Fraud lawyers may not admit it on the record, but the recession has been good for their business, whether they handle prosecution or defence work.
The authorities are certainly taking an overtly tougher stance. Just two weeks ago Financial Services Authority (FSA) director of enforcement Margaret Cole spoke of the FSA’s resolve to use criminal prosecution as a starting point for insider dealing cases.
Perhaps Serious Fraud Office (SFO) director Richard Alderman had this in mind at his opening address to The Lawyer’s Fraud Prosecution and Asset Recovery Conference last week. “There are various regulators who want to become prosecutors, and [when I joined the SFO] I said that the SFO was a prosecutor that wanted to become a regulator,” he told the delegates. “People thought that meant I’d send out an army of people with thousands of forms and that we’d be doing lots of outside reviews and ticking boxes.”
Since Alderman took over as SFO director in April 2008, theories have abounded as to the direction in which he is taking the agency. Certainly, his approach, which involves a rethink of how to combat globalised financial crime, has occasionally been controversial, but it is clear that his thinking has been based on a re-examination of first principles.
“I asked myself a number of questions,” he said. “What’s the scale of financial crime in this jurisdiction? How successful are the authorities in dealing with this? What’s the role of the SFO in society? How does it fit into a legal landscape that’s very different from what it was 20 years ago? What effective tools do we have? What are the relationships needed in the public and private sector in dealing with financial crime?”
Some of this soul-searching was occasioned by the de Grazia report into the SFO, commissioned by Alderman’s predecessor Robert Wardle and former Attorney-General Peter Goldsmith. The contrast between the success of the New York District Attorney’s Office and the perceived failings of the SFO still rankles with UK prosecutors.
“The conclusion was that the SFO fell short of its counterparts in the US,” Alderman noted. “But the failings within the SFO were as much to do with the UK criminal justice system compared with the US system.”
A captive audience full of fraud lawyers was the best possible opportunity for Alderman to clarify his approach. Indeed, the fact that the speech scheduled straight after his keynote address was given by Alberto Arevalo, Securities and Exchange Commission assistant director of international enforcement in the office of international affairs, neatly underlined the increasing globalisation and complexity of the issue.
“Some people think the SFO is going soft on financial crime,” Alderman said. “The old SFO had one approach – wait for the crime to be committed and reported to the police, the police would refer it to the SFO, which would spend years on a case to get a prosecution. If that’s the answer to financial crime, it’s not my answer. The education and disruption agenda is very important to me.”
So far, so good. But the meat of the session was to be found in the particulars. Inevitably, the most animated discussion prompted by Alderman’s speech was over civil recovery orders, which represent the most clear example of the SFO’s newfound pragmatism. The Balfour Beatty order in October 2008 is a case in point. The company agreed to pay £2.25m and it was the first time that civil proceedings had been used to recover property obtained unlawfully. There was no prosecution.
Writing in The Lawyer last week (14 September) David Corker, a partner at fraud specialist Corker Binning, expressed a common reaction when he argued: “There are many who regard it as a very poor outcome for the SFO and the public interest. The fine was paltry in the context of Balfour Beatty’s turnover and the scale of the alleged corruption.”
BCL Burton Copeland partner Harry Travers asked what several delegates must have been thinking: where does the money obtained from civil recovery orders go? If it goes to the SFO, does that affect the agency’s judgement as to which companies to pursue? Does it lead to a selective prosecution policy?
Alderman replied that the money goes to the Treasury and said the SFO can bid for a recycled fund. “When we agreed a civil recovery order in respect of Balfour Beatty last autumn, people said the SFO would conduct civil recovery proceedings and not prosecute,” he rejoined. “But you can’t extrapolate from a particular.” On that, at least, many delegates agreed.
Corporate criminal liability
Will the forthcoming Law Commission consultation move the debate around corporate criminal liability on? Alderman would clearly welcome a change, singling it out as a law “fashioned for another era and not appropriate to the modern globalised economy”.
“The US has a very different approach,” he added. “Employees can make a corporate criminally liable if they’re individually carrying out criminal activities, but we have to look for the controlling mind and take it up to board level.
“That difference is overlooked when people point to the outstanding results achieved by our US counterpart.”