Fraud Office attacks flawed crime reports

Published at 12:01AM, August 27 2014

The Serious Fraud Office has criticised the recruitment of “independent” experts to investigate criminal behaviour in companies, warning that the practice risks destroying the evidence needed to put rogue business people and bankers behind bars.

David Green, director-general of the SFO, said that he was against businesses commissioning their own reports into allegations of serious misbehaviour that often “cleared” the subject of any illicit activity. He complained that the SFO was often handed privately paid-for investigations by expensive external lawyers that contained an “inherent conflict”.

“The report itself may tend to minimise the problem one way or another. Later claims of legal privilege on witness statements taken by the external lawyers can be questionable. And, of course, the crime scene can be churned up by the investigation. The SFO will never take such a report at face value and will drill down into its evidence and conclusions,” Mr Green said.

Last week, PwC was fined $25 million in New York after authorities accused the consultancy of watering down its report into alleged money laundering by Bank of Tokyo-Mitsubishi UFJ, as claims emerged that it had toned down some of its criticism of the Japanese lender.

British banks have also used the technique. Last year Royal Bank of Scotland brought in Clifford Chance to investigate allegations that its global restructuring group had deliberately put business customers into administration for its profit. Clifford Chance’s £1.5 million report said that it had found no evidence to back up claims originally made by Lawrence Tomlinson, a millionaire businessman and adviser to Vince Cable, the business secretary.

“If you really wanted to find out what was happening, you wouldn’t have gone for such a narrow remit,” Mr Tomlinson said.

The SFO is deciding whether to launch a criminal investigation into RBS’s global restructuring group and is also looking at allegations that the bank misled customers over the use of a government loan funding scheme.

Barry Vitou, head of the corporate crime team at Pinsent Masons, the law firm, said he was “sympathetic” with Mr Green’s criticism but added that there were often good reasons for companies to conduct their own inquiries.

“I agree 110 per cent with the SFO’s desire not to have hordes of people trampling over a crime scene — but there is a balance, which needs to be struck,” Mr Vitou said. “The SFO is requesting corporates to self-report wrongdoing. Before any company does, it will want to be reasonably certain that it isn’t about to create a monumental mountain out of a molehill. Internal investigations are, therefore, a fact of life for the SFO, but it is key that any internal investigation is done properly and does not prejudice a potential criminal investigation.”

Banks, including RBS, are facing SFO investigations into Libor-rigging and foreign exchange market manipulation. More than 100 SFO staff are working full-time on these inquiries.

Despite this, Mr Green warned that it was likely the SFO was a long way from getting to the bottom of much of the criminality in the City. “The size of the white-collar criminal legal sectors servicing the City of London suggests there is a lot more work out there that the SFO could be doing,” he said.




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