Serious Fraud Office (United Kingdom)

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Serious Fraud Office
Welsh: Swyddfa Dwyll Difrifol
Serious Fraud Office.png
Non-ministerial government department overview
Formed 1987
Type Law enforcement
Jurisdiction England and Wales and Northern Ireland
Headquarters 2-4 Cockspur Street, London, SW1Y 5BS
Employees Around 300 permanent staff
Annual budget £36.35m (2011-12)
Minister responsible Dominic Grieve QC MP, Attorney General
Non-ministerial government department executive David Green CB QC, Director
Website www.sfo.gov.uk
Footnotes
General nature: Law Enforcement Specialism: Serious or complex fraud, bribery, corruption and proceeds of crime

The Serious Fraud Office (SFO) is an independent UK Government department that investigates and prosecutes serious or complex fraud and corruption. Accountable to the Attorney General, it has jurisdiction over England, Wales and Northern Ireland and assists a number of overseas investigations by obtaining information from UK sources Section 2 of the Criminal Justice Act 1987 grants the SFO special compulsory powers to require any person (or business/bank) to provide any relevant documents (including confidential ones) and answer any relevant questions including ones about confidential matters.

The SFO is also the principal enforcer of the Bribery Act 2010, which has been designed to encourage good corporate governance and enhance the reputation of the City of London and the UK as a safe place to do business.

The SFO’s director is David Green CB QC.

History[edit]

During the 1970s and early 1980s a series of financial scandals in the City of London destroyed the public's trust in the way serious or complex frauds were handled. In response to this the Government established the Fraud Trials Committee in 1983. This independent committee, under the chairmanship of Lord Roskill, considered how changes to the law and criminal proceedings could lead to more effective ways of fighting fraud. The committee report, commonly known as 'the Roskill Report'[1] was published in 1986. Its main recommendation was to set up a new, unified organisation responsible for detecting, investigating and prosecuting serious fraud cases.

As a result, the Serious Fraud Office (SFO) and its unique powers were created by the Criminal Justice Act 1987. It opened for business in April 1988.[2] The SFO also enforces the new UK Bribery Act 2010.

Notable cases[edit]

Guinness Plc: In 1986 there were rumours that the Guinness takeover of the Distillers Company was tainted by an unlawful share support operation which involved Guinness offering secret indemnities (from its own funds) against losses to people ‘supporting’ the bid which resulted in a dramatic rise in the price of Guinness shares.

Having examined the bid, the SFO opened an investigation which led to the conviction in 1990 of the then chief executive of Guinness and three other defendants.[3]

BAE: In 1999 British Aerospace Defence Systems Ltd agreed a contract with the Government of Tanzania for the supply of a radar defence system. A local businessman in Tanzania was recruited to advise BAE on its negotiations with the Government on the radar contract.

Between January 2000 and December 2005 around $12.4 million was paid to the local businessman’s two companies. BAE has accepted that there was a high probability that part of this sum would be used to favour it in the contract negotiations with the Tanzanian Government.

The payments were not subject to proper and adequate scrutiny or review and BAE Systems Plc was subsequently fined £500,000 after admitting that it had failed to keep adequate accounting records of the defence contract with the Government of Tanzania. This outcome followed a settlement by BAE, as part of a global agreement reached in 2010 with the Serious Fraud Office and the US Department of Justice, concerning contracts in a number of countries. The settlement with the SFO relates to the Tanzanian contract. The terms of the settlement include an agreement by BAE to pay an ex-gratia sum (£30 million less any fine imposed by the Crown Court) for the benefit of the people of Tanzania.

BAE was also ordered to pay £225,000 costs to the SFO.[4]

Activities[edit]

The SFO is a specialist organisation that investigates only the most serious types of economic crime. As a result a potential case must meet certain criteria before it is taken on. These criteria include whether:[5]

  • the value of the alleged fraud is more than £1 million
  • there is a significant international dimension
  • the case is likely to be of widespread public concern
  • the requires highly specialised knowledge, for example, of financial markets
  • the SFO’s special powers (such as Section 2 of the Criminal Justice Act) need to be used

Fraud[edit]

Fraud is a type of criminal activity. It is defined as 'abuse of position, or false representation, or prejudicing someone's rights for personal gain'.

Types of fraud[edit]

Investment fraud[edit]

Boiler room fraud (share scams)

A boiler room is an operation, usually run from abroad, that sells shares to investors in companies which are usually fakes or are not successfully trading

Scammers typically cold-call people and use hard-sell tactics to sell shares in UK or overseas based companies that prove to be worthless. They profit either by just taking investors' money without providing shares or selling the shares to them at highly inflated prices.[6]

Vintage Wines of St Albans is an example of a boiler room fraud. The convicted defendants received custodial sentences of up to four and half years and were disqualified from being company directors for periods up to 15 years. One was also served with a serious crime prevention order preventing him from conducting any investment and financial management business for four years after his release from prison.[7]

Ponzi or pyramid schemes [8]

A 'Ponzi' or pyramid scheme typically involves an investment offer which promises to provide an abnormally higher rate of return – for example, a 30 per cent return on and investment might be claimed when a more realistic return would be five to ten per cent. Named after notorious Charles Ponzi, the Ponzi scheme is different from a pyramid scheme in the role of the mastermind: while the pyramid allows other investors to benefit recruiting other investors, the Ponzi scheme operator is the sole collector and distributor of funds. [9]

In the SFO’s KF Concept case a fraudster was jailed for10 years for running an unauthorised investment business and stealing investors’ funds through his £34 million KF Concept Scheme. The loss to investors amounted to over £17 million.[10]

Corporate Fraud[edit]

Asset stripping - asset stripping is taking company funds or assets of value while leaving behind the debts. Company directors transfer only the assets of one company to another and not the liabilities. The result is a dormant company with large liabilities that cannot be met and it has to be put into liquidation.[11]

Fraudulent trading - fraudulent trading is where a company carries on a business with the intention of defrauding creditors or for any fraudulent purposes. This applies whether the company is trading, has ceased trading or is in the process of being wound up.[12]

And example case is Engineering with Excellent (EWE), later known as the InterGB group, the collective name for a number of companies that between 1996 and 2000 that extracted large amounts of money from three financial institutions by submitting over a thousand false invoices totaling more than £85 million. The fraud enabled the defendants to enjoy a successful business lifestyle, including corporate entertainment, good salaries and expensive company cars. The chairman of the group was jailed for seven years, while three associates each received two-year jail sentences.[13]

Share ramping – also known as 'pump and dump' or 'book ramping', is where criminals influence the share price of a company and then take advantage of it. It is commonly perpetrated by bringing a company to the market with false expectations of its profitability or alternatively by buying shares in a company when the price is low and then starting a rumour that the company is being taken over. When the share price rises, the shares are sold at a profit.[14]

Publishing false information – publishing false information is a type of fraud committed when a criminal creates, destroys, conceals or falsifies an account, record or report which deliberately misleads people about the company's financial position. This is usually done to mislead investors and creditors and to keep a failing company trading.[15]

Bribery and corruption[edit]

Corruption is where the integrity of a person, Government, or company is manipulated and compromised for personal gain.

There are two main types of corruption:

Political corruption – is the dysfunction of a political system or institution in which government officials, political officials or employees look for illegitimate personal gain through actions such as bribery, extortion, cronyism, patronage and embezzlement

Corporate corruption – is where, for example, bribes are offered to agencies/ institutions/individuals in order to win a contract.

Innospec Limited, manufacturers of a fuel additive, pleaded guilty to bribing employees of an Indonesian state-owned refinery and other Government officials in Indonesia. In a settlement co-ordinated with action taken in the United States, the company was fined $12.7 million. It also agreed to pay the costs of an independent body to monitor its conduct for three years.[16]

Organisation[edit]

As one of the Law Officers’ Departments, the SFO reports to the Attorney General of the UK.

The SFO employs around 300 people. The cost of running the SFO in the financial year 2010-11 was 64p for each member of the British public.

The SFO is unique in that its role is to both investigate and prosecute. Its case teams are therefore made up of investigators, lawyers, law clerks and forensic accountants.[17]

Over 80 per cent of staff are specialist caseworkers. When deciding what action to take, lawyers in the SFO must bear in mind the Prosecutors Code.[18]

Overseas Assistance[edit]

The SFO has a dedicated International Assistance team which regularly assists law enforcement agencies worldwide with their investigations. In 2010-11 the SFO assisted over 30 different jurisdictions.[17]

Victim Support[edit]

Victims are at the core of the SFO’s strategy. They include any person, organisation, or Government both in the UK and abroad, which has suffered direct financial loss from the most serious and complex fraud, or corruption.[19]

The SFO tries to get justice for victims by recovering as much recompense as possible for victims and by placing criminals behind bars. In April 2011, £64 million of funds were, or were due to be returned to victims and the average jail sentence handed out in SFO cases was over 30 months.

For example, in 2011 three fraudsters running the online Xclusive ticket fraud (that failed to deliver tickets to the Beijing Olympics and various music festivals) each received prison sentences of up to eight years. The SFO had also started confiscation proceedings to recover money for victims.[20]

Criticisms[edit]

In 2008, an official internal "Review of the Serious Fraud Office" compared the SFO unfavourably with two of its counterparts in New York City: the offices of the United States Attorney for the Southern District of New York and the New York County District Attorney. It found that the American prosecutors obtained higher conviction rates in a shorter amount of time with fewer resources.[21] It also found that the SFO had significantly lower conviction rates than elite divisions of the UK Crown Prosecution Service.[21] It attributed the SFO's relatively poor performance to, among other things, failure to keep all court advocacy "in-house", failure to assign each case a single lawyer who managed it "from cradle to grave", failure to interview witnesses at an early stage, and failure to co-operate closely with the police.[21]

The Al-Yamamah arms deal during the 1980s was a large scale aircraft and weapons deal between the UK and Saudi Arabia. It was extended throughout the 1990s and saw thousands of UK citizens living and working in Saudi Arabia representing £40bn worth of business. BAE Systems Plc was the primary contractor.[22]

In 2004 the SFO began to investigate the contracts within the al-Yamamah deal on the grounds of suspected false accounting, but the investigation was controversially dropped in 2006.[23] The decision was made following concerns about national security[24][25] amidst reports that the Saudi Government would stop sharing counter terrorist information with the UK if the investigation continued.[22] This drew criticism from number of sources, not least from the Organisation for Economic Cooperation and Development (OECD).[26] A High Court review in 2008 ruled that the SFO had acted unlawfully by dropping the corruption investigation[27] but was later overturned on appeal by the SFO to the House of Lords.[28]

References[edit]

  1. ^ The Roskill Report 25 years on SFO blog 13 April 2011
  2. ^ "Section 2 and legislative tools". Sfo.gov.uk. 2008-07-14. Retrieved 2013-08-08. 
  3. ^ "The Guinness case". Sfo.gov.uk. Retrieved 2013-08-08. 
  4. ^ BAE fined in Tanzania defence contract case SFO 21 December 2010
  5. ^ "Serious Fraud Office (SFO) Criteria". SFO. Retrieved 2013-08-08. 
  6. ^ "Share scams (boiler room fraud)". Sfo.gov.uk. Retrieved 2013-08-08. 
  7. ^ Vintage Wines of St Albans Four sentenced SFO 28 September 2008
  8. ^ "Other types of investment fraud". Sfo.gov.uk. Retrieved 2013-08-08. 
  9. ^ Financial Fraud in UK. June 2012. Buch Criminal Defence Solicitors. Financial Crime Solicitors
  10. ^ Ponzi schemer jailed for ten years SFO 16 April 2010
  11. ^ "Asset stripping". Sfo.gov.uk. Retrieved 2013-08-08. 
  12. ^ Four jailed over multi million pound fraud SFO 17 May 2007
  13. ^ "Fraudulent trading". Sfo.gov.uk. Retrieved 2013-08-08. 
  14. ^ "Share ramping". Sfo.gov.uk. Retrieved 2013-08-08. 
  15. ^ "Publishing false information". Sfo.gov.uk. Retrieved 2013-08-08. 
  16. ^ Innospec Limited prosecuted for corruption by the SFO SFO 18 March 2010
  17. ^ a b "The SFO’s performance". Sfo.gov.uk. Retrieved 2013-08-08. 
  18. ^ "Prosecutors code". Cps.gov.uk. Retrieved 2013-08-08. 
  19. ^ "SFO commitment to victims". Sfo.gov.uk. Retrieved 2013-08-08. 
  20. ^ Three jailed for on-line Olympic ticket fraud SFO 11 July 2011
  21. ^ a b c http://www.sfo.gov.uk/media/34318/de%20grazia%20review%20of%20sfo.pdf
  22. ^ a b Q&A: The BAE-Saudi allegations BBC 30 July 2008
  23. ^ Investigation into service contracts with BAE SFO 3 November 2004
  24. ^ BAE Systems: Al Yamamah Contract www.parliament.uk
  25. ^ BAE Systems Plc/Saudi Arabia SFO 14 December 2006
  26. ^ OECD rebukes Britain for dropping Saudi arms deal bribery inquiry Guardian 15 March 2007
  27. ^ UK wrong to halt Saudi arms probe SFO 10 April 2008
  28. ^ Fraud office wins appeal over BAE Saudi arms deal The Independent 30 July 2008

External links[edit]