A new administration inevitably leads to changes in the structure of the machinery of Government. It’s no surprise, therefore, that the coalition Government has followed pre-General Election intentions to reform the structure for regulating financial crime and misconduct.
Doing so at the same time as looking to reform the police service – as set out in the consultation paper entitled: ‘Policing in the 21st Century: Reconnecting the Police and the People’ – is an ambitious agenda. Indeed, one may well question just how much thought has been given to the resulting consequences.
It’s equally unsurprising that successive Governments have looked at new ways of tackling new forms of crime, and the new ways of committing crime (in particular serious crimes). As business and society have become ever more sophisticated, finding the necessary resources and ways of regulating behaviour – not to say punishing bad behaviour – is always likely to be a somewhat challenging process.
Over the last 20 years or so, in both the criminal justice and financial worlds there have been a great many initiatives, often backed by legislation, intended to improve regulation and crack down on offenders.
Some would say there have been too many, particularly in the field of criminal justice where legislation has undoubtedly outstripped the capacity of professionals to keep up with it.
Structural change: the establishment of SOCA
Structural changes have included the establishment of a Serious and Organised Crime Agency (at the time triumphantly and inaccurately dubbed by the national press as ‘The British FBI’), the bringing together of the regulators into the Financial Services Authority (FSA) and the ‘beefing up’ of the Office of Fair Trading (OFT) (in particular affording it criminal powers to investigate and prosecute certain cartel activities under the Enterprise Act).
Lest I forget, there has also been the failed attempt to combine police forces in the hope of giving them greater capacity for tackling organised crime.
The fact that only two forces were seriously persuaded to consider merger with each other is significant. Even more significant is the fact that they couldn’t agree on finances which scuppered even that somewhat unambitious proposal.
All things considered, then, what is intended by the Government’s new proposals, how will they work and are they likely to be successful?
The Economic Crime Agency
The establishment of an Economic Crime Agency follows on from the decision to transfer part of the FSA’s supervisory functions to the Bank of England in the wake of our credit crunch disaster.
Quite where the responsibility for supervision should rest is outside the scope of this article. Probably, there’s no simple solution of ‘Yes’ or ‘No’.
What remains of the FSA appears to be divided into a consumer protection agency including part of the OFT and the new Economic Crime Agency which would include the Serious Fraud Office (SFO), part of the FSA, presumably its enforcement arm and part of the OFT.
The idea of combining these functions is not, of course, a new one. First proposed by the Frauds Trial Committee chaired by Lord Roskill, it has been around for the last 25 years.
Roskill wanted one unified body to deal with all serious fraud. The SFO, established as a result of the recommendations, was never that and never intended nor resourced to be able to deliver that. The new Economic Crime Agency could come closer to the Roskill model, with an opportunity to give it a sufficiently wide remit and, I hope, the resources to be really effective.
Formation details are still sketchy
Details of how the Economic Crime Agency will be formed remain sketchy. It’s not clear, for example, what parts of the OFT and the FSA are to be transferred in.
Certainly, the SFO will be taken in lock, stock and barrel, but what about police support? The police service has never been part of the SFO. Under the Terms and Conditions of the 1987 Criminal Justice Act which established the SFO, the police service has always investigated ‘in conjunction’ with the SFO.
Originally, the plan was that the police should be part of the SFO, but at that time the chief constables fiercely resisted control of the police resting with a civilian organisation. The intention was that the City of London Police and the Metropolitan Police Fraud Squad would provide the bulk of the investigation capacity.
That capacity has dwindled over many years, and now civilians – that is to say accountants, financial investigators and former police officers – carry out the bulk of SFO investigations, with the police adding their own particular expertise as and when required.
Bringing the police into the Economic Crime Agency
For its part, the Metropolitan Police Service has all but abandoned some types of fraud investigation where, in the past, they would have taken the lead. Truthfully, the City of London Police is the only force left with fraud as a priority and it provides a focused – if under-resourced – capacity to deal with fraud across the capital and the Home Counties.
Bringing the police into the Economic Crime Agency would be a major improvement. Indeed, we now have the best possible opportunity to achieve that scenario and ensure that police skills are available for economic cases. Remember that these cases are crimes, not mistakes or regulatory failures.
The Home Office proposals for a ‘beefed up’ Serious and Organised Crime Agency, based on the existing model but with added functions (especially guarding the borders), will not fulfil the need for tackling fraud.
At best, it will lack the resource and expertise required for fraud investigation and prosecution. It will also be hard-pressed to meet its own responsibilities and, frankly, is unlikely to be resourced adequately enough to carry them out. It will never make economic crime a priority, particularly at those junctures when other types of crime are attracting political and mass national media attention.
That, of course, will be the crucial test for both organisations. Any regulatory or law enforcement agency will be under pressure from all sides to concentrate on what’s ‘bugging’ them, be it insider trading, price fixing, boiler room frauds, people trafficking, prostitution, drug dealing… The list goes on and on.
All are examples of criminality committed by organised criminals albeit with different postcodes and degrees of ruthlessness in protecting their businesses. Ring-fencing resources for economic crime is essential and inevitable if one wants to tackle fraud which, also inevitably, takes more time, effort and money to investigate and prosecute than other crimes.
New ways of resolving cases
That brings us neatly to the need for looking yet again at how we try and investigate these cases. Along with a new Economic Crime Agency, we need new ways of resolving these cases (and notably when corporate crime is under investigation).
The traditional reactive investigation followed by a lengthy trial takes too long, costs too much and is too uncertain for companies. We need to find an acceptable framework for plea negotiations and sentence indications, particularly so where multinational allegations are concerned.
Individuals and companies should be encouraged to self-report, but to do so they must have certainty as to their fate. We also need to have a mature debate about when administrative or civil penalties are appropriate, and when only criminal prosecution and criminal penalties will meet society’s concern at the harm done.
The merger will almost certainly require primary legislation, if only to rationalise the different investigation powers enjoyed by members of the SFO, the FSA and the OFT, all of which are different from police powers.
Another big question mark in relation to the Economic Crime Agency centres on whether or not the new body will be a prosecutor or whether it will relinquish that role, in turn handing over the results of its investigations to the Crown Prosecution Service? That, of course, was the position prior to the instigation of the 1987 Act.
Areas of criminality for consideration
What crimes will the new Economic Crime Agency actually concentrate on? Fraud has never been successfully defined, the first director of the SFO remarking that it was like an elephant: difficult to describe, but you would know a fraud when you saw one.
It would certainly be a mistake to say that the Agency should only look at certain types of economic misconduct, such as cartels, bribery or the corruption of foreign public officials overseas.
No doubt it may, but remember fraud is a crime that’s infinitely flexible. Criminals have no concern about whether their activities are in one particular categorisation or another. They are there to make money, and they will follow the easiest, least risky course they can towards that goal.
Only very stupid people would want to rob a mail van: the risks are very great, the return is comparatively poor and the sentence much heavier than you would attract from committing a fraud which netted you a great deal more.
The new Economic Crime Agency needs to be flexible enough to identify the sorts of crimes which are actually causing harm, whether this is to individuals United Kingdom as a safe place in which to do business and to make investments.
Robert Wardle is a consultant at DLA Piper and the former director of the Serious Fraud Office. Rovert’s particular area of expertise lies in criminal investigation and prosecutions, particularly in relation to fraud, corruption and cartel activity
