

All economic crime has victims

6 Medi, 2018 | Areithiau

Elizabeth Baker, Head of the Proceeds of Crime and International Assistance Division, on the Asset Recovery Panel at the Cambridge International Symposium on Economic Crime 2018, Jesus College, Cambridge.

Good morning. I am Elizabeth Baker. I am Head of the Proceeds of Crime and International Assistance Division at the UK’s Serious Fraud Office. I am delighted and honoured to be here, bright and early, to talk with you this morning.

This years’ Symposium focus is, ‘Unexplained Wealth’. This is a very broad area, and I have approached it through the issues raised in the introductory comments to the programme and the lens of our experience in asset recovery work at the SFO.

I have separated those comments out under the following headers:

  1. The efficiency or otherwise of the current system
  2. The burden, disproportionate or otherwise on business
  3. Whether a focus on unexplained wealth is a partial answer
  4. Then what do we do

Efficiency of the current system

Not all cases are amenable to asset recovery. A suspect may have spent all their money, or already be bankrupt through civil litigation brought by investors.

It is very important that we identify early viable asset recovery opportunities, both conviction and non-conviction based, and deploy resources to those cases. At the SFO this is done through consultation on every case at the earliest stages of development, an asset recovery strategy in every case taken on for investigation, periodic case reviews, and a specialist Division of Accredited FIs, lawyers and support staff working alongside our criminal case teams to investigate and litigate.

It is also vital that we identify and build collaborative working relationships with partners, domestically and internationally, to smooth the path in receiving and providing information and evidence. Treaties and organisational buy in to collaboration is obviously crucial but in our experience the working level relationships that we build between case teams are every bit as important to the success of the case.       

More widely, the SFO has, along with others called for specialist judges and courts to deal with serious economic crime cases and the asset recovery work that flow from these. Given the highly complex issues that these cases present, with cross-overs between criminal law, property, family, company, trust and insolvency law, this would in our view be a positive move.

A further highly topical area is how the private sector can efficiently and effectively work with and alongside law enforcement and prosecutors on the recovery of the proceeds of crime. Obviously we already make use of the private sector, seeking the appointment of receivers to manage and realise assets in appropriate cases. We also buy in expertise from the independent Bar, and deploy experts in court as appropriate.

With regard to receivers, our experience to date is mixed, and in some cases the costs can be prohibitive. In many of our cases, the sums confiscated are paid to victims. Where receivers are appointed the costs must represent value for money as they are paid from the victims pot.

However, there is merit in looking at how we can work better with the wider private sector.

For progress to be made in this area, there must be a willingness in the private sector to share risk. This means being willing to take on cases beyond the risk free low hanging fruit. There are legal issues that need to be identified and worked through, not least how evidence or intelligence can lawfully be shared and protected. There are also cultural differences that require candid discussion.

To some, this is a debate about outsourcing driven by the view that the private sector is always nimble, efficient, and cost effective, compared to an invariably bloated and inefficient public sector. This is extremely naïve, and quite simply wrong. 

The public sector is steered by the public interest. Where money can be returned to victims it is. The available pot is reduced only by the fees and expenses of any receiver appointed. Whilst we would not dedicate resource to cases with little prospect of success, our bottom line is not profit. That means we take on cases that may not be commercially viable to some, but pursuing them is the right thing to do. It is in the public interest. We answer to Parliament. We are held to account publically. We do not answer to partners or shareholders seeking a return on investment.

These are crucial issues. They do not prevent us finding better ways of working and much has already been achieved; JMLIT (Joint Money Laundering Investigation Team) is seen as a highly innovative and successful model of sharing information with the banking sector. However, much remains to be discussed in this sphere. It is a work in progress.

 The burden on business

I challenge the proposition that there is a disproportionate burden on business. There is enormous profit made; millions and sometimes billions are at stake. The flip side of the gain is the responsibility to ensure, in a manner proportionate to the risk, that the money is clean.

Whilst improvements can and should be made in terms of how intelligence from SARs is gathered and utilised, the focus of UK regulation is proportionate to the risks presented. So, for example, where the client is a PEP, enhanced due diligence is required. This is not a requirement across the board. 

I would suggest that in the UK the responsibility placed on business is fully justified.

The SFO have long made the case for corporate criminal liability across economic crime. Our experience of investigating corporates is that the evidence trail often dries up just below board level. We look across the pond and see vicarious criminal liability working in the USA without any discernible detrimental impact on the economy or business. It is our view that the risk of criminal sanction in addition to regulatory sanction, which in any event only applies to businesses in the regulated sector, changes board room culture for the better.   

In the UK we have a fail to prevent offence in the Bribery Act 2010 and fail to prevent the facilitation of tax evasion offences in the Criminal Finances Act 2017. Fraud and money laundering are currently out of legislative scope. If there is appetite for corporates to be held to account for crimes committed for their benefit by employees, contractors or consultants, then this needs to change.

This matters for asset recovery. Convicted corporates pay confiscation orders and corporates subject to Deferred Prosecution Agreements must disgorge the profit made from their crime as part of the financial settlement that can also include compensation and costs in addition to the financial penalty itself. This in turn can mean more money for victims. 

Is a focus on unexplained wealth a partial answer?  

It is – but the key word here is partial!

Unexplained Wealth Orders are big news in this jurisdiction. They came into force earlier this year and are an investigative order made in the High Court requiring the holder of the property to explain its acquisition in circumstances where there are reasonable grounds to suspect that the known sources of lawfully obtained income would be insufficient. In appropriate circumstances an interim freeze may be granted to prevent dissipation. Where there is no response, there is a rebuttal presumption that the property is the proceeds of crime. Where there is a response, a decision has to be taken to either accept it or continue investigating primarily with a view to bringing a civil recovery case before our courts.

It sounds obvious, but unexplained wealth first has to be attributed. This means that transparency in beneficial ownership of assets is a really important. In the UK we have a register identifying the beneficial owners of companies. This is a first step and problems have been identified with how this works and how its underlying purpose can be undermined. A register of the beneficial owners of companies that own UK real estate and bid for Government contracts is very important, and our overseas territories and dependencies’ now to keep a register, not public, but available to law enforcement at least. However, much remains to be done, both domestically and internationally in this area.  

A second obvious point is that wealth identified must be unexplained. Many sophisticated individuals engaging in complex economic crime will often already be wealthy or at least have identifiable and considerable legitimate sources of income. Sometimes the source of some of that wealth may be questionable, but speculation and insinuation will rightly fail to impress our High Court judges. The bar is not high but evidence establishing a reasonable basis is still required to meet it.

So in short, there is real merit in looking for wealth that cannot be explained by legitimate means. But that should not be at the expense of effective regulation, or taking our eye off the ball in other areas.  

Then what do we do?

All economic crime has victims. They may be identifiable, for example, the investor defrauded of life savings, or the person robbed in the street of their valuables. Their identification may be more elusive. They may be local businesses deprived of the contract, or any sub-contracting work, by an international corporate who has paid bribes to ensure their tender is top of the pile. They may be the State and its citizens who have paid over the odds for shoddy products or services. They may be the citizens of those states that fail to thrive due to rampant corruption and theft by their leaders.    

The ideal outcome, where-ever it is possible, is for the money secured through asset recovery to be returned to victims, using that term in its widest sense.

In the UK law enforcement and prosecutors have signed up to ‘General Principles to compensate overseas victims (including affected States in bribery, corruption and economic crime cases).’ We have agreed to identify domestic asset recovery cases, both conviction and non-conviction based that are suitable for compensation, in its widest sense, and then work with others across Government (HMT, HO, DfID and the FCO) to secure the return of that money to country in a safe and transparent manner.

This clearly goes further than UNCAC which presupposes an investigation in the State in question and that State requesting mutual legal assistance.

In the case of Smith and Ouzman, a corporate was convicted of offences under the Bribery Act. The court refused to order compensation because under the criminal law compensation should not be complex and orders should be made in respect of identifiable individuals. The court instead made a confiscation order to the tune of £880K which represented the full value of the benefit to the corporate of this offending. The value of the bribe was £350K and we worked together with others across Government to divert this money from the usual scheme for distributing confiscation monies to the country in question. In the end that return was achieved through the supply of ambulances to local services.

In the case of R v Saleh, £4.4 million was recovered through civil recovery (non-conviction based asset recovery). It represented one part of the value of bribes paid by a Canadian company, GEI, to the Chadian Ambassador to the USA and Canada, his deputy and their respective wives to secure development rights to oilfields in Chad. The bribes comprised of a lump sum payment and the purchase of founders shares in GEI. Saleh, a novice investor, paid around $900 Canadian for shares that were ultimately worth the £4.4 million when Glencore bought the company in 2014.     

On the basis that the people of Chad were disadvantaged by the corruption of their officials, a case has been made to find a way to return this money to people in the region. With the assistance of DfID and other colleagues across Whitehall steps are being taken to identify local humanitarian programmes could benefit from the funds.