The government is intent on creating a new "super agency" to tackle the perceived shortcomings of the current multi-agency system for investigating and prosecuting fraud and related commercial crime. The proposed new Economic Crime Agency is a wrongheaded approach. Instead, what is needed is a selective and innovative set of amendments to current laws on plea bargaining and sentencing for business crime. The existing organisations should be expanded where possible rather than creating a new body. The redundant ones can be shut down. Any new agency would require huge investment in people and resources and there would be inevitable delay in forging a new identity and statutory framework. What is needed is a reliable and stable organisation backed by practical legal powers. Why not develop the now quarter century old Crown Prosecution Service (CPS) backed by simple amendments to the Prosecution of Offences Act 1985?
Poor track record of new agencies
The history of new agencies in the field of economic crime has hardly been a glorious one. The Asset Recovery Agency was quietly merged into the Serious Organised Crime Agency (SOCA) and abolished in April 2008 only five years after it was established. In July the new home secretary announced that SOCA itself is to be replaced by a new National Crime Agency.
The recently established National Fraud Authority has not become an influential force in co-ordinating the fight against fraud or in developing policy. The Financial Services Authority (FSA) set up in 2000 has only quite recently started to prosecute financial crime with any enthusiasm at all. The Office of Fair Trading (OFT) has failed in its high profile attempt to prosecute British Airways. The Revenue and Customs Prosecutions Office (RCPO) was set up in 2005 and then merged with the CPS before it was five years old.
The Serious Fraud Office (SFO) set up in 1987 has endured years of trenchant, often justified, criticism and some occasionally unfair name calling. Yet it has succeeded in the last three years in breaking important new ground in overseas corruption cases involving corporate and individual wrongdoers. Its most recent visit to the courts in the Innospec case ended with the judgment of Thomas LJ which has severely curtailed the SFO's new-found pioneering spirit in developing US style plea negotiations in international corruption cases. It is hoping that the British Aerospace sentencing hearing due imminently will not attract more bad publicity. In truth the SFO has outlived its useful life and should be abolished.
The CPS has done better
The Crown Prosecution Service established in 1985 has been the subject of substantial criticism over its 25 years but at least it has now had time to develop as an organisation and grow in maturity. Why not make it into a world class prosecutor? The post of director of public prosecutions is a position to which the highest qualified and respected criminal lawyers are now attracted. It may not be perfect, but it is now an organisation of standing which has weathered numerous storms. It is ripe for development as a UK-style Department of Justice to rival the US version. It has already taken over the RCPO and it is not hard to envisage a lean and well managed CPS expanded to incorporate the caseload of the SFO and the OFT, both of which are in fact quite limited in number. There would be specialist divisions for serious fraud, revenue and customs offences and cartels, each led by a prominent deputy director.
Some will argue that the SFO with its special compulsory powers under the Criminal Justice Act 1987 must remain as an independent body with an expanded caseload but this would miss the opportunity to create a world class prosecuting body. As a small government agency with a limited budget and staff, the SFO will remain vulnerable to criticism from all sides. Its work can now be done by a new specialist serious fraud division of the CPS in conjunction with investigators from SOCA's replacement which will no doubt retain its own compulsory powers.
Time for a new approach to fighting fraud
It is people above all who must drive forward any new approach in the fight against fraud. Investigators and prosecutors need to be provided with the right powers and resources to do the job. It is no good setting up a new agency and overnight expecting diverse groups of staff to develop the necessary team work and sense of pride that must underpin any successful law enforcement body. The best young prosecutors and investigators must be attracted to work there. A failing small specialist agency will never attract the talent that a major world class law enforcement body would.
The legal powers required to fight fraud and corruption in a new, more effective way with fewer long trials need not be that complicated to implement.
First there is an urgent need to legislate to enable prosecutors to enter civil settlements in criminal fraud cases. This is how serious tax evasion has been dealt with at least since 1923 under the "Hansard" procedure. In appropriate cases, Revenue officers have had the power to settle cases of serious tax fraud by imposing a penalty on top of interest on the tax due. In the recent budget, the maximum penalty has been raised to 200% of the tax due. In customs cases, for even longer, customs officers have been able to compound or settle criminal customs cases what is now section 152 of the Customs and Excise Management Act 1979. A short amendment to the Prosecution of Offences Act 1985 could enable similar powers to be extended to the CPS.
The Innospec judgment speaks out against treating fraud any differently than other crime but there is a political case for legislating in the opposite direction, not just because of the lord chancellor's recent pronouncements on the effectiveness of prison. Most fraudsters are not recidivists. For those who are willing to confess early and save the cost of a full investigation and trial, there should be the opportunity, both for individuals and companies, to enter a civil settlement and avoid prosecution. Such settlements would involve substantial forfeiture, compensation, and penalty terms. They might be accompanied by court orders such as Directors Disqualification or Serious Crime Prevention Orders in place of conviction and prison. Only in this way will there be a step change in the success of fraud prosecutors. Prison is a major threat to many fraudsters but there is little incentive now in the most serious cases for a suspect to confess. There is no reward for doing so. The recent case of Dougall underlined this problem. The truth is that many people accused of fraud will still be more likely to take their chances in court rather than co-operate because the rewards for co-operation are so slight.
Second, in addition to the power to enter civil settlements, prosecutors would need to have the power to enter into Deferred Prosecution Agreements with offending companies and individuals and Non Prosecution Agreements in appropriate cases involving in both cases the payment of substantial fines.
Third, there would need to be appropriate safeguards against abuse of such prosecutorial powers. A system of judicial oversight separate and distinct from the judicial role in sentencing of convicted offenders would be needed. A judge would be required to review the agreement between the parties and there would need to be a residual power to reject the agreement where it was manifestly unfair to one or other party or otherwise not in the public interest subject to defined criteria.
An expanded CPS is the solution
A new agency to prosecute economic crime is not needed. It would have little hope of being adequately resourced and would take years to develop into a world class prosecutor putting criminals in fear of detection. The new legislation required would take years to bear fruit. The answer is simple: extend the long established civil powers currently used in revenue and customs cases to all fraud and business crime cases. Use the CPS as the lead organisation for all serious crime prosecution and establish specialist divisions within it to take over the work of the SFO, the FSA and the OFT.
This article first appeared in the New Law Journal on 30 July 2010.
Corker Binning is a law firm specialising in fraud, regulatory litigation and general criminal work of all types. For further information go to http://www.corkerbinning.com
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