Serious Fraud Office (United Kingdom)

The Serious Fraud Office (SFO) is a non-ministerial government department of the Government of the United Kingdom that investigates and prosecutes serious or complex fraud and corruption in England, Wales and Northern Ireland. The SFO is accountable to the Attorney General for England and Wales, and was established by the Criminal Justice Act 1987,[2] an Act of the Parliament of the United Kingdom. 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 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. Its jurisdiction does not extend to Scotland where fraud and corruption are investigated by Police Scotland through their Specialist Crime Division, and prosecutions are undertaken by the Economic Crime Unit of the Crown Office and Procurator Fiscal Service.

Serious Fraud Office
Logo of Serious Fraud Office
AbbreviationSFO
Agency overview
Formed1987 (1987)
EmployeesAround 500 permanent staff
Annual budget£36.35m (2011–12)
Jurisdictional structure
Operations jurisdictionUnited Kingdom
Legal jurisdictionEngland, Wales and Northern Ireland
Specialist jurisdictions
  • Serious or complex fraud, commercial crime, fraud covering multiple lower level jurisdictions.
  • Anti corruption.
Operational structure
Headquarters2–4 Cockspur Street
London
SW1Y 5BS[1]
Elected officer responsible
Agency executive
Website
www.sfo.gov.uk

History

Formation of the unit

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'[3] was published in 1986. Its main recommendation was to set up a new, unified organisation responsible for detecting, investigating and prosecuting serious fraud cases.[4] 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.[5] The SFO also enforces the UK Bribery Act 2010.[6]

Directors of the Serious Fraud Office:

1988-1990: John Wood CB; 1990-1992: Barbara Mills QC, first female director and later the first female Director of Public Prosecutions; 1992-1997: George Staple CB QC(Hon); 1997-2003: Rosalind Wright CB QC(Hon); 2003-2008: Robert Wardle; 2008-2012: Richard Alderman; 2012-2018: Sir David Green KCB QC; 2018 - date: Lisa Osofsky;

Al-Yamamah investigation

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.[7] 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.[8] The decision was made following concerns about national security[9][10] amidst reports that the Saudi Government would stop sharing counterterrorist information with the UK if the investigation continued.[7] This drew criticism from number of sources, not least from the Organisation for Economic Cooperation and Development (OECD).[11] A High Court review in 2008 ruled that the SFO had acted unlawfully by dropping the corruption investigation[12] but was later overturned on appeal by the SFO to the House of Lords.[13]

Comparison to New York

In 2008, an official internal "Review of the Serious Fraud Office", which was conducted by a former senior New York City prosecutor, 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.[14] It also found that the SFO had significantly lower conviction rates than elite divisions of the UK Crown Prosecution Service.[14][15] 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.[14]

2010s

While Home Secretary, Theresa May expressed that she wanted the National Crime Agency (NCA) to absorb the SFO. While the SFO is supervised by the Attorney General's Office, the NCA is overseen by Home Office. From around 2005 to 2017, the SFO underwent a series of budget cuts. On 18 May 2017, the Tories released a manifesto pledging to dismantle the Serious Fraud Office and roll it into the NCA if they won the general elections in June 2017. The manifesto claimed that the incorporation would "strengthen Britain’s response to white collar crime by... improving intelligence sharing and bolstering the investigation of serious fraud, money laundering and financial crime."[16]

Notable cases

Guinness share-trading fraud
Main article: Guinness share-trading fraud

In 1986 there were rumours that the Guinness Brewery 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.[17]

BAE Systems weapons sales to Saudi Arabia
Main article: Al-Yamamah arms deal

Al Yamamah is the name of a series of a record arms sales by the United Kingdom to Saudi Arabia. In 2006, an investigation by the British Serious Fraud Office into the deal was discontinued after political pressure from the Saudi and British governments.[18]

BAE Systems radar sale to Tanzania
See also: BAE Systems § Corruption investigations

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.[19]

Barclays emergency fundraising

In June 2017, John Varley, Roger Jenkins, Tom Kalaris and Richard Boath were charged with offences regarding Barclays's raising of £11.8 billion in emergency funds. The fraud was alleged to have taken place around the financial crisis of 2007–2008.[20]

Abbas Gokal & the BCCI
Main article: Abbas Gokal

The BCCI Bank was a Luxembourg-registered bank that collapsed in 1992. It was discovered by the bank's auditors, that the bank was running on loss for many years. It was reported that the bank was involved in drug-trafficking, money-laundering and phony loans.[21] The key player in the collapse was Pakistani shipping magnate Abbas Gokal. It was discovered that Gokal's company, Gulf Shipping Lines, had gotten a US$1.2 billion unsecured loan from the bank. When the bank collapsed and the scandal emerged, Gokal escaped to Pakistan. It was hard to get him because the United Kingdom and Pakistan had no extradition treaty. Gokal was making a trip to America in 1994. When his plane stopped for re-fueling in Frankfurt, German police arrested him and extradited him to the United Kingdom. He was handed a 14-year sentence as a result of the SFO prosecution, the longest sentence handed out in a British court for fraud.[22][23]

Mykola Zlochevsky

In April 2014, the SFO launched a money laundering investigation against Ukrainian oligarch Mykola Zlochevsky. Accounts of Burisma Holdings and its parent Brociti Investments, controlled by Zlochevsky, were frozen at the London branch of BNP Paribas. That money US$23 million was transferred as a result of complex transactions by a company controlled by a Ukrainian businessman Serhiy Kurchenko, a subject of the European Union restrictive measures.[24] When the Ukrainian prosecutor general's office failed to provide documents needed for the investigation, a British court in January 2015 dropped the case and ordered to unfreeze the assets.[25]

Organisation

As one of the Law Officers' Departments, the SFO reports to the Attorney General of the UK.[16] 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.[26] The SFO employs around 500 people. The cost of running the SFO in the financial year 2010–11 was 64p for each member of the British public.[27] 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.[28]

Activities and responsibilities

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. In deciding, the Director will take into account all the circumstances of the case and consider:[29]

  • cases which undermine UK commercial/financial PLC in general and the City of London in particular;
  • cases where the actual or potential loss involved are high;
  • cases where actual or potential harm is significant;
  • cases where there is a very significant public interest element; and
  • new species of fraud

The Serious Fraud Office's jurisdiction does not extend to Scotland where fraud and corruption are investigated by Police Scotland through their Specialist Crime Division, and prosecutions are undertaken by the Economic Crime Unit of the Crown Office and Procurator Fiscal Service.[30]

Fraud

The SFO investigates and prosecutes fraud. The SFO prosecutes different types of fraud, including investment fraud. Among the types of investment fraud prosecuted are boiler room fraud (share scams), which is an operation, usually run from abroad, where scammers typically cold-call people and use hard-sell tactics to sell shares that prove worthless, are inflated in price, or don't exist.[31] The SFO cites Vintage Wines of St Albans as an example of a successful boiler room fraud prosecution.[32] The SFO also prosecutes the investment schemes called 'Ponzi' or pyramid schemes, which typically involves an investment offer which promises to provide an abnormally higher rate of return. In a Ponzi scheme, a single operator benefits, while in a pyramid scheme, many investors benefit from recruiting other investors.[33] The SFO has cited the KF Concept case as an example of one of its successful ponzi scheme prosecutions, where a banker was jailed for 10 years for running an unauthorized investment business and defrauding investors of amounts over £17 million.[34]

The SFO also prosecutes multiple types of corporate fraud. The SFO website as of 2013 outlined several types of fraud it classified as corporate, including asset stripping, which involved company directors taking company funds or assets of value while leaving behind the debts.[35] Other types of prosecuted corporate fraud include fraudulent trading, where a company carries on a business for any fraudulent purposes.[36] An example of a successful SFO prosecution for fraudulent trading is the InterGB group, the collective name for a number of companies that, between 1996 and 2000, extracted more than £85 million from three financial institutions by submitting false invoices. The chairman of the group was jailed for seven years.[37] Also prosecuted are 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 the price fluctuations.[38] Publishing false information is also prosecuted as corporate crime. According to the SFO, this is usually done to mislead investors and creditors and to keep a failing company trading.[39]

Bribery and corruption

According to the SFO, corruption is where the integrity of a person, Government, or company is manipulated and compromised for personal gain. SFO classifies and prosecutes two main types of corruption. It defines political corruption as 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. It defines corporate corruption as where, for example, bribes are offered to agencies/ institutions/individuals in order to win a contract. It brought up Innospec Limited, manufacturers of a fuel additive, as an example of a successful prosecution for corporate corruption.[40]

Overseas assistance

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.[26]

Victim support

According to the SFO, victims are at the core of its 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.[41]

The SFO tries to get justice for victims by recovering as much recompense as possible for victims. In April 2011, £64 million of funds were, or were due to be returned to victims.[42] The average jail sentence handed out in SFO cases was 56 months in 2010-11.[43] 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 started confiscation proceedings to recover money for victims.[44]

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References
  1. "Contact us". Serious Fraud Office. Archived from the original on 5 December 2019. Retrieved 6 December 2019.
  2. "Criminal Justice Act 1987". Archived from the original on 3 April 2017. Retrieved 28 May 2017.
  3. The Roskill Report 25 years on Archived 19 January 2012 at the Wayback Machine SFO blog 13 April 2011
  4. "SFO historical background and powers". Serious Fraud Office. Archived from the original on 14 October 2018. Retrieved 14 October 2018.
  5. "Section 2 and legislative tools". Sfo.gov.uk. 14 July 2008. Archived from the original on 9 May 2013. Retrieved 8 August 2013.
  6. "Bribery Act guidance". Serious Fraud Office. Archived from the original on 14 October 2018. Retrieved 14 October 2018.
  7. "Business – Q&: The BAE-Saudi allegations". BBC News.
  8. "Page not found". Serious Fraud Office. Archived from the original on 26 September 2011.
  9. "Lords Hansard text for 14 Dec 200614 Dec 2006 (pt 0014)". Parliament. Archived from the original on 23 December 2016. Retrieved 11 September 2017.
  10. BAE Systems Plc/Saudi Arabia Archived 2 April 2012 at the Wayback Machine SFO 14 December 2006
  11. Rob Evans. "OECD rebukes Britain for dropping Saudi arms deal bribery inquiry". The Guardian. Archived from the original on 13 March 2016. Retrieved 17 December 2016.
  12. UK wrong to halt Saudi arms probe Archived 15 April 2008 at the Wayback Machine SFO 10 April 2008
  13. "Fraud office wins appeal over BAE Saudi arms deal". The Independent.
  14. "SFO press statement re Review of the Serious Fraud Office by Jessica de Grazia". Serious Fraud Office. 10 June 2008. Archived from the original on 23 April 2013.
  15. Ryder, Nicholas (2011). Financial Crime in the 21st Century: Law and Policy. Edward Elgar Publishing. pp. 128–9. ISBN 9780857931832.
  16. Binham, Caroline; Croft, Jane (18 May 2017). "Tories pledge to abolish Serious Fraud Office – manifesto". Financial Times. United Kingdom. Archived from the original on 21 May 2017. Retrieved 18 May 2017.
  17. "The Guinness case". Serious Fraud Office. Archived from the original on 15 October 2014. Retrieved 8 August 2013.
  18. "Court condemns Blair for halting Saudi arms inquiry". The Independent. 11 April 2008. Archived from the original on 11 September 2019. Retrieved 7 September 2019.
  19. "BAE fined in Tanzania defence contract case". Serious Fraud Office. Archived from the original on 26 July 2012.
  20. Treanor, Jill (20 June 2017). "Senior Barclays bankers charged with fraud over credit crunch fundraising". The Guardian. London, the United Kingdom. Archived from the original on 17 May 2019.
  21. "BCCI SCANDAL: BEHIND THE 'BANK OF CROOKS AND CRIMINALS'". 28 July 1991. Archived from the original on 5 August 2018. Retrieved 7 August 2018 – via www.washingtonpost.com.
  22. "Behind the collapse of a behemoth". The Independent. 4 April 1997. Archived from the original on 5 August 2018. Retrieved 7 September 2019.
  23. "$1.2bn BCCI fraudster faces 17 years". The Independent. 4 April 1997. Archived from the original on 23 May 2020. Retrieved 7 September 2019.
  24. "Approved Judgement. Case No: RSTO/7/2014" (DOC). [Central Criminal Court. 21 January 2015. Archived from the original on 20 January 2020. Retrieved 6 January 2020.
  25. Risen, James (8 December 2015). "Joe Biden, His Son and the Case Against a Ukrainian Oligarch". The New York Times. Archived from the original on 5 October 2019. Retrieved 1 January 2020.
  26. "The SFO's performance". Serious Fraud Office. Archived from the original on 18 January 2013. Retrieved 8 August 2013.
  27. "Serious Fraud Office – Costing less but more effective?". Debt Management Today. Archived from the original on 16 April 2011. Retrieved 14 October 2018.
  28. "Prosecutors code". Crown Prosecutor Service. Archived from the original on 8 August 2013. Retrieved 8 August 2013.
  29. "Page not found". Serious Fraud Office. Archived from the original on 18 May 2015.
  30. Stocker, Tom; Bolton, Barbara (March 2014). "Fraud in Scotland" (PDF). Fraud Facts (3rd ed.) (17).
  31. "Share scams (boiler room fraud)". Serious Fraud Office. Archived from the original on 6 October 2012. Retrieved 8 August 2013.
  32. "Page not found". Archived from the original on 2 April 2012.
  33. "Other types of investment fraud". Serious Fraud Office. Archived from the original on 14 March 2013. Retrieved 8 August 2013.
  34. "Page not found". Serious Fraud Office. Archived from the original on 2 April 2012.
  35. "Asset stripping". Serious Fraud Office. Archived from the original on 30 October 2014. Retrieved 8 August 2013.
  36. "Fraudulent trading". Serious Fraud Office. Archived from the original on 2 April 2012.
  37. "Fraudulent trading" (Press release). Serious Fraud Office. 17 May 2007. Archived from the original on 18 May 2015. Retrieved 8 August 2013.
  38. "Share ramping". Serious Fraud Office. Archived from the original on 5 April 2010. Retrieved 8 August 2013.
  39. "Publishing false information". Serious Fraud Office. Archived from the original on 3 July 2013. Retrieved 8 August 2013.
  40. "Page not found". Archived from the original on 6 September 2011.
  41. "SFO commitment to victims". Serious Fraud Office. Archived from the original on 2 May 2013. Retrieved 8 August 2013.
  42. Ryder, Nicholas; Turksen, Umut; Tucker, Jon (19 September 2017). The Financial Crisis and White Collar Crime – Legislative and Policy Responses: A Critical Assessment. Routledge. 13.1.2.1 Fraud. ISBN 9781317311737. Archived from the original on 14 October 2018. Retrieved 14 October 2018.
  43. Justice Committee (13 February 2013), "The Work of the Serious Fraud Office", Commons Select Committee Publications, Written evidence from the Serious Fraud Office, archived from the original on 14 October 2018, retrieved 14 October 2018
  44. "Page not found". Serious Fraud Office. Archived from the original on 26 September 2011.
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