Getting serious

There was a time that the Serious Fraud Office was getting a lot of stick. Now it's the one giving it. Fenella Quinn reports on the organisation that fraudsters finally fear

The recent collapse of Independent Insurance, leading to unquantifiable losses, no doubt will have put a smile on the nation's top fraudbusters' lips. After a few lean years with no Maxwell, Blue Arrow or Guinness-sized mega trials to keep it busy, this is just the sort of the thing that the Serious Fraud Office (SFO) likes to get its teeth into. Indeed, SFO director Rosalind Wright has often publicly stated that she would like her agency to get more cracks at the whip when it comes to investigating insurance fraud.
Whatever the facts pertaining to the collapse of Independent Insurance, more success for the SFO will just be the latest in a recent spate of successes. Although perhaps less high profile than its notorious losses of yesteryear, and of far less value in terms of the fraud value in question, this trend shows a massive improvement in the beleaguered office's ratings.
Bent lawyers, accountants and bankers have all been brought to book, as have Champagne con artists, peddlers of phantom claret and would-be ostrich farmers. The SFO has sent corrupt housing authorities off to prison, along with the perpetrators of a £50m gold mine fraud, two Legal Aid scammers and a daring pair of lesbian fraudsters who extracted vast amounts of cash from horsey toffs before being extradited from New Zealand to the UK. In the 2000-2001 financial year, the SFO managed a record 54 convictions, well up on previous years, and this has gone a long way to improving widely-held perceptions of the office not quite matching up to its promises.
But were all the old chestnuts – the Seriously Flawed Office, Nightmare on Elm Street and the Serious Farce Office – warranted? Absolutely not, says Robin Booth, partner of leading fraud defence firm Burton Copeland, and former head of the fraud division at the Crown Prosecution Service (CPS). “I think a lot of the criticism was understandable but unfounded,” he says. “It was based on one or two failed prosecutions.” Booth, however, concedes that things have improved dramatically since the dark days of the 1980s and early 1990s, when the SFO could not keep out of the limelight thanks to the magnitude, length and expense of the trials it was involved in, such as that of Kevin and Ian Maxwell's, which ran up bills in excess of £25m.
In fact, on inspection of the figures for the past five years (see box), the SFO has been turning over a most creditable rate of convictions. Even though in number terms there are more in the past year, the proportion of convictions to trials is fairly consistent – and impressive – currently running at around a 90 per cent conviction rate. Furthermore, the unanimous verdict among fraud defence lawyers questioned by The Lawyer is that, compared with other prosecuting authorities, the SFO is far superior in its presentation and preparation.
One fraud defender comments: “The SFO is much better resourced to produce this sort of product than Customs & Excise (C&E) or the CPS. They [C&E and the CPS] are continuing to handle cases without adequate resources to do the job properly, and this leads to some pretty awful results.”

“The FSA will be an extraordinary beast when it starts to regulate and prosecute, and it will grow. The SFO will be left wondering what kind of role it has”
Adam Cowell, Irwin Mitchell

The SFO was set up in 1988 after a fraud trials committee voiced its widespread dissatisfaction with the way in which frauds were being dealt with – or not, as was more often the case. The office and its powers were created by the Criminal Justice Act 1987. An important part of this legislation is Section 2 of the act, which among other powers confers upon the SFO the power to demand documents directly from third parties such as banks, which would normally owe a duty of confidentiality to their clients. This Section 2 power is a constant bone of contention to defence lawyers, who think it is tantamount to regarding a person under suspicion as guilty until proven innocent, which is of course contrary to basic UK legal tenets. “They have millions in their budget to do this sort of thing, plus accountants and other expert advice – they should get this information by other means,” says Rod Fletcher, a partner at Russell Jones & Walker. Fletcher says the SFO should be forced to get its information by “proper means” – through the Police and Criminal Evidence Act 1984 (Pace) or a County Court judge, for example.
The SFO investigates and prosecutes serious or complex frauds that may have been referred to the director by bodies such as the police, the Inland Revenue, Customs & Excise, the Financial Services Authority (FSA) or the Bank of England. Normally, the SFO will not investigate alleged fraud values of less than £1m, and other criteria include elements such as an international dimension, which involves 70 per cent of cases today, thus the requirement for highly specialised knowledge and public interest or concern. Most cases leading to trial involve several defendants, more than one barrister per defendant and, obviously, ream upon ream of paperwork. Once the director has accepted a case, it will have a lawyer case controller assigned to it who coordinates a multidisciplinary team that may include lawyers, accountants, police officers and administrative staff. Thanks to the nature of many frauds, other experts such as stockbrokers, computer specialists and bankers may be brought in at some stage. Of the cases under investigation, around two-thirds have a foreign dimension, and since 1995 the SFO has also been allowed to issue Section 2 orders in the UK on behalf of equivalent bodies in other countries.
So what has brought about this change in opinion of the SFO? “I think it's right to pay tribute to [former director] George Staple and those who worked with him,” says Booth. “That's when the foundations were laid.” Indeed, it takes around four to five years for a case to work through the system; therefore, changes made five years ago will be making themselves felt now. According to an SFO spokesman, these foundations meant “profound changes” at Elm Street, including the way individual case teams were appointed, as opposed to the old departmentalised system, with all-important support staff dedicated to one case rather than spread about. The introduction of early appointment of counsel to avoid unnecessary time and effort has also proved a crucial factor.
But despite its current popularity, what does the future hold for the SFO with the advent of the FSA's new powers to prosecute, due to come into force at the end of the year? Adam Cowell, company regulation partner at Irwin Mitchell, predicts an upturn in “real City fraud” prosecutions and wonders how the two authorities will interact with each other on these cases. “The FSA will be an extraordinary beast when it starts to regulate and prosecute, and it will grow,” he says. “The SFO will be left wondering what kind of role it has. All markets are moving towards civil-based penalties, so what cases will be left for the SFO?”
But according to the SFO spokesman, both it and the Treasury see a rosy and well-budgeted future for the office. “Our long-term aim is to increase our caseload from around 80 to 120 over a three to four-year period,” he claims. This increase is to be supported by a gradual increase in budget to around £21m. The budget has fallen in real terms over the past few years and sits at around £17m today. Furthermore, Booth expects the FSA to be like the Securities Investments Board (SIB) and the Bank of England in its reluctance to prosecute. “The FSA may be more active and prepared to take on larger cases, but I'd be surprised if they took on frauds anything like what the SFO deals with. They won't have the expertise for it,” he says.
However, if we want to continue to bring fraudsters to any sort of justice, perhaps it is not such a good idea to constantly vilify at every possible turn those who attempt to do just that. So far, the threat of adverse publicity has not deterred the SFO, but one day it might.
“The SFO has a problem that other prosecuting authorities don't have: where they think it's right to prosecute but they're not sure of a conviction, it's going to look like a catastrophe if they lose because of the money involved,” says Cowell. “They have to be more careful. They'll think much more carefully about the cases they take on, take more advice and have more conferences.” While he does not think the SFO will shy away from difficult cases, he does say: “It may be that there'll be a number of cases which fall into that grey area.”

Five-year comparison of active cases, trials and convictions
Year Case active at start Number of trials Number of defendants Number of defendants convicted
2000-2001 70 24 63 54
1999-2000 65 8 12 11
1998-1999 78 18 38 31
1997-1998 82 14 39 37
1996-1997 70 8 14 12