Lawyers no longer to front fraud probes

The SFO was widely criticised for its handling of its investigation into BAE Systems

The prosecutor-led approach to tackling large and complex fraud, which the UK imported from the US more than 20 years ago, is set to be dismantled.

An internal Home Office document, that I have read, outlines plans to break up the Serious Fraud Office (SFO), with its lawyers moving to the Crown Prosecution Service (CPS) and its investigators being transferred to a new Economic Crime Command (ECC) based within the new National Crime Agency, due to be set up in 2013.

I am told that the Home Office is next week set to announce a consultation on what would be the most radical change to the investigation and prosecution of financial crime since the creation of the Serious Fraud Office in 1988.

The SFO has, since its inception, been a unified investigating and prosecuting agency, which employs both lawyers and investigators.

Lawyers have led the SFO, because of the presumption that the complexity of financial crime is more suited to their skills. It was also felt that lawyers were better placed to conduct interviews with senior figures in the City and business.

However, the Home Secretary Theresa May wants to revert to the system of investigations being fronted by the police and specialist investigators, with lawyers getting involved when the question arises of whether charges should be brought.

Morale drain

Here is how she explained her thinking in a letter to Dominic Grieve, the Attorney General. The letter implies that Mr Grieve disagrees with her about the merits of hiving off lawyers from investigators:

The home secretary would like to limit the role of lawyers in the SFO

"I am grateful for your acknowledgment that there are no insurmountable challenges in housing prosecutors and investigators in separate structures.

"I continue to believe that this is the right choice for the new landscape we are designing and will ensure that the right processes are put in place to ensure there are appropriate arrangements for superintendence.

"I know that others will continue to disagree and to prefer the current arrangements or look to the US Department of Justice, but there is almost no qualitative evaluation of these different structural models, which would allow us to take an empirical decision between them.

"Whilst the US model is prosecutor-led, Canada, Australia and Germany run solidly investigative agencies for economic crime. But there is no 'gold standard', so in either model we would need to ensure that inherent risks were mitigated effectively."

Since the general election, the SFO has been aware that its days as an independent agency have been numbered. That's because the coalition government's programme for government contains a commitment to create "a single agency to take on the work of tackling serious economic crime done by the Serious Fraud Office, the Financial Services Authority and the Office of Fair Trading".

However my sources tell me that it is the proposed hiving off of the lawyers from the investigators that is damaging morale at the SFO and undermining its ability to pursue its large workload of around 100 outstanding cases.

Asset freeze

"Very few of the lawyers want to move to the CPS" said a source. "The uncertainty about their future means the SFO is already losing good people and it could get worse".

The plans would change an approach that has been in place for 20 years

Ever since its inception, the SFO has had high profile setbacks and has never been seen as an unqualified success. Back in the 1990s, it acquired the nickname of the Seriously Flawed Office, as cases against the Maxwell brothers, Roger Levitt and George Walker all flopped.

More recently, its handling of investigations into alleged bribery by BAE Systems was widely criticised, especially after it ended a probe into the Saudi Arabian aspect of the case in the face of intense pressure from government.

But its performance is perceived to have improved in recent years. In 2010-11, 17 cases involving 31 defendants went to trial, and 26 defendants were found guilty. The conviction rate was 84%, and the average jail sentence was over 30 months. In the same period, £64m of funds were recovered for victims.

Its current case load of 100 cases are being pursued on a budget for 2011/12 of £33.9m, which will fall to £30m by 2013/14. In 2008/9, it had a budget of £53m for a workload of just 65 cases.

The SFO believes that if it were allowed to keep its current structure, its dependence on taxpayer funding could reduce further, thanks to its growing success at levying fines, obtaining compensation and seizing criminally obtained assets for the benefit of the public purse.

A source said the victims of fraud were also benefiting from the SFO's increased zeal at freezing assets early in an investigation, to prevent those assets being silted away during the lengthy probes. He added:

"On a declining budget the SFO is actually bringing in money to the Treasury, having repatriated around £10 million in fines and compensation in the past two to three months."

Update 1744: Sources tell me the home secretary is facing stiff opposition to the reform from the Treasury and Business departments - which means the prime minister will have to decide whether to back his home secretary on a change that some in the City and campaigning groups would see as weakening the battle against financial crime.