10 March 2009
When someone of the standing of Sir Ken Macdonald QC, the immediate past Director of Public Prosecutions, goes on record criticising the country’s record on prosecuting fraud and, in particular, the effectiveness of both the Serious Fraud Office (SFO) and the Financial Service Authority (FSA), his concerns clearly need to be looked at carefully. In the post credit crunch world his point that fraudulent bankers should be dealt with no less aggressively than street muggers is also likely to strike a resonant chord with the public at large. But would the position in fact be any better through the creation of a single enforcement agency that merges the SFO and FSA as Sir Ken suggests?
The current trend in law enforcement is to look increasingly at the American model. However, even in the US, which is generally perceived to take a tougher line on fraud, the Department of Justice and Securities and Exchange Commission, which are broadly mirrored by the SFO and FSA respectively, operate as single and independently powerful bodies. There is no suggestion that the US considers that its fight against fraud would be enhanced through the merger of these bodies.
Even were there to be a compelling argument for the suggested merger, the practical difficulties of achieving fusion should not be understated. The SFO is a Government body, whereas the FSA is an independent organisation funded by the financial services industry. As such they have significantly different cultures and working practices, and it is often far harder in practice to combine enforcement agencies than the theory might have indicated. Even if one ignores that likely difficulty, and assumes that both bodies would welcome becoming one, there would still need to be significant political impetus to reach that stage. Whilst the Government is however always willing to talk a tough line on crime its track record in implementing changes is questionable.
In the context of business crime, a number of the recommendations of the 2006 Fraud review are still to be adopted, most obviously the creation of a single Fraud Court. That project, it seems, is on the backburner for the indefinite future. Equally the way in which the Corruption Bill continues to limp through the legislative process, despite continued and renewed criticism from the Organisation for Economic Cooperation and Development, does the Government no credit. The common feature to these woes, and the failings in the wider criminal justice system, is the ever present lack of resources. If the Government will not prioritise these measures which, in the case of the Corruption Bill, was first proposed in 1997, what realistic prospect is there of the Government funding the new agency advocated by Sir Ken?
Sir Ken is though right to criticise the current landscape of business crime enforcement and to predict that the public’s attitude will continue to harden if improvements are not forthcoming. In this respect, both the SFO and the FSA have made clear their intention to increase greatly their efforts to combat crimes such as corruption and insider dealing, and will inevitably look to deploy new immunity provisions to entice whistleblowers to come forward and reveal such activity. Companies, and their senior employees, are slowly getting used to the new scrutiny in which they now operate, and whether there is one agency or two it is clear that the there is now a far greater focus on detecting, and prosecuting, crime committed in the world of business. Companies therefore need compliance systems that specifically address the risk of potential criminal liability; those that do not may find themselves held out as an example of how the enforcement community is beating the corporate criminal.
Jeremy Summers, Partner, Business and Regulatory Investigations Department at Russell Jones & Walker