A balanced approach to the challenges of economic crime
Attorney General, Dominic Grieve QC MP outlined steps taken to prosecute economic crime at the Cityforum round table.
Thank you for inviting me to give the opening speech this morning. I’m delighted to have the opportunity to speak on the important subject of economic crime and - looking at the agenda for the day ahead - I congratulate the organisers on devising a programme that combines a fascinating range of inter-related topics with an impressive array of speakers. I must emphasise at the outset that the British Government is fully committed to tackling economic crime. Treating economic crime more seriously and taking steps to combat it more effectively were key commitments in the Coalition agreement when it was published in May 2010 and that remains the Government’s position.
I note the theme for this year’s Cityforum Round Table is helpfully encapsulated in the programme title: ‘Economic crime - threats and responses.’ However, to start the proceedings off I intend to focus on the need for what I would like to call: ‘A balanced approach to the challenges of economic crime’. I readily admit that I am not in favour of a one dimensional approach to tackling the challenges of economic crime – whether that single dimension is prosecution, regulation, alternatives to prosecution such as civil recovery or deferred prosecution agreements, or indeed any other dimension. Such a simplistic, single dimensional approach is untenable in my view and would be extremely harmful to the UK if it ever existed. I somehow doubt, however, if there are many practitioners here today who would advocate a one size fits all approach. The key therefore is to achieve the right balance and make the most of the available resources which are not unlimited.
Take the example of the financial crisis in recent years. An intriguing aspect is the nature of the relationship between financial turmoil and economic crime. The fact of the matter is that not every aspect of a financial crisis necessarily has behind it an economic crime.
Inevitably, there will be genuine market forces that cause financial turbulence on occasions which have nothing at all to do with economic crime. However, let me make it clear that if economic crime has happened in the context of any financial crisis – whether by individuals or companies – I am in no doubt that there needs to be a robust law enforcement response.
It is apparent that the regulatory and enforcement landscape has had to be examined critically in many jurisdictions to determine if changes are called for as a result of the financial crisis. I welcome that kind of analysis which is crucial to informing action that can be taken by Governments as appropriate. As you will be aware the Chancellor of the Exchequer commissioned Martin Wheatley, managing director of the FSA and Chief Executive designate of the Financial Conduct Authority, to undertake a review of the structure and governance of the London Inter-Bank Offered Rate (LIBOR) including the corresponding criminal sanctions regime. The Government has accepted all the recommendations of the Wheatley Review and is now implementing the necessary changes.
The importance of prosecuting economic crime
If the City of London is to thrive, it is imperative that there is not only a strong and effective regulatory framework in place but also that those who commit criminal offences are brought to justice. As you will be aware the Serious Fraud Office has been working closely with the Financial Services Authority during its investigation into the reported issues in relation to LIBOR, and the Director of the Serious Fraud Office announced on 6th July 2012 that he had decided to formally accept the LIBOR matter for investigation. The issues are extremely complex and the investigation, which is still continuing, involves a number of financial institutions.
As the Government Minister accountable to Parliament for the work of the Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS), I am only too well aware that these two independent prosecuting authorities play a vital role in bringing prosecutions for economic crime and frequently have to deal with challenging cases which by their nature are often complex. The CPS has its own specialist casework Central Fraud Group as well as the work that is undertaken locally across the individual Areas.
The recent successful CPS prosecution of Kweku Adoboli - the UBS employee who became what is sometimes referred to as a rogue trader - illustrates the excellent work being carried out by the CPS Central Fraud Group headed by Sue Patten. Of course, the core function of the CPS and indeed the SFO is to prosecute where appropriate - provided of course that there is sufficient evidence for a realistic prospect of conviction and it is in the public interest to do so, in accordance with the Code for Crown Prosecutors.
That is why I welcome the recent statements of the Director of the Serious Fraud Office, David Green CB QC that have given a renewed focus on the prosecution of economic crime. I am also pleased to see the new Director’s approach in wishing to concentrate on the most complex and serious cases, the types of cases which the SFO was introduced to tackle. These include cases which undermine confidence in UK financial plc in general and the City of London in particular, and serious bribery and corruption cases. And I am confident that the emphasis being placed on quality assurance and the new structure that David is putting in place are all going to lead to the SFO growing further in stature, enhancing its already strong brand as a key player nationally and internationally.
Collaborative working - domestically
There are of course a number of agencies that have a key role in combating economic crime including the Financial Services Authority – soon to become the Financial Conduct Authority in a few months, which will have the FSA’s powers of enforcement - and the Office of Fair Trading. And the Government’s plans for the creation of a new National Crime Agency (NCA) are now coming to fruition which will provide a huge opportunity to make a difference to tackling economic crime. I’m sure Keith Bristow will explain in more detail when he speaks shortly but the NCA will have four operational Commands: Organised Crime, Border Policing, Economic Crime and the Child Exploitation and Online Protection Centre. The Crime and Courts Bill, introduced into the House of Lords on 10 May 2012 and currently proceeding through the Bill stages in the House of Commons, includes provisions on the NCA, and subject to Parliamentary processes I believe the ambition is that it will be fully operational by December 2013.
Operating as a single organisation, but built around the four ‘commands’, the NCA will tackle some of the most damaging forms of criminality the UK faces today, including the threat from economic crime. The Economic Crime Command will enable an innovative and improved capability to deal with economic crimes, including those carried out by organised criminals, and will provide a national strategic focus on the collective response to tackling economic crime.
Ahead of its introduction, I have been pleased to see the establishment of the Economic Crime Coordination Board (ECCB), whose membership includes the SFO, CPS and Attorney General’s Office, and indeed comprises all of the key agencies that deal with economic crime. The ECCB is setting the foundations for the Economic Crime Command and its multi-agency arrangements will help drive the better coordination of cases across the partner agencies tackling economic crime. The strong operational focus of the ECCB includes work on improving the intelligence picture and stepping up activity on prevention. And it’s encouraging that the ECCB is already driving forward multi-agency projects and operational activity and through its operational group has successfully coordinated enforcement activity.
Deferred prosecution agreements
So, with an empowered SFO, and with the advent of the National Crime Agency, it is right that serious economic crime is dealt with through criminal investigations and prosecutions. But it is also right that prosecutors have the full range of tools and powers they need to deal with serious economic crime committed by organisations. For that reason, I am delighted that the Government is legislating for the introduction of deferred prosecution agreements, through the Crime and Courts Bill which is currently before Parliament.
In broad terms, under a Deferred Prosecution Agreement, organisations which have committed criminal offences will admit their wrongdoing and resolve to make things right by agreeing to comply with stringent conditions, which include the payment of a substantial penalty. In a process scrutinised by a Crown Court judge, criminal proceedings will be commenced against the organisation and immediately suspended, pending the organisation’s compliance with the terms of the agreement.
Conditions may include the payment of substantial penalties, making reparation to victims, undertaking reform to prevent such conduct occurring again, and submitting to regular reviews and monitoring.
Negotiations leading to the DPA will take place in private, and the initial judicial scrutiny will also be in private. This is essential to prevent prejudicial publicity which could undermine any future criminal trial for the same or connected offences, should the negotiations fail. And it is also required because, as with any other negotiation, a degree of confidentiality is required at an early stage.
DPAs will be available to the Serious Fraud Office and the Crown Prosecution Service.
The threat of a full prosecution will remain hanging over an organisation should it fail to comply fully with the agreement.
I am confident that DPAs will be an invaluable tool for the SFO and CPS. In cases where a company accepts wrongdoing, and is committed to put things right, a DPA will mean that it must comply with stringent conditions to compensate and ensure there are no repeat incidents, whilst avoiding a lengthy and expensive prosecution with the prolonged uncertainty it brings for the victims, blameless employees and others dependent on the fortunes of the company.
In recognition of the unique nature of economic crime, DPAs will only be available for certain economic crimes committed by organisations. They will not be available in relation to offending by individuals, and they will not be available in relation to the criminal law generally.
I must stress that this is not because economic crime is in any sense not as serious as other crime – on the contrary. As the Lord Chief Justice said in the 2010 case of Dougall, which involved a plea agreement by the Serious Fraud Office,
For all the respectable and reputable fronts that many fraudsters and corrupt businessmen may present, they are criminals.
What is sometimes described as white collar crime or commercial crime taking the form of fraud and corruption in particular is crime.
And it is not victimless: sometimes identified individuals are victims, and at others, unnamed, unknown individuals in the entire community are victims, and sometimes the community itself is the victim.
There will always be cases where the public interest requires a full criminal prosecution – and DPAs will allow prosecutors to focus more of their resources on those cases, while dealing swiftly and responsively to offending by organisations.
DPAs will allow prosecutors to prioritise prosecutions – at the same time as dealing with offending by organisations swiftly and responsively.
Returning to the new regime, much of the procedure leading to a DPA will be similar to the way in which investigations are carried out at present.
A criminal investigation will take place, prompted either through self-reporting by the company, or through some other means. The prosecutor will be involved from an early stage, as is the case with most serious and complex investigations.
If the prosecutor considers in principle that the offending revealed by the investigation is suitable for a DPA, the views of the organisation in question will be sought.
In reality, there is likely to be a dialogue between the prosecutor and organisation from an early stage; we expect there to be an increase self-reporting and DPAs will rely to an extent on cooperation from organisations.
We hope that the certainty provided by the DPA process, combined with the possibility to draw a line under past criminal conduct, without the organisation having to face full criminal proceedings will be a strong incentive to engage with the regime.
There is an additional advantage offered by DPAs. The certainty they offer, and the speed at which we anticipate they may be concluded, means that domestic prosecutors will be better placed to enter global enforcement settlements. Other jurisdictions, particularly the US, already have similar powers and often are able to enter settlements at a pace and on a basis which sometimes does not sit easily with our existing legal framework. With a DPA, prosecutors will be better placed to ensure that the offending by organisations in this jurisdiction can be dealt with as part of a global settlement.
Which leads me to my final point.
International cooperation
Finally, I would like to touch on the importance of international cooperation in combating economic crime. That is not a new message. But it is a message I would like to emphasise because it seems to me that it is more relevant in the current economic climate than it has ever been.
In so many areas of modern life, a computer key struck in one country can have an enormous impact on another. Where this brings about the exchange of information, ideas, culture, and aspiration, this is uniquely positive. But the same technology can be used for criminal purposes. The global nature of financial markets provides enormous business opportunities, but also creates opportunity for economic crime. The criminal justice response can only be effective if it is able to respond on a global level, untrammelled by physical and jurisdictional barriers.
The key to an effective response is cooperation between investigators and prosecutors of those jurisdictions in which the criminal conduct has taken place, and where the harm has been incurred. The LIBOR investigations are a paradigm of the need for this approach: there are allegations of criminal conduct against a number of international banks, based in different countries, with employees of different nationalities based in various counties. Institutions and individuals in several countries assert that they have been harmed as a result. Evidence will be held in numerous jurisdictions.
It will only be possible to bring these allegations to a proper resolution, and if appropriate, to prosecutions, if investigators and prosecutors cooperate to bring that about. I am pleased that the Serious Fraud Office and the US Department of Justice, together with the FSA and others here and overseas are working closely together to ensure that this happens. By doing so we will build public confidence in our ability to respond to economic crime, and perhaps indirectly rebuild confidence in the institutions themselves.
Conclusion
Although the financial crisis has brought the issue of economic crime to the forefront, clearly its reach extends into many areas. There are undoubtedly real challenges in confronting and tackling the threats presented by economic crime and I don’t pretend the issues are simple. But it is certainly not all doom and gloom. On the contrary, there is a great deal of positive action being undertaken and a spirit of cooperation both domestically and internationally that is most encouraging for the future.