposed to do. Q25 Steve Brine: It almost seems as if, when you Q23 Chair: Or dealt with in ways whereby the took over, you looked at the job title and thought to fraudster organisation keeps a lot of its ill-gotten yourself, “The clue’s in the name. It’s the Serious gains? Fraud Office”, and that gave you your lead. David Green: I would never be in favour of that. That David Green: That is exactly true. is one of the reasons why we have boosted our confiscation capacity and expertise within the SFO. Q26 Steve Brine: Your written evidence was very No, I would certainly not be in favour of that; I want helpful. At paragraph 6.10 you say that there is to produce results for the public, within our area of “considerable public interest”—I am sure there is—in expertise and operation. the use of powers under the Bribery Act 2010. Without specifying details, would you give us some Q24 Steve Brine: Thank you for coming in this indication of how many investigations you are morning, Mr Green. I have been very interested in currently undertaking into potential offences under listening to what you have said thus far, and I am sure the Act? that that will continue. I want to ask you about the David Green: Under the new Act? notes that I have been reading about facilitating payments, business expenditure and corporate self- Q27 Steve Brine: Yes, because you are also bringing reporting. What is your intention behind the revision cases under old bribery legislation, are you not? Let of policies on those three areas? Are they really a us just look at the new Act. It is not retrospective, if radical departure from the previous guidance, or is I am correct. there a bit of spin there? David Green: That is exactly right. We are just David Green: It is not my spin. What you might call concerned with stuff after July 2011. It is important to the bribery and corruption industry—by which, I understand that section 2A of the Criminal Justice Act suppose, if I was being unkind, I might mean lawyers 1987 added a pre-investigation power in relation to who make an enormous amount of money out of it, bribery and corruption, which enables us basically to advising corporates—wants to put it that way. In fact, look at the facts and assess them, and to see whether it is not that. What I have done, as you know, is to there is material that would justify, in law, my withdraw policies in relation to bribery and launching a full-scale investigation. If I may, for the corruption, and they have been replaced with a sake of clarity, I shall call those pre-investigation statement that we are subject to the joint guidance investigations “projects”. agreed with the Crown Prosecution Service. In other From recollection, we have seven cases that are in the words, all I have done is to remove what is actually a project phase. What will come of them I cannot tell unilateral gloss placed on that joint guidance by my you; I really do not know, but if we can we will turn predecessor at the SFO. It was also done in order to them into investigations if we are justified in doing comply with the recommendations of the OECD so. We have another half dozen cases that relate to which, as you will know, are about being careful how pre-Bribery Act law; again, they are in the same a self-report is defined. phase. What I have done most specifically, which certainly Understandably, legislators, journalists and, indeed, excited some—perhaps they are easily excited—is to members of the public may say, “Well, you have this withdraw the explicit pledge that the SFO would not marvellous new Bribery Act. What are you doing prosecute if you self-report. Why did I do that? In my about it?” As a kind of private project, I have been view, it is not something that a responsible prosecutor looking at the fortunes of the FCPA—the Foreign should be saying, simply because you have no idea Corrupt Practices Act of the United States. That was what kind of facts or combination of facts you might enacted in the late 1970s, and the first prosecution was be presented with when somebody comes through in 1981. It did not get any teeth, in a really meaningful your door with an expensive lawyer. You have no way, until the penalties were enhanced, and so forth, idea, so you cannot cater for it in advance. What you in the 1990s. I am not saying for a moment that you can say, without question, is that the fact of a genuine are going to have to wait 20 years for your first self-report—by a genuine self-report I mean, in its Bribery Act prosecution, but things are in hand and purest form, telling us something that we did not no one would be keener than I would to see a good, know already, and the corporate acting proactively to solid Bribery Act prosecution. We are working on it. investigate it—must be very significant as a factor in weighing up the public interest limb of the decision Q28 Steve Brine: Should I infer from that that when to prosecute; that is the code test. That is what I am you next come to see us you might have more about. That is why I did that. evidence to put before us—including written Ev 6 Justice Committee: Evidence
13 November 2012 David Green CB QC evidence—that might lead us to make more resources to do more good work. But I would recommendations that the legislation needs revising? say that, wouldn’t I? David Green: I certainly would not be asking that at the moment. I shall let you know. In a sense, Q32 Mr Buckland: I would expect you to, and I am everybody needs to see how a case under the Bribery glad to hear it. Having looked at the impact Act will work out—everybody does. A number of assessment prepared by the MoJ on DPAs, I was a things might need further definition. little concerned. My reading of it is that there was an assumption in the document that there would not be Q29 Jeremy Corbyn: I welcome the point you an overall increase in the number of cases dealt with. reiterate—that you wouldn’t necessarily not prosecute In other words, there would potentially be a shift from somebody who self-referred to you. That is a very early guilty pleas to DPAs, meaning no overall important step forward. In the past, the SFO has been increase in the number of cases dealt with. Would that put under huge political pressure. For example, former be your expectation, or would you hope for something Prime Minister Blair stopped the investigation into the more ambitious? al-Yamamah arms contract. Are you completely David Green: I would be far more ambitious. I would independent of Government? Could the same awful expect our case load—including cases dealt with thing happen, with the Prime Minister intervening and under DPAs—to increase significantly once they kick saying, “You can no longer pursue this”, because it was not in the interests of what was then British off. I hope, as I am sure you do, that we will have our foreign policy? first DPA in place in early 2014. David Green: First, I would say very clearly that I have never ever, in this job, been subjected to any Q33 Mr Buckland: Obviously, public perception is kind of political pressure—absolutely not. Of course, very important. Two aspects of DPAs as currently I am subject to the superintendence of the Attorney- proposed may cause some concern. The first is having General, who is entitled to probe, test and question the preliminary hearings in private, as opposed to my decisions, and I welcome that. Certainly, there has having all hearings in public. Does the SFO have a been no political pressure whatever. Indeed, for the view on the reasons for that proposal? avoidance of doubt, the opening of the LIBOR David Green: I do not, as I sit here, have a particular investigation was entirely and exclusively my view on that. What I would say is that later on, as the decision. You mentioned events of previous years, and process develops, it does of course become public. the BAE case. As I understand it, the position is now, Obviously a big difference between our DPAs and the after that, that I cannot be directed by a Minister to US model is judicial involvement from day one. I cease an investigation, except where national security would not be happy in expressing a particular view on is concerned. If I receive such a direction, the that. It is something that I would have to think about, Attorney-General must make a statement in the House but I would be happy to let you know in due course. explaining it. Chair: Thank you very much for making that clear. Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is Q30 Mr Buckland: May I move on to the question important. The idea that you are doing some sort of of deferred prosecution agreements? I have read very niche job is wholly wrong, I think. The public are carefully the memorandum and evidence that you genuinely concerned about a culture of impunity that have submitted to the Committee, and it is clear that is perceived to have grown up around corporate and the SFO supports the Government’s proposals to serious fraud. Is there a danger, with DPAs, that we amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office could end up with white-collar crime somehow being have troubled yourselves with the potential impact seen as less serious than other types of crime? assessment, in terms of financial benefit and whether David Green: That is obviously something that I have the SFO directly would receive either a share or the thought about a lot—indeed, it has troubled me—and entirety of any receipts from financial settlements I think that the answer is this. It is important that pursuant to DPAs. DPAs are seen as just one additional tool in the David Green: As I understand it, all funds from DPAs prosecutor’s toolkit. They are certainly not, in any will go directly to the Treasury, to avoid concerns over sense, a universal panacea for corporate misconduct. conflicts of interest. They will be used in the right circumstances only. An example of what I think would be the right Q31 Mr Buckland: So there is no hypothecation. circumstance is where an incoming board chooses to Would it be fair to say that the SFO would have a self-report past misconduct by a previous board, legitimate expectation that, even though the moneys which it has unearthed and proactively investigated. were not hypothecated, you could end up receiving That would be just the sort of challenge to be met, in some additional funding to help deal with the work my view, by a DPA. It would certainly not be that you are doing? appropriate if, for instance, the corporate had been set David Green: It has always been my view, Mr up and used as a vehicle for fraud. That would be Buckland, that the SFO is here to stay, but that it quite wrong. Obviously our first principle, as I hope needs to prove itself. Assuming that it proves itself— I have made clear, is that serious fraud, bribery and I hope fervently that it does—I would be the first to corruption must always be prosecuted where that is join any negotiation on an enhanced budget to get us possible—always. Justice Committee: Evidence Ev 7
13 November 2012 David Green CB QC
Q35 Mr Buckland: Do you see this as having the to say that the way in which the SFO will be judged potential to deal with the common scenario of when a over the next couple of years will be through the prism legitimate business becomes dishonest? I am sure that, of the LIBOR investigation? like me, you have had plenty of experience of that David Green: That is often said, Mr Buckland; to be sort of scenario. fair, I have said it myself. It is important to realise David Green: Of course, we would only be dealing that LIBOR is of course a very important case, but it with the corporate itself, under a DPA. is not the only show in town for the SFO, by any means. As I have said, we have taken on four Q36 Mr Buckland: Not the individual. significant cases since April, and every one of them is David Green: Indeed. If there was a case against an extremely challenging high-risk, high-profile case. individuals, we would obviously prosecute if we We shall see. could. Q41 Mr Buckland: The postscript to the Tchenguiz Q37 Mr Buckland: One concern that has been put judicial review judgment, which I am sure you have to me about DPAs is that we have looked to the United read many times, was issued earlier this year. I hope States as an example, but that the US has a very big that you have a copy in front of you, because I want stick in terms of how they—I won’t say aggressively, to take you through it, if I may. It made a number of but certainly robustly—police their free market, and points. I accept that a lot of this relates to an the penalties available under the criminal justice investigation that began as long ago as 2007 or 2008, system in the various US states to deal with and that you came in at a later stage. This obviously wrongdoers. Do you think that the British scenario, relates to past performance. It might be helpful to run where the stick is much less potent, is a good parallel through the advice given by the court. Several points to draw with the United States? were made. The first was about the need for “a team David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot with a proper understanding of the financial markets and stick equation. I have touched on this twice, but I in which the transactions have been effected”. Are you cannot overemphasise the importance of our decision now satisfied that you have a team that matches up to to enhance our intelligence capability. I really mean that advice? business on that. At the moment, our intelligence David Green: I touched on this in an earlier answer capability—the one I inherited—is really a sort of to Mr Corbyn. The model I have for the SFO is to vetting process. I want to be far more aggressive in have a core of highly competent staff with a surge our intelligence activities, not to run it ourselves but capacity. That surge capacity involves buying in the to buy it in from, say, the City of London police or very best expertise as and when required. Why would external agencies, enabling us to use all sorts of exotic I want to do that? Because I would not want that very intelligence. The intelligence capability being built expensive expertise sitting around on my payroll when up—that is the stick. These people may well be found we do not have a case that suits that expertise. So, out, and they need to understand that. The carrot, of yes, I am confident that we can do that. course, is often said to be certainty. Actually, it is not really certainty, because when they come along to Q42 Mr Buckland: You will be able to draw upon self-report, they are not sure how they are going to that understanding. end up. What they mean, I think, is finality. In other David Green: Yes. words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a Q43 Mr Buckland: This is almost axiomatic, but it company can then move on. Having thought about it still bears repeating, because this is the advice that quite a lot, I think that that is really what a corporate wants. was given, about how to set out matters in a clear and analytical way in documents being drafted relating to financial markets. Lawyers with great skills and Q38 Mr Buckland: So you are hoping for more of what we could characterise as the Eliot Spitzer type experience are required, are they not, to prepare such of approach that we saw some years ago in New York. documents? Are you confident that you are able to Is that something that you would aspire to? I know draw on such a resource? that the SFO cannot do it all on its own. David Green: Yes, I am. David Green: Didn’t Mr Spitzer come to a sticky end? Q44 Mr Buckland: The court expressed concern Q39 Mr Buckland: He did, which is why I described about the role and position of Grant Thornton. Are it as a “type of approach”—but to be fair to him, it you now able to say that the SFO will not be put in a was unrelated to that particular approach. potentially compromising position by relying upon an David Green: I would not want to link myself to independent firm that may itself have perceived caricatures. I simply want the SFO to get to the top conflicts of interest? of its game, where it should be, in investigating and David Green: The key phrase is “relying upon”. prosecuting serious fraud. Certainly we are happy to receive such information. The problem in the Tchenguiz scenario was that that Q40 Mr Buckland: Thank you; I shall move on. You information was not independently checked, taken have already touched upon LIBOR and the importance apart and examined and double-checked—and it of the investigation. Would it be overdramatic of me should have been. Ev 8 Justice Committee: Evidence
13 November 2012 David Green CB QC
Q45 Mr Buckland: Then we have the general from that report, and also what actions you will be principle of equality of arms. We have all seen this— taking in relation to its findings? to put it bluntly, a competent prosecution being David Green: I hope, Sir Alan, that you would agree overwhelmed by a very expensive defence. Are you that it would be inappropriate for me to report to the confident now that you are able to deal with such Committee now about the contents of a report to the scenarios, and fulfil the principle at the heart of article Attorney, which he will, I am sure, comment on in the 6—and, indeed, at the heart of everything that we do right place at the right time. I can, however, say this. in the criminal justice system? We co-operated fully with the chief inspector. We David Green: It is strange, isn’t it, that one normally welcomed the inspection. I find the report extremely hears the idea of equality of arms expressed the other helpful as a management tool. I can also say—I hope way round—that it is the defence that does not have without appearing remotely smug, because I am not— adequate equipment? But I entirely agree. This is that almost everything, if not everything, that has been something that I am fully conscious of, and one of my recommended is already observed, and has been taken concerns in relation to LIBOR, for instance, has been on board and in hand as a result of our own to engage highly competent counsel at an early stage. examination of the SFO. Obviously one difficulty is that expertise in this sort of area is fairly limited, and people can easily be either Q52 Chair: I think that we were quite surprised to “conflicted out” or pre-booked, so one must move in discover that you got the report only yesterday. I think fairly quickly. that Ministers had seen it some time before that, and I am surprised that it was so late coming to you. Q46 Mr Buckland: Understood. Finally, you David Green: I think that it has been around in mentioned speed. The Tchenguiz investigation was of various forms—what civil servants call “iterations”— inordinate length, frankly. In terms of speed of for some time. investigation, are you confident that, with regard to LIBOR for example, you will be able to avoid the Q53 Rehman Chishti: May I ask a linked question, somewhat depressing time scale that we saw in as I believe that you have commented on this? An Tchenguiz? article appeared in The Daily Telegraph saying, “The David Green: I would certainly intend to, but I am Serious Fraud Office is suffering from quality failings not going to, as it were, break our necks, or in staff, training and results according to a hard hitting compromise the investigation by hurrying. It will Government report to be published this month.” happen at the right time, but that is not to say that I am Obviously, the papers knew before you did what was not hopeful of significant developments in due course. in that report. Linked to that, the inference is drawn that if those improvements are not made, the Serious Fraud Office could be “subsumed within another Q47 Mr Buckland: It is subject to the fact, is it not, crime fighting agency”. that as a prosecuting or investigating authority you are David Green: I am not quite sure where that came obliged to follow all reasonable avenues of defence, from. One is used to certain sectors of the media whether they point towards or away from— coming out with a bit of a litany about the SFO, which David Green: Yes, all reasonable lines of inquiry. usually involves the word “failings” or whatever. It is Absolutely, yes. not all like that at all. I recognise that the SFO does a very difficult job in very difficult circumstances. We Q48 Chair: You obviously do not believe in giving need to up our game on performance, and I am all hostages to fortune, Mr Green. for that. David Green: I prefer not to. Q54 Rehman Chishti: There is one final point linked Q49 Rehman Chishti: Mr Green, I have a number to that. The article also quotes you as saying, “I expect of questions for you, which are all interlinked. The much of its contents will refer to changes or first is about the quality of work carried out by case suggestions that we have got in hand.” That clearly workers. Did you receive a copy of the report of the implies that you know that there are a number of review of Her Majesty’s Crown Prosecution Service failings in governance and casework, which have to inspectorate in spring this year on the quality of SFO be improved. casework? David Green: There are certainly things that I would David Green: I received the report yesterday. like to improve, yes. As I say, I welcome the report, but the tone that I would strike is perhaps rather more Q50 Chair: Yesterday? positive than the tone one sees in some sections of David Green: Yes. Forgive me, but I should make it the media. absolutely clear that this is a report to the Attorney- General, and the Attorney will deal with it in due Q55 Rehman Chishti: Finally, in terms of the things course. I know that he has said publicly that he will that you would like to improve, specifically on the make as much of it public as he possibly can. I am quality of casework, what improvements would you fully supportive of that. like to see? David Green: To give an example, I saw the whole Q51 Rehman Chishti: I have a question linked to Tchenguiz fiasco, and I see it now, as a failure in that. Having received the report only yesterday, are quality—quality of decision making, quality of you in a position to share with us certain conclusions checking and quality assurance—within the SFO. In Justice Committee: Evidence Ev 9
13 November 2012 David Green CB QC reaction to that, I have completely changed the organisation, for all the reasons implicit in your structure to make sure that these things do not slip description of the kind of case that it ought to be through, and there are various levels of checking and pursuing, and because of the public interest. We are scrutiny. grateful to you for coming here this morning. We shall keep an eye on what is happening, and we may see Q56 Rehman Chishti: Is that the same for you before us again. Of course, we will be talking to governance? Apart from casework, is it the same for the Attorney-General and the Solicitor-General about governance? their views on the progress that is being made. Thank David Green: Yes, absolutely. you very much. Chair: Mr Green, we wish you well. We want the Serious Fraud Office to be a very successful Ev 10 Justice Committee: Evidence
Written evidence
Written evidence from the Serious Fraud Office Introduction 1.1 The Serious Fraud Office (SFO) welcomes the opportunity to present this memorandum to the Justice Committee ahead of the Director giving evidence before the Committee on 13 November. 1.2 The Committee has requested a memorandum covering a number of topics. This note addresses the headings provided by the Committee.
Executive Summary 1.3 The memorandum sets out some background to the SFO, its establishment and current position in the Government’s counter-fraud strategy. Consideration is given to the SFO’s international work and its use of existing legislation. The final part of the memorandum comments on the SFO’s capability, including external inspections of the SFO, and the recent Judicial Review of search warrants issued to the SFO in 2011 in the Kaupthing/Tchenguiz case. 1.4 Although the SFO has had some high-profile successes in recent years, it has also been roundly criticised and received significant negative press attention, which has led to low morale. 1.5 In 2011–12, verdicts were reached in 20 SFO cases, securing 38 convictions. The average prison sentence for immediate custody was 56 months. There were three civil settlements (worth a total of £16.2 million). 1.6 The SFO has successfully managed its expenditure within the Comprehensive Spending Review reductions whilst taking on some cases that could equally well have been dealt with by the police and CPS. The new Director, David Green CB QC, has re-focused the role of the SFO to a more traditional model of investigating and, if appropriate, prosecuting top-end fraud, bribery and corruption. He has already re-started two criminal investigations stayed by his predecessor. 1.7 The Prime Minister has made clear that the SFO has the resources that it needs to meet its current workload and if it needs more resources it will be provided with them. The Director has re-structured the work divisions and built a strong core team. 1.8 SFO cases are extremely complex and their investigation and prosecution can take years to complete. An extreme example is the investigation into Asil Nadir, which ended with a prosecution this year, began in 1990. 1.9 It is important to explain the context and practicalities of the SFO’s work: its position as a part of the Government’s counter-fraud strategy; the challenges of prosecuting serious fraud; the size of the organisation and its caseload; the fact that prosecution, although preferred, is not the only way in which the SFO can successfully tackle serious fraud. 1.10 There is room for the SFO to improve its capability. The new Director began work in April this year, and has restructured the office, bringing in numbers of experienced staff to build in layers of quality assurance.
Background Information on the Role of the SFO Establishment 2.1 The Criminal Justice Act 1987 established the SFO, which began work in April 1988. It is a non- Ministerial Government department that investigates and prosecutes serious or complex fraud, and corruption. 2.2 This followed the Fraud Trials Committee Report (commonly known as the “Roskill Report”) published in 1986. Its main recommendation was to set up a new organisation responsible for the detection, investigation and prosecution of serious fraud cases, with all the necessary skills under one roof.
Role of Director and Parliamentary Accountability 2.3 The Director of the SFO is appointed by, and superintended by, the Attorney General (Mr Dominic Grieve QC MP). The Director may investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud. 2.4 The current SFO Director is David Green CB QC. He was called to the Bar in 1979, appointed Recorder in 1996 and took silk in 2000. He spent 25 years prosecuting and defending at the Criminal Bar before being appointed the first Director of Revenue and Customs Prosecutions in April 2005. After a brief period back at the Bar he became SFO Director on 23 April 2012. 2.5 The Attorney General is accountable to Parliament for the SFO and the other Law Officers’ Departments. In July 2009 the then Attorney General (Baroness Scotland) published a protocol which set out the relationship of the Attorney General with the prosecuting authorities superintended, in collaboration with their directors. Justice Committee: Evidence Ev 11
The SFO’s Place in the Government’s Approach to Tackling Fraud
2.6 The SFO is part of a network of Government agencies and other organisations which work to combat fraud and corruption. The Government confirmed in June 2011 that the SFO would remain independent.
2.7 The Director believes that the SFO exists to prosecute serious and complex fraud, as the Roskill report originally envisaged. He believes it should focus particularly on serious and complex cases which: — undermine confidence in the UK’s business and financial institutions; — have a significant public interest element; — may present a new species of fraud; — are high value or impact; and — concern bribery and corruption which disadvantages British companies, or where British companies themselves are corrupt.
2.8 The Director wants SFO to be a centre of excellence using the best tools and resources. The SFO will cover particularly complex investigations by supplementing permanent staff with short term specialists. The Director and the Attorney General agree that there should be a healthy interchange between the public and private sectors, which brings benefits to both.
Aims and Values
2.9 The SFO’s work is part of the overarching aims and objectives of the criminal justice system and contributes to: — reducing fraud and corruption and the cost of fraud and corruption; — delivering justice and the rule of law; and — maintaining confidence in the UK’s business and financial institutions.
Finance, HR, Governance, IT and Communications and any Current Issues
Finance
3.1 The SFO’s annual resource (DEL) expenditure for the last six years was: 2006–07 £40.7million 2009–10 £40.1 million 2007–08 £43.3 million 2010–11 £35.9 million 2008–09 £53.3 million 2011–12 £31.6 million (subject to audit)
In recent years the SFO has received Asset Recovery Incentivisation Scheme receipts of at least £2.5 million per year. This has resulted in large part from a small number of civil recovery settlements with companies involved in corruption cases, and is not a reliable source of future funding of the SFO’s core budget.
3.2 Like many other departments the SFO is required to make 25% savings over the period of the Comprehensive Spending Review. The 25% cost savings will come from a number of sources. These include relocating the SFO to existing Government premises in Cockspur Street, and the move to its new case management system, Autonomy Introspect Digital Review System (Autonomy). The Autonomy system supports in an integrated way the volumes of information associated with large economic crime cases, and contributes to the SFO’s progress in reducing the duration and cost of cases.
3.3 The Director has made clear that the challenge for the SFO is to live within the resources it has been given, and to ensure it gets the most that it possibly can from that.
HR
3.4 The SFO has a headcount of around 360 people, including 300 permanent staff. Over 90% are frontline staff (lawyers, investigators, accountants and those working in Digital Forensics) who work flexibly across cases.
3.5 The SFO participated in the Civil Service People Survey in 2011. The SFO achieved a response rate of 78% (up from 70% in 2010) and an engagement score of 50% (a small change from 51% in 2010).
Governance
3.6 Since starting his role in April, the new Director has restructured the SFO and made several high profile appointments to his top team, building in layers to examine the quality of cases as they progress. Ev 12 Justice Committee: Evidence
3.7 The SFO’s casework in fraud and bribery and corruption is now organised into four divisions, comprising mixed teams of lawyers, accountants and other investigators. Each division is headed by a Senior Civil Servant reporting to the Director. These Divisional Heads are responsible for providing assurance to the Director for their Divisions’ casework. In addition, case review panels have been established so that the Director, General Counsel and Adviser can review the progress of cases. In addition there will be a quality assurance programme. This will take forward the recommendations of the HMCPSI report (please also see 7 below). 3.8 The Director has appointed Alun Milford as General Counsel, and His Honour Geoffrey Rivlin QC has also been appointed as an adviser to sharpen the focus of investigations and prosecutions. He will advise on the appropriateness of civil settlement and, potentially, Deferred Prosecution Agreements. In addition, he will lead on the enhancement of professional training to improve quality.
IT and communications 3.9 The SFO operates digitally. In 2011, the SFO loaded around 35 million individual documents into its review system. To handle such volumes, the SFO had to increase its data processing capability by over 1800% in three years. 3.10 As part of his restructuring of the SFO, David Green has established a new Policy, Strategy and External Relations Division which will rebuild and develop relations with other key players in the counter-fraud strategy.
Current issues 3.11 Prosecuting serious fraud is challenging; it is a high risk business. Every one of the SFO’s cases is high-profile and well-defended. Although the SFO believes that each case has a realistic prospect of conviction, not every case will result in convictions. If they did, the SFO would be accused of being too timid in its prosecution strategy. 3.12 This is a time in which the media and commentators are paying greater attention to serious fraud and financial crime. That heightened interest is in part due to the recession, which also places pressure on the SFO’s budget and resources. The cases addressed by the SFO require specialist prosecutors and investigators. They are few in number, and occasionally the SFO has to contend with headlines such as “Serious Fraud Office fails to conduct a single ‘dawn raid’ in past year”, and “Bribery Act one year on: lack of prosecution has led to businesses questioning the SFO’s enforcement appetite”. 3.13 For searches, fluctuations in quarterly or annual figures reflect merely whether or not searches were required in that period, rather than the SFO’s overall caseload or activity. Searches are just one part of the complex work that takes place during investigations. There are other ways to obtain evidence and the SFO is required to consider alternatives to searches before it applies for search warrants. 3.14 The Bribery Act came into force on 1 July 2011 and is not retrospective. As the SFO’s cases can take many months to conclude, especially when they involve obtaining evidence from overseas, the SFO’s first prosecutions are yet to come.
Performance and Delivery 4.1 In the last few years the SFO has brought between 10 and 20 cases to trial each year. 4.2 SFO prosecutions are usually followed up with confiscation proceedings which can lead to substantial orders against defendants. For instance, Saghir Afzal and Ian McGarry, who were jailed in June 2011 after admitting to defrauding several institutions, have been ordered to pay £29.3 million and £1.6 million respectively. The SFO assists HM Courts & Tribunals Service in enforcing confiscation orders by, for example, triggering default sentences and appointing enforcement receivers to realise known assets. However, in common with other agencies, the SFO experiences practical difficulties in enforcing some of the largest confiscation orders, especially those where the Court finds that a defendant has failed to discharge the burden on him to explain the whereabouts of his benefit from criminal conduct (so called “hidden assets” cases). In the aforementioned case of Afzal (who has appealed his conviction), the Court based its findings on large sums previously transferred to Pakistan, and it will in practice be difficult to enforce this order in the absence of co- operation from the defendant. This is an area where the SFO, and no doubt the other agencies involved, would welcome reform so that unpaid orders do not remain outstanding indefinitely. 4.3 In some cases, the SFO has used its civil recovery powers to recover funds through the High Court. These powers became available to the Director of the SFO in 2008, and their use is subject to guidance published by the Attorney General. Examples of this approach include: — BAE Systems plc agreeing to pay £29.5 million in voluntary reparations for education in Tanzania. The payment followed a settlement between BAE Systems plc and the SFO agreed in 2010. — Macmillan Publishers Limited paid £11 million in July 2011 in settlement of a case involving their African activities. — Oxford Publishing Limited has paid £1.9 million pursuant to a civil settlement in 2012. Justice Committee: Evidence Ev 13
4.4 In aggregate, recent SFO work has resulted in the removal of substantial sums from defendants and others involved in SFO investigations. In the financial year 2011–12 over £50 million of criminal assets were recovered, and in 2010–11 the total was £42.5 million. These outcomes should be assessed in context as both years’ figures reflect certain exceptional case outcomes as follows: — in 2010–11, £32 million was returned directly to the victims of a pension fraud case with the help of the Swiss authorities prior to the relevant criminal case subsequently brought by the SFO; and — in 2011–12, £29.5 million of the total was the sum paid by BAE Systems plc, and a further £11 million was paid by Macmillan Publishers Ltd, as described above. 4.5 The SFO has broken new ground in using anti-money laundering legislation to claw back shareholder dividends generated from unlawful activities. The SFO has also been at the forefront of the Government’s consultation on Deferred Prosecution Agreements which, if enacted, will provide a valuable additional tool in the fight against corporate economic crime. 4.6 A problem is that it is impossible to write off orders which cannot be enforced, and thus the figure of unrecovered assets tends to rise steadily.
Collaboration with National and International Partners 5.1 The International Assistance Unit of the Serious Fraud Office (SFO) was created in 1995. The Unit’s aim is: To provide fast effective assistance to foreign states who are investigating serious/complex frauds in which people or companies based in the UK are victims or of which people or companies based in the UK are suspected perpetrators. This enables the SFO to access reciprocal assistance for its own investigations through the contacts and good working relationships which the unit develops. 5.2 The Unit has five investigators and one legal adviser dealing exclusively with incoming mutual legal assistance (MLA) work. In requests for restraint and confiscation, the unit is assisted by a lawyer in the SFO’s Proceeds of Crime Unit. The Unit also provides advice and support to the domestic investigation teams in relation to their outgoing MLA requests.
Stakeholders and Partners 5.3 The Unit works in collaboration with other UK stakeholders such as the Metropolitan and City of London Police, the Crown Prosecution Service, Her Majesty’s Revenue and Customs, the Financial Services Authority, Her Majesty’s Court Service, the Serious Organised Crime Agency and the United Kingdom Central Authority. 5.4 It also works closely with European institutions such as Eurojust, Olaf (the European Anti-Fraud Office) and Europol, and is represented on the European Judicial Network which facilitates co-operation between Member States of the European Union. It has participated and supported Department for Business, Innovation and Skills representation at meetings of the Anti-Bribery Working Group of the Organisation for Economic Co-operation and Development (OECD).
Results and Statistics 5.5 During the last five years the International Assistance Unit at the SFO has formally assisted over 225 overseas criminal investigations from 55 jurisdictions. The table below shows the number of countries assisted and new requests received by the Unit since 2003–04: 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 Countries assisted 30 31 23 24 30 41 45 45 34 New requests 30 35 41 53 45 55 48 40 45 referred Ev 14 Justice Committee: Evidence
5.6 The map below shows the countries assisted by the SFO since 2003.
EUROPE NORTH AND SOUTH AMERICA AFRICA THE MIDDLE EAST AND ASIA Argentina, Bolivia, Canada, Chile, Austria, Belgium, Bosnia Herzogovina Costa Rica, Grenada, Jamaica, Cameroon, Ghana, Kenya, Bahrain, India, Iran, Israel, Bulgaria, Cyprus, Czech Republic, Mexico, Peru, Turks and Caicos, Nigeria, Namibia, Sierra Kazakhstan, Pakistan Denmark, Finland, France, Germany, USA; Leone, South Africa, Gibraltar, Greece, Guernsey, Hungary, Tanzania, Zambia, Zimbabwe; Iceland, Ireland, Isle of Man, Italy, Jersey, ASIA PACIFIC Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Norway, Australia, Hong Kong, Indonesia, Poland, Portugal, Romania, Russia, New Zealand. Slovakia, Spain, Sweden, Switzerland, The Netherlands, Turkey, Ukraine;
5.7 Since 2007, requests relating to corruption and bribery offences have increased. Between 2007 and 2012 the SFO assisted in 63 corruption cases, 50% of which were referred from Europe. 5.8 Requests received from Africa all involved elements of corruption. The most significant changes to the SFO’s role in MLA during the last five years are in its commitment to developing countries in Africa. In partnership with DFID and the FCO, investigative training has been provided to lawyers, investigators and Police in countries such as Ghana, Nigeria, Uganda and Zambia.
An Assessment of the Adequacy of Existing Powers, including under the Fraud Act 2006 and the Bribery Act 2010 6.1 The SFO derives its powers from various pieces of legislation in addition to those about which the Committee has asked. As well as the Criminal Justice Act 1987, other important legislation relating to the SFO includes The Regulation of Investigatory Powers Act (2000), The Proceeds of Crime Act (2002), The Serious Organised Crime and Police Act (2005) and The Serious Crime Act (2007). 6.2 There is a wide range of powers and investigative techniques tools available to the SFO. The SFO has to be alert to new types of fraud which may emerge that may require different powers or legislation. Deferred Prosecution Agreements (please see also elsewhere) and SOCPA powers in particular will assist. 6.3 The SFO recognises that the global financial crisis has focused attention on the behaviour of banks and bankers, and that there is a heightened anxiety about whether or not individuals and corporations are being properly held to account for their actions.
The Fraud Act (2006) 6.4 The Fraud Act (2006) applies to offences committed on or after 15 January 2007. It introduced three new core fraud offences, which replaced deception offences described by the Theft Act. 6.5 An important change brought about by the Act was that offenders have to dishonestly make a fraudulent representation, or abuse trust, or fail to disclose information with the intent to cause a loss or gain. The new offences do not require the prosecution to prove that there was an actual victim or that anyone in particular was deceived (although this may still be relevant in establishing dishonesty). 6.6 Six individuals were convicted in SFO cases for offences under the Fraud Act in 2011–12. 6.7 The SFO will always use the most appropriate legislation for the circumstances of a case. The Ministry of Justice, in a memorandum submitted to this Committee in June, commented that “the common law offence of conspiracy to defraud is thought still to be essential”. The SFO agrees. Justice Committee: Evidence Ev 15
The Bribery Act (2010) 6.8 There are extremely high expectations of the Bribery Act, reflected in the number of Parliamentary Questions that have been asked about it. It is important to recognise that the Act is not retrospective: it applies only to offences committed after the Act came into force on 1 July 2011. 6.9 Shortly after the Act came in, it was clear that many companies were taking urgent steps to ensure that they complied with it. The SFO did not believe that it was in the public interest urgently to pursue such companies. However, the SFO has recently re-stated its policy and made clear that it considers there to be no excuse for non-compliance. 6.10 We recognise that there is considerable public interest in this area, and the SFO has been asked on several occasions how many cases are under investigation under the new Bribery Act. At the investigative stage, it may be clear that criminal offences have been committed, but the charge will be decided at a later stage when all the evidence has been collected. 6.11 The SFO continues to bring cases under the old bribery legislation.
Deferred Prosecution Agreements (DPAs) 6.12 The SFO fully supports the proposals to introduce DPAs. They would provide a constructive option for prosecutors dealing with corporates in appropriate circumstances. They are more flexible than the present instruments of fines or “winding up” arrangements. 6.13 Under a DPA, the prosecutor would lay, but would not immediately proceed with, criminal charges pending successful compliance with agreed terms and conditions stated in the DPA. 6.14 The terms and conditions might include: — a financial penalty; — costs; — restitution for victims; — disgorgement of the profits of wrongdoing; and — implementation of reforming measures. 6.15 The key benefits could be: — the avoidance of a lengthy investigation and trial; — the avoidance of a conviction and consequent debarment from competition for certain contracts; — supporting public confidence; — providing restitution; — offering flexibility; and — allowing reform and compliance exercises to keep functioning. 6.16 Whilst a DPA is not a sentence upon conviction for an offence, a DPA might fulfil some or all of the purposes of a sentence, that is: — punishment; — reduction of crime (including by deterrence); — rehabilitation of offenders; — public protection; and — restitution to victims.
LIBOR and the Financial Crisis 6.17 A number of press reports and exchanges in Parliament have commented on the adequacy of powers in relation to LIBOR. The SFO Director has confirmed that he is satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of LIBOR and related interest rates. 6.18 Nonetheless, the SFO welcomes the recommendations of the Wheatley Review that a new offence relating to the manipulation of LIBOR and other benchmarks be introduced. 6.19 The SFO’s investigation into conduct related to LIBOR was announced on 6 July. It involves a number of financial institutions and is on-going. 6.20 The SFO welcomes the increased attention being paid to the issue of serious fraud in the context of the financial crisis. The public perception of bankers and financial institutions has changed. This means organisations like the SFO are also under heightened scrutiny and must be seen to be delivering. 6.21 While prosecution will usually be the outcome of an SFO investigation, it will not always be possible, practical or pragmatic to prosecute. If prosecution is not in the public interest, then (prior to the possible Ev 16 Justice Committee: Evidence
introduction of DPAs) the SFO will, where appropriate, seek a civil settlement. The SFO will respond to the OECD’s call for maximum possible transparency and explanation where it agrees to civil settlements. 6.22 Civil recovery can be an effective option when prosecution is not appropriate. It is not a risk-free exercise as it involves potentially lengthy litigation at the High Court and an exposure to costs against the SFO. 6.23 In cases where a civil settlement is agreed, information about corporations’ wrong-doing is published and they are required to make appropriate monetary restitution.
Experience of Inspection by HMCPSI 7.1 The SFO was inspected by Her Majesty’s Crown Prosecution Service Inspectorate (HMCPSI) in spring 2012. Following an initial invitation from the SFO’s previous Director, Richard Alderman, the Attorney General (AG) asked HMCPSI to review the SFO’s casework, as well as some broader issues such as its processes for accepting cases. David Green, as the incoming Director of the SFO, welcomed the review. The report has not yet been delivered to the SFO or AG. 7.2 The purpose of the review is to provide information to the AG and the Director of the SFO about the effectiveness of the SFO, in order to assess future priorities and drive forward continuing improvement. The process is intended to be constructive, and relevant to current issues, but not a direct response to on-going or recent cases. 7.3 The focus of the review is to assess the quality and efficiency of the SFO’s casework and thus complement previous reviews which have focused on management processes and organisational structure. The review includes consideration of: — corporate structures and processes which support casework; and — strategic decision making, investigation, prosecution and victim/witness care. 7.4 A familiarisation visit in February 2012 was used as an opportunity to inform staff about the review and its purpose. 7.5 The inspection was conducted by a team from HMCPSI of which Michael Fuller, the Chief Inspector, had oversight. The team was made up of lawyers and individuals from a range of backgrounds, together with forensic accountancy and investigative capability. 7.6 An agreed framework was drawn up before the inspection went ahead, addressing all aspects of the review and the manner in which it would be carried out. 7.7 The Inspection focused on systems, rather than individuals or particular cases. A large amount of casework was scrutinised. The team also spoke to front line workers, and focus groups were arranged to seek the views of a range of investigative staff. 7.8 All members of the SFO were actively and positively engaged, particularly as they were presented with the opportunity to set out their own thoughts through focus groups and inclusive initiatives during the process. A series of questions and scenarios were posed to members of the Board as well as Case Managers, which tested their own understanding and actions in terms of handling cases. HMCPSI will feed back to everyone in relation to improvement and development of the SFO’s operational practice and procedures. 7.9 A final report will be given to the SFO in autumn 2012. The SFO will consider its recommendations. The Director has invited the Inspectorate to return so that they can review the action SFO has taken.
Progress in Implementing Relevant Recommendations of the De Grazia and Cabinet Office Reviews Jessica De Grazia review 8.1 Following on from a series of cases that had failed during prosecution, Jessica De Grazia was commissioned in 2008 by the then Attorney General to review the SFO in relation to two US agencies: the US Attorney’s Office for the Southern District of New York, a federal prosecution agency; and the Manhattan District of Attorney’s Office, a local prosecutor’s office, two well-established bodies prosecuting serious and complex economic crime; and to offer recommendations to improve the SFO’s performance. 8.2 The review contained 34 recommendations which focused on all aspects of operations, capability, leadership, governance and external relationships. The review also considered whether the SFO was still viable as a combined investigation and prosecution agency. 8.3 When Richard Alderman was appointed as Director in mid-2008, he embarked on a programme of change for the SFO, aiming to transform the organisation into a modern, sophisticated anti-fraud agency with much-improved success rates and a reduction in time to investigate and prosecute cases. 8.4 The recommendation to recruit specialist senior investigators resulted in the establishment of the Chief Investigator role. Justice Committee: Evidence Ev 17
8.5 A great deal of work on case acceptance and review processes was set in train. All policies, procedures, operational handbooks and manuals were revised. Risk assessments and operational orders for deployment of staff were introduced. This work was completed working jointly with other law enforcement and criminal justice partners. 8.6 The issues raised by the De Grazia review will be revisited when the HMCPSI report is received.
Capability Review (CR) 8.7 In response to the De Grazia review, the SFO invested heavily in a transformation programme. During this transitional period, the SFO invited a Capability Review Team to assess its current position and explore SFO’s ability to function as a standalone non-ministerial government department. 8.8 The CR Team included Sir David Bell (Chairman of the Financial Times), Phil Collins (Director of the Office of Fair Trading), and Mike Eland (Director General, Enforcement and Compliance at HMRC). The team was positive about the transformation that had taken place in the SFO, and thought that the SFO had the correct vision and was on track to deliver impressive and improved results. 8.9 The review focused on a number of core areas relating to capability: strategy, leadership, and delivery. The CR team recommended that the SFO: — continued to promote to staff the need for change in order to help them understand their role in implementing the organisation’s strategy; — further streamlined decision-making and made it more inclusive; and — capitalised on its significant achievements to date by refining and implementing its people and culture plans. 8.10 The SFO was praised for significant transformation progress, but more work needed to be carried out in relation to wider engagement and collaboration with other cross-Whitehall departments. 8.11 The organisation was invited to explore all means of enhancing engagement with staff. At the time staff felt undervalued and not recognised for their efforts and commitment. In addition, the SFO was invited to revisit training and development and performance management; the HMCPSI report will require a further revisiting of these matters by the Management Board of the SFO.
Implications of the Outcome of the Tchenguiz Case for Organisational Processes 9.1 The SFO has conceded that serious mistakes were made with the application for search warrants in this case. It acknowledged the reasoned tone of the judicial review judgment and the helpful comments it contained. The judgment highlighted the importance of quality and accuracy in the drafting of the Information supporting warrant applications and further underscores the importance of the new Director’s emphasis on quality being applied at every level of the SFO’s casework. 9.2 The SFO asked a senior lawyer to review the case internally. In her evidence to the judicial review, she set out two lessons which the SFO should learn: — the need for the Information to be supported by a schedule so that it was clear what underlying material justified the statement made; and — the need to see that the Information was checked and assured by those with sufficient expertise and experience. 9.3 The Court additionally set out further lessons that needed to be learnt and these will also be reflected in future practice. 9.4 Work is presently underway to establish a rolling programme of case review panels which will ensure that every case receives critical scrutiny and independent challenge from senior staff at key points in its lifecycle. 9.5 The Director has also established a new Quality Assurance team, also headed by a Senior Civil Servant. The team’s work will include monitoring internal processes to ensure that they remain responsive and fit for purpose.
A Comment on Funding and Resources Following Judicial Criticisms in the Tchenguiz Case and Implications for the LIBOR Investigation 9.6 The judgment commented on the resources required for investigating and prosecuting serious fraud in a postscript. The postscript uses the lessons described in the judgement to inform broader comments about the difficulties investigating and prosecuting serious fraud offences. 9.7 It should be clear that the outcome of this particular case does not reflect the quality of the rest of the SFO’s work. However, the SFO welcomes the added context which the postscript gives. The SFO believes it is important to consider funding and resources in a broader context, recognising that the SFO is one part of the Government’s overall strategy for tackling fraud. Ev 18 Justice Committee: Evidence
9.8 First, it needs to be recognised that prosecuting serious fraud can give rise to significant challenges. Cases are often complex, both legally and factually. Defendants may have vast resources of capital which they can draw on to fund their defence. The SFO has to focus on top-drawer fraud. By their nature, these are the most difficult cases—those that no one else can investigate or prosecute. 9.9 Second, SFO cases tend to be high profile; they represent a minuscule proportion of the investigations or prosecutions taking place in the criminal justice system but receive a disproportionate amount of media attention. 9.10 Third, no other organisation in the country both investigates and prosecutes cases of this nature. The investigatory process can often be extremely long, and, just as with any other investigatory authority, a significant number of investigations will not lead to criminal charges. 9.11 Certain cases (such as the recent LIBOR investigation) have the capacity to require additional resources at short notice. That means that the SFO’s funding needs to be kept under constant review so that it remains responsive. The Prime Minister has previously made clear that if the SFO needs more resources, they will be provided. 9.12 It is also helpful to note that the SFO has consistently improved and has been providing more for less. Very substantial sums of money have been recovered from the proceeds of crime, as described above. 9.13 Nonetheless, in the light of the Judicial Review, it is clear that there remains significant room to improve the quality of work undertaken by the SFO. The Director has taken steps described above (3.7–3.9) to ensure that quality is built in at every stage of the SFO’s casework, and he has been clear that the SFO has to demonstrate that it is worth its funding. October 2012
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