Is the Serious Fraud Office shying away from prosecuting big companies?
Following budget and staff cuts at the SFO, some British companies are too big to prosecute for fraud
Fraud is one of the few industries that flourishes in a recession. UK courts have already tried 160 cases of fraud with a value of over £100,000 in the first six months of 2009, and if this continues, they'll be trying cases with a total value of over £1.2bn this year, the largest tally ever.
But just as our criminal justice system could be expected to be reinforcing its policing of white-collar crime, the agency which deals with it, the Serious Fraud Office (SFO) has more or less given up tackling the most complicated cases.
In a devastating analysis of the SFO's performance, BBC reporter Gerry Northam ended up grilling the agency's new director on his File on 4 show, and identified a serious flaw in one of his boasts.
Just as we should be cracking down on fraud, the SFO has more or less given up
A year ago - according to Jessica de Grazia, a former New York prosecutor hired by the government to conduct a review - the SFO was suffering from a "complaint culture", "low morale" and "a skills shortage".
At this stage, Richard Alderman, a barrister from HM Revenue and Customs, was appointed as director, with the mandate to modernise the agency or prepare it to be disbanded.
"When I came into this place I looked at what was available to me in terms of senior management," he said, "and I took the view that for a modern organisation it wasn't what I would expect."
So, after a violent shake-up of personnel, 90 per cent of senior managers, and almost a third of the total staff left, many of them with highly generous pay-offs.
Since taking over, Alderman has quickly guided the SFO into following the American example. The organisation encourages potential whistleblowers to phone a hotline, it meets with City bosses to instil a culture of greater integrity and, most radically, it tries to strike as many plea bargains as possible.
"The more we adopt a consensual approach," announced the director, "the happier I will be." But whilst some of these measures make sense, it does appear that the organisation has drastically re-cast itself as a social worker for the financial sector, rather than its policeman.
This was exemplified by an extraordinary out-of-court settlement with the construction giant Balfour Beatty. The company was alleged to have paid out £5m in bribes through a subsidiary company to an Egyptian businessman, over a contract for the Bibliotheca Alexandrina, a reconstruction of one of the seven wonders of the ancient world. In what was generally considered a remarkably lenient deal, Balfour Beatty were fined only £2.25m.
There are many who believe this approach is quite wrong. Ros Wright, a successful previous director of the SFO, told the File on 4 investigation: "What Alderman is doing is looking for any possibility of an alternative to prosecution. I think it is a fairly worrying trend." Wright points out that the Americans, even when a civil agreement takes place, make sure that heads roll.
After six years, raids on 30 properties and a £25m budget, the case collapsed
One reason why the SFO shies away from confronting fraudsters in court is their recent history of high-profile failure. The agency was forced to abandon its investigation into a £43bn arms deal between BAE Systems and Saudi Arabia in 2006 after "irresistible pressure" from Tony Blair.
Even worse was the failure of Operation Holbein, a flagship case against a cartel of pharmaceutical companies who were accused of colluding to fix the prices of generic drugs that they sold to the NHS.
After six years, raids on 30 houses and offices, and a special, separate £25m budget, the case collapsed, embarrassingly, on a legal technicality last December.
Alderman believes that the SFO should be wary of taking on such ambitious work in the future, and said of Operation Holbein: "Fourteen defendants and a summary of the case that takes 630 pages? The case was too big."
So, with its budget cut from £51m to £44m this year, the SFO looks likely to shy away from prosecuting more expensive 'blockbuster' cases like these for the foreseeable future.
Moreover, now that it has lost many of its experienced lawyers, there is concern that the SFO no longer has the expertise for complicated cases and that professional criminals will be able to get away with lucrative crimes.
Another problem is that historically the SFO has a poor record of turning prosecutions into convictions. Over the last few years, they have only managed to convict 61 per cent of defendants, whereas in the US, some of the better prosecutors have success rates of as much as 90 per cent.
‘I don’t recognise the figures you’re quoting’
‘I’m quoting them from your annual report’
This bad hit rate sends a signal to the highly-paid lawyers who represent big firms accused of fraud that if they take on the SFO the chances are they will win.
The highlight of Radio Four's highly critical programme was when Northam confronted a defensive Alderman about these disappointing figures, and skewered him. The exchange is printed below:
Alderman: Our conviction rate, in terms of defendants, was about 78 per cent. I don't recognise the figures you’re quoting.
Northam: I'm quoting them from your annual report.
Alderman: Well our conviction rate for defendants was running at about 78 per cent.
Northam: But that's simply bad arithmetic. You had 60 defendants. This is in your own annual report, page 17. You had 60 defendants, 36 of them were found guilty - that's a conviction rate of 60 per cent.
Alderman: For defendants it was about 78 per cent and let's just say this as well.
Northam: You keep telling me that the figures I'm quoting are not right, but they're the figures from your annual report.
Alderman: We took... the key figure for me is that last year we took 18 cases to court.
Northam: But that's a different figure. I'm talking about the historic conviction rate, which you've criticised as inadequate, which is the percentage of defendants who are found guilty, and last year, that was 60 per cent, slightly lower than the historic conviction rate that you've criticized.
Alderman: No, I don't agree. I'm looking at the measure of success of the SFO.
Northam: You're looking at, what I may say, is a piece of spin. You want to change the figures, so you can put the best figure forward, but the conviction rate, which is historically criticised, remains stubbornly low.