SFO needs to bounce back and catch some big ones

Britain's fraud-busters have a battered reputation, a shoestring budget and a brain drain. So James Moore asks: What next?

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The Independent Online

Once again the Serious Fraud Office (SFO) has egg all over its face. Just days after announcing a new hardline stance, with tough new terms of business which will see an end to the engagement with big corporates preferred by Richard Alderman, David Green's regime had to announce that a three-year-long investigation into property tycoon Robert Tchenguiz had ended in failure.

If Mr Green thought this would represent a clearing of house, he may have another think coming: Mr Tchenguiz is now planning to sue for £100m over the conduct of a case that saw Britain's chief fraud-busting agency engaging in unlawful searches and accused of incompetence by a judge.

Mr Tchenguiz may be lucky to get that sort of sum, assuming a court is willing to indulge in the US concept of punitive damages.

But even a six-figure sum will damage an organisation that is charged with taking on the most complex and difficult cases on a shoestring budget. Not to mention the costs that might be incurred if the SFO opts to fight. The SFO is supposed to do its work on approximately £32m and a Home Office that is cutting across the board isn't likely to make any more available. Particularly given the SFO's record.

To put the figure in perspective the Financial Services Authority (FSA), focused solely on the financial centre as opposed to all of corporate Britain, has more than double that – £75.4m – set aside for its enforcement activities.

Of course, the latter gets its money from regulated firms, who have to either pay up or ship out of the City of London. Its investigation costs are also covered by the fines it levies. The SFO has to make do. So is the new "get tough" stance little more than bravado?

Michael Roberts, a partner at City law firm Hogan Lovells, says of the SFO: "From my perspective, there is a strong element of form over substance. Richard Alderman was more willing to engage. He wanted dialogue and consciously didn't want to look and sound like an old-fashioned prosecutor.

"What David Green is saying is that everyone needs to remember that we are a body that investigates and prosecutes crime. We're not there to give guidance, so they've dropped Alderman's focus on dialogue with corporates and his specific guidance on self-reporting. But this is more about tone than anything else, since the same factors will in practice still be taken into account."

He argues that when it comes to corruption the FSA has arguably achieved more, citing recent cases such as those in relation to the insurance brokers Aon and Willis.

"The FSA is properly resourced and has been able to recruit a different calibre of people. The problem faced by the SFO is that they have severe budget constraints, and a lot of criminal lawyers on locum contracts who don't always have the right experience. Alderman tried to address the issue with more co-operation, relying more on voluntary reporting with less stress on investigative resources. How Green is going to make good on what he wants to do with no change in resources – actually less resources – is open to question."

Mr Roberts highlights a key problem for the SFO, or any public agency requiring high-level expertise – it is expensive. In the last couple of years there have been a string of high profile departures from the SFO. Since 2011 they include Robert Amaee, the former head of the Anti-Corruption and Proceeds of Crime Units, who last year joined the London office of US law firm Covington & Burling. At about the same time Charlie Monteith, head of Assurance at the SFO, joined another US firm, White & Case. He was one of the key experts involved in the drafting of the new Bribery Act.

Kathleen Harris, head of the Fraud Business Group and head of policy, departed for Arnold & Porter. Vivian Robinson, the former general counsel, meanwhile found a home at McGuire Woods.

Such a brain drain has a brutal impact on an agency which usually finds itself dealing with hugely complex, and expensive, cases against defendants with the means to hire the very best defence lawyers (some of whom may have worked at the SFO in the past). Those lawyers are adept at blowing smoke at juries who frequently get lost in the maze of complex financial accusations and counter-accusations that are par for the course in trials that can drag on for months.

And yet, if not the SFO then who? Its work remains vital as Omar Qureshi, partner at CMS Cameron McKenna, who leads the law firm's anti-corruption practice, points out: "If you don't have the deterrent of an effective prosecutor then legislation isn't effective – fraudsters can act with impunity because they won't get caught."

He thinks, despite its challenges, that the SFO can still rebound under Mr Green: "The budget has been slashed, they have lost key people and morale is low but that doesn't mean Green can't pull it together and make it effective. That is what he is trying to do and they have 18 live corruption investigations. What I see is the SFO being a bit more careful in using what they have got and in choosing cases. What they need is two or three big successes so people believe in them again and business takes them seriously."

Of course, his colleague and fellow Cameron McKenna partner Maxine Cupitt hits the nail on the head when she says the problem with the SFO is that it has "been on the path of trying to get the two or three big successes for a decade.

"The FSA and its successor the FCA have twice the budget and a lot of backing. They are responsible purely for the financial sector and have a lot of political support and money being put in. The SFO needs to have funding and focus."

Mr Qureshi agrees and says:"They are doing their job with one hand tied behind their backs. From what we have seen so far the director general is taking a pragmatic view. If he is able to achieve success by prosecuting corporate wrong-doers then that may have a knock-on effect on their budget and resources."

In other words, the need to deliver a big success is greater than ever. Perhaps the Bribery Act will secure the big success the agency craves. A successful prosecution of traders involved in the Libor interest rate fixing scandal would also be hugely popular.

But it won't be easy.

It is also worth noting that in addition to the big four departures to mainly US law firms mentioned above there were two more recently at a more junior level. Their destination? The FSA.

Decades of debacles...


Executives were accused of ramping up the price of Guinness shares to assist its attempts to take over Distillers in the late 1980s. But a number of defendants were acquitted, and even those convicted managed to get their sentences reduced after lengthy appeals. The SFO was found to have failed to disclose some evidence to the defence and the whole shebang cost the taxpayer £30m.

Brent Walker

Tycoon George Walker was acquitted in 1994 after the SFO brought a case against him and his former finance director, Wilfred Aquilina, accusing them of inflating profits at the film division to tempt investors. Mr Aquilina got a supsended sentence. The estimated costs were £40m.

Mirror Group

Less than a month after the death of Robert Maxwell in 1991, the SFO launched an investigation into the group's accounts which eventually led to an eight-month trial of his sons Kevin and Ian. They were acquitted and so was former director Larry Trachtenberg.

BAE Systems

A corruption investigation into the company's dealings with the Saudis over the Al-Yamamah contract to supply fighter planes was dropped after the intervention of the Blair Government in 2006. Robert Wardle, the director general, has always insisted that while the decision "went against the grain" lives would otherwise have been at risk.

The Tchenguiz family and Kaupthing

A three-year investigation into tycoons Robert and Victor Tchenguiz and the failed Icelandic bank Kaupthing which financed them was dropped after a disastrous series of events including botched searches based on miscast warrants and flimsy evidence. Vincent has promised to sue for £100m.

Other cases

Include the £40m Blue Arrow case in 1992 which saw only four of 14 accused convicted, and they were cleared on appeal. Roger Levitt, a financial advisor whose clients included Michael Winner, Frederick Forsyth and Lord Coe, managed to get 62 charges whittled down to just one. The-then director general, George Staple, was saved by Parliament and accused of lying in the mid 1990s.

... and a success

Asil Nadir

To the surprise of many, and after some suggested the SFO was foolhardy to bring a case after so many years, the tycoon, Asil Nadir, was jailed for 10 years over the collapse of his Polly Peck empire. The case was reheated following his return to the UK from his native Northern Cyprus where he had lived in exile having fled before he could face justice.