White collar crime isn't paying

The mega fraud trials of recent years have failed to net results. Grania Langdon-Down examines what can be done

Five years ago, the first Guinness trial raised the curtain on a series of expensive marathon fraud trials intended to serve as a high-profile crackdown on the commercial excesses of the 1980s.

Today, the latest in the line, involving Kevin and Ian Maxwell, is into the second month of an estimated six-month trial which could cost the taxpayer up to £25 million.

In between, a series of headline cases have resulted in intense scrutiny of the work of the Serious Fraud Office, which began investigating and prosecuting alleged major fraud in 1988, and of the huge sums being paid to legally-aided defendants.

The length and complexity of the cases has caused even the judges to rebel.

Three years ago, the trial- weary Blue Arrow judge Mr Justice McKinnon said: “Even if my few general words help in seeing that no defendant, juror or judge ever has to face what we have had to face, then these few words – deeply felt by me – will truly be worth their weight in gold.”

The SFO, stung by criticism that it was using a “scatter gun” approach to charges, loading them up in the hope that some would stick, has since pared down indictments.

Other suggestions for capping the cost and length of fraud trials include formalised plea-bargaining, replacing juries with panels of experts and decriminalisation.

However, despite a clamp-down on legal aid, specialist white collar crime lawyers warn the days of the mega fraud trials are far from over.

The SFO, which has an annual budget of £18 million, is currently investigating about 50 cases, most involving at least £5 million.

Since 1988, it has prosecuted in 138 trials of 312 defendants. Three quarters ended with at least one conviction, although its overall conviction rate is around 62 per cent.

In April, the SFO was reprieved from a merger with the Crown Prosecution Service's Fraud Investigation Group by the Attorney General Sir Nicholas Lyell.

Despite being dubbed the “seriously flawed office” over its handling of several high-profile cases, Sir Nicholas said much of the criticism was “misguided”.

Revised criteria are likely to see more cases being dealt with by the SFO after its cut-off point of frauds allegedly involving £5 million or more was reduced to £1 million.

But it remains on the defensive after suffering a series of embarrassing blows to its reputation. It failed to get convictions in two Guinness trials, and, in the Blue Arrow case, the convictions following a year-long, £40 million trial, were quashed on appeal.

Last October, George Walker, former head of the Brent Walker leisure group, was acquitted of conspiracy to falsify accounts after a five-month trial estimated to have run up a £40 million bill, although former finance chief Wilfred Aquilina was convicted of false accounting.

Then in December, the Home Office referred the original Guinness convictions of Ernest Saunders and his three co-defendants – the SFO's first big success – to the Appeal Court over the non-disclosure of information to the defence.

The row over the Levitt case also rumbles on with SFO director George Staple being recalled before the Treasury Select Committee after he apologised for giving inaccurate answers about the trial.

There are mixed views about the SFO's effectiveness among specialist fraud lawyers.

Anthony Scrivener QC, the former Bar Council chairman who was leading the defence team for Asil Nadir before the former Polly Peck chairman fled the country, said: “I would undoubtedly abolish the SFO and merge it with the CPS. The pay scales and prospects have made it difficult to attract high quality people into the SFO.”

However, Monty Raphael, senior partner with Peters & Peters who has been involved in the Guinness, Barlow Clowes, Blue Arrow, BCCI and Maxwell cases, says the SFO could only be as effective as it was set up to be.

“I am in favour of a much bigger SFO. What Roskill had in mind in 1986 was an agency which would prosecute all serious fraud, not just police cases but also Customs and Excise, Inland Revenue, DTI. But turf wars within government departments prevented a single body being created.”

He adds it is impossible to evaluate the true effectiveness of the SFO, given the two recent inquiries were kept secret.

Stephenson Harwood partner Tony Woodcock, argues: “Much of the SFO's bad press is unjustified. Ten years ago, these sorts of cases were simply not being prosecuted.”

John Wood, the first SFO director who went on to spend four years as Director of Public Prosecutions in Hong Kong, maintains it is vital to have a specialist fraud unit. He adds: “The proposition that you are not doing well unless you win the case is wrong.”

Tough measures to plug legal aid loopholes which had enabled people to enjoy affluent lifestyles while running up huge bills on the public purse were introduced by Lord Mackay in April.

-owever, the Maxwell trial judge Mr Justice Phillips made it clear to the jury at the outset that the decision to grant the four defendants legal aid was justified.

The furore over legal aid for people who are apparently wealthy is dismissed by defence lawyers as a smokescreen to enable the Government to cut the legal aid budget.

Partner Stephen Gilchrist, of Gilchrists, says: “It is an issue of principle that if the might of the State is being being brought down on individuals, it is only right that they have the ability to defend themselves.

“Prosecutions can take years to come to court and involve zillions of pieces of paper which defendants have to deal with. You can't complain about how much they are spending without looking at how much the other side is spending.

“One idea could be a public defenders office with lawyers on salaries but the Government just keeps tinkering with the system rather than debating fundamental changes.”

Under existing rules, the costs of legally aided defendants who are acquitted still come out of the legal aid fund.

Scrivener says: “Legal aid can never win. Even though the money essentially comes from the same source, if defence costs were down to the prosecution, they would take a lot more care in bringing cases.”

Raphael adds that every penny they claimed in legal aid was rigorously scrutinised by government officials. “You cannot have an efficient and fair system on the cheap.

“If you are going to mount large scale prosecutions in the public and political interest to show you are prepared to tackle fraud robustly, then you have to ensure that both the prosecution and defence are properly resourced because few individuals could find the millions needed to defend themselves.”

He says the alternative was to have defendants representing themselves, which put huge pressures on the individual's health, as happened with Guinness defendant Roger Seelig, and the running of the case.

There was little support among fraud lawyers for removing juries in favour of a High Court judge supported by a panel of experts. Since jurors were laypeople, it forced both sides to ensure issues were put simply and clearly.

One measure, understood to be supported by the SFO, is for a formalised system of plea bargaining.

Robert Seabrook QC, immediate past Bar Council chair, headed a working party report on 'The efficient disposal of business in the Crown Court'.

It recommended a system of sentence canvassing, taken up by the Royal Commission, in which the defence could approach the judge to see what a likely sentence would be, given a guilty plea.

Seabrook said that if the initiative came from the defence, prosecuting machinery could not be used to pressurise someone into pleading guilty, even if innocent, rather than risk a higher sentence.

“In America, it is widely reckoned that 90 per cent of all indictable cases are disposed of by plea bargain. We have something akin to it with the prosecution regularly negotiating with the defence over whether they are prepared to accept a plea to a lower charge.

“My own strong belief is there are many cases needlessly fought at great cost,” he says.

However, retired appeal judge Sir Frederick Lawton robustly opposes any formalised system. “Sentences should not be negotiable.”

Other proposals for dealing with fraud include making them civil rather than criminal offences, which would require a lower standard of proof, or making them the responsibility of the regulatory authorities, with sanctions including fines and a ban on holding a particular position.

Raphael is opposed to decriminalisation as “socially divisive”, creating one law for the rich and another for the poor.

“The City has a reputation to maintain and unless you have the right forensic Hoover to clean it up you will send out the wrong signals.”

One solution suggested by Roger Smith, director of the Legal Action Group, was for the costs of dealing with serious fraud to be regarded as part of the City's regulatory mechanisms. Its regulators could impose subscriptions at a high enough level to meet the costs of both prosecution and defence, giving the City considerable incentive to prevent it happening in the first place.

In Hong Kong, the government has tried putting out complex prosecutions to tender among private sector firms – including Herbert Smith's Hong Kong office – but the policy has run into public criticism over the cost involved.

Professor Michael Levi of the University of Wales, Cardiff, an expert in white collar crime, argues the future of the mega fraud trial will be determined more by shifts in the economy and City and banking regulations than anything else.

Grania Langdon-Down is a freelance journalist.