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, an Act of the Parliament of the United Kingdom.
Section 2 of the Criminal Justice Act 1987 grants the SFO 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.
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 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. The SFO also enforces the Bribery Act 2010.
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 British citizens living and working in Saudi Arabia representing £40 billion worth of business. BAE Systems Plc was the primary contractor. 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. The decision was made following concerns about national security amidst reports that the Saudi Government would stop sharing counterterrorist information with the UK if the investigation continued. This drew criticism from number of sources, not least from the Organisation for Economic Cooperation and Development (OECD). A High Court review in 2008 ruled that the SFO had acted unlawfully by dropping the corruption investigation but this was later overturned on appeal by the SFO to the House of Lords.
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. It also found that the SFO had significantly lower conviction rates than elite divisions of the British Crown Prosecution Service. 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.
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 the 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."
Notable cases.
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.
BAE Systems weapons sales to Saudi Arabia.
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.
BAE Systems radar sale to Tanzania.
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.
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.
Abbas Gokal & the BCCI.
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. 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.
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. 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.
Organisation.
As one of the Law Officers' Departments, the SFO reports to the Attorney General of the UK. 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. 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. 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.
The SFO is not a police force and its own investigators are not constables. Although the SFO does have certain investigatory powers, it does not have the powers of arrest or constable powers in relation to search. Therefore if these powers are necessary for an investigation the SFO will request support from the police or NCA as necessary.
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:
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.
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. The SFO cites Vintage Wines of St Albans as an example of a successful boiler room fraud prosecution. 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. 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.
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. Other types of prosecuted corporate fraud include fraudulent trading, where a company carries on a business for any fraudulent purposes. 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. 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. 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.
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.
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.
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.
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. The average jail sentence handed out in SFO cases was 56 months in 2010-11. 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.