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The true extent of commercial fraud isunknown but reported incidents show anever-increasing trend in the number andsize of f rauds.

Control l ingCommercialFraud:The Role of the SeriousFraud Office

Barbara Mills QC

Managerial Auditing Journal, Vol. 6 No. 3, 1991, pp. 30-32MCB Universi ty Press, 0268-6902

No one knows the extent of commercial fraud. We cannotmeasure it because it depends upon how many frauds arereported. All that we can tell is that the reported incidentsof fraud show an ever-increasing trend in the number andsize of the frauds. Fraud is detrimental to financial centresin every possible respect. Financial centres depend in largemeasure for their success upon having an unblemishedreputation for honesty and reliability. If that reputation istarnished by fraud, it drives away honest and reputablebusiness.Not only is fraud disastrous to a financial centre , it is alsodevastating to the victims who suffer as a result of a fraud.In my view there is no such fraud as a victimless fraud.The most obvious victims are to be found in investmentfrauds. The stories of the investors are often tragic. Manyof them have never had the experience of handling largesums of money. They have acquired a capital sum by hard-earned savings, or from redundancy, the settlement ofa claim or in a variety of other ways. It may well representtheir sole capital, and it is precious to them . They entrust

it to an investment organisation which they tru st, only todiscover later that it has been squandered and lost.There are of course many other types of frauds. Someexamples of the types of frauds which we investigate andprosecute are mortgage frauds, thefts on a massive scaleby employees, frauds practised on purchasers by suppliers,frauds on banks, time-share frauds, and computer frauds.In all these types of fraud, there are victims. They arethe individuals, partners and companies who have lostmoney, usually irrecoverable, through these frauds.The last category of fraud is the frauds which affectmarkets deliberate market manipulation and insiderdealing. These are not victimless frauds. Anyone whodeliberately and secretly distorts the market or acts oninside information which is not generally available hasbenefitted unfairly and unjustly at the expense of someoneelse.For these reasons, it is important that people who aretempted to act fraudulently should be deterred from suchconduct. If frauds have been committed, they should beinvestigated quickly and thoroughly, and, in the appropriatecases, prosecuted efficiently and effectively. Prior to theestablishment of the Serious Fraud Office[1], the publicperception was that the criminal legal system could notcope adequately with the perpe trators of serious frauds.There were several scandals during the 1970s and 1980swhich attracted must attention and concern. The RoskillCommittee was appointed to consider the problem. TheRoskill Committee was appointed to consider the problem.The Committee reported in 1986 that fundamental changewas required. It was as a result of this report that theSerious Fraud Office was established by the CriminalJustice Act 1987.The Serious Fraud Office was created as an entirely newstructure. F irst, this has resulted in a novel approach tothe investigation and prosecution of fraud. Second, it wasgiven new and extensive powers to enable it to carry outits work properly. Third, court procedures were alteredand modernised to speed the trials of serious frauds. Inmy view, it is the combination of these three radicalchanges which now enable us to tackle the problem ofserious fraud effectively. Let me therefore deal with thesethree changes separately.

The Structure of the Serious Fraud Off iceThe structure is unique in investigating and prosecutingauthorities. We have lawyers, accountants and policeworking together in the same building. They work as anintegrated team , pooling their expertise on an investigationfrom the day when we take on a case. This means that

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we progress cases far more effectively and speedilybecause the three essential disciplines necessary to theinvestigation of fraud work together. We have a lawyercalled the case controller who is in charge of the progressof the case thereafter. We brief counsel at an early stageand bring in experts if necessary to help in specialisedareas.

The Serious Fraud Officeis both an investigatingand a prosecutingauthority

The Serious Fraud Office covers England, W ales andNorthern Ireland from a single office in London.Approximately 70 per cent of our cases come from theLondon area. This is not surprising because London issuch a large financial centre. Referrals come to us from,amongst others, police forces; regulatory authorities; theDepartment of Trade and Industry; the Bank of England;company receivers and liquidators; and private individuals.We do not take on all cases which are referred to us. Wehave three criteria which we must observe in decidingwhether we should take on a case. They are:

(1) The facts and/or law are of great complexity.(2) There is great public interest and concern.(3) The money lost or in serious danger of being lostexceeds 2 million sterling. This is a d iscretionaryfigure which we may have to increase.

Of the cases which are referred to us, we take on about65 per cent. We have about 60 active cases at any onetime. An indication of the scale of the problem, is thatthe money at risk in our current cases is about 2 billionsterling.

The Powers off the Serious Fraud Off iceWe are both an investigating and a prosecuting authority.Perhaps the most important of our powers are those calledthe section 2 powers. As Director of the Serious FraudOffice I may delegate those powers to members of theoffice to exercise on my behalf. Under these powers I maynotify persons under investigation, or anyone whom Ibelieve has relevant information, that I require them toanswer questions. I have a similar power to order personsto produce documents to me. We can take copies of thedocuments and ask for explanations about them. It is acriminal offence to fail to comply with these requirements,to give false or misleading statements, or to concealrelevant m aterial. We have prosecuted two defendants for

these offences and both were sentenced to terms ofimprisonment.In most circumstances, if a person has been interviewedunder Section 2 and then becomes a defendent, theirinterviews cannot be given in evidence in a subsequenttrial. We find however that these interviews are aninvaluable investigative tool. The interviews are not carriedout by the police. They are carried out by either aninvestigative lawyer or an accountant. The case controller,who makes the ultimate decisions about prosecuting, isnot involved in these interviews because it is importantto separate the investigating and prosecuting functions.

If we need to search prem ises, we apply to a magistratefor a warrant and the search is carried out by the police.As you will appreciate, we seize huge quantities ofdocuments frequently. In addition, we often have equallylarge quantities su rrendered to us voluntarily. We have tohave a meticulous logging and tracking system for eachdocument in a case . For these needs we have developeda computer-based document-control system. Every pieceof paper has its own unique computer-generated number.The complete documentation in the case is put into thecomputer. This continues throughout the progress of thecase. It includes all the transcripts of the ev idence. Notonly does this provide an accurate record of thedocuments, but it also crea tes a database of material forinstant recall.

We always handleinformation withdiscretionWe have power to disclose information to other bodiesinvolved in the control of fraud. This includes disciplinaryand enforcement bodies both within our jurisdiction andabroad. There are however certain statutory limitationsupon such disclosure, and we always handle informationwith discretion.

Changes in Court ProcedureThe two principal changes are provision of the transferprocedures and the introduction of the preparatoryhearing. All cases previously went to the magistrates courtfor committal to the Crown Court. Sometimes thesecommittals were protracted hearings which built in yetmore delay. Now we can transfer to the Crown Courtwithout having a committal. We do that in the majorityof our cases. We sign a transfer certificate which certifiesthat in our opinion there is sufficient evidence for a personto be committed and that it is a case of such seriousness

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and complexity that the trial should without delay be takenover by the Crown Court. The prosecution has to drafta statement of the evidence which is a detailed accountof the case . This is sent to the defence and to the CrownCourt. It is an important innovation because it means thatthe Crown has set out its case in a written and coherentform at an early stage in the case.

Almost all cases havein ternational connections andramificationsAfter transfer, the defence can apply to dismiss the caseif they consider that there is no case to answer on theevidence which was sent with the transfer to the CrownCourt. The trial judge hears and determines theapplication. If he or she agrees, the defendant isdischarged. If not, the case proceeds to trial.The most important procedural change is the introductionof the preparatory hearing. Its purpose is to refine theareas of dispute between the prosecution and the defenceand to simplify the issues and presentations of the casefor the jury. The trial judge presides and the please aretaken at the star t of the preparatory hearing, although nojury is sworn until the conclusion of the hearing. T hereare limitations on publicity during the hearing. The hearingmay be adjourned on a number of occasions and oftenspreads over several weeks.The prosecution is ordered to produce a case statement.This is a fuller document than the statement of theevidence. It covers the principal facts of the prosecutioncase, the witnesses, the exhibits, and the law. For thefirst time, we now have the equivalent of pleadings incriminal trial. After the prosecution has served the casestatement, the judge can and usually does order thedefence to put in a written statement setting out the natureof the defence and the principal matters upon which theytake issue with the prosecution. This is intended to refinethe issues in dispute, thus avoiding waste of time andmoney during the trial.In the preparatory hearing, the judge can give rulings onthe law to be applied during the case and can rule on

admissibility of evidence, including any contested issueabout the admissibility of a defendant's confession. Thejudge can also give directions about the way in whichevidence is to be presented to make it more readilyintelligible to the jury. In addition to using graphs, chartsand diagrams, we now use computer graphics to presentcases in court. The judge can order how documentaryexhibits should be produced and rule on facts which theprosecution propose that the defence should admit. Thereis a system of interlocutory appeals from most of theserulings.Preparatory hearings are a radical advance upon anymethod of court procedure hitherto used in criminal cases.In my opinion they are a marked improvement upon ourprevious system. If a preparatory hearing is conductedproperly, the legal arguments are settled and the issuesin dispute are crystallised before a jury has been sworn.The manner in which the evidence is to be presented hasbeen agreed in a format which is easy to follow. The juryis able to concentrate on the issues in dispute betweenthe parties, helped by a clear presentation of the necessaryevidence. In my view, the benefits are so substantial thatthere is a strong argument that in due course thisprocedure should be extended beyond fraud to other typesof serious and complex crime.Finally, may I touch upon the international quality of ourwork. Almost all of our cases have internationalconnections and ramifications. We are always working toimprove our relationships with our counterparts overseasand to foster international co-operation. It is in theinterests of all countries and financial centres that we worktogether to try to detect and eradicate fraud.

Footnotes1. The Serious Fraud Office was set up to investigate andprosecute the most serious and complex cases of fraudin England, Wales and Northern Ireland. It beganoperations on 6 April 1988.

2. Mrs Barbara Mills QC became Director of the SeriousFraud Office on 3 September 1990 and is the secondholder of the post.She has specialised in the prosecutionof fraud. The Director of the Serious Fraud Office issupported by a staff of over 100, including lawyers andaccountants. Police officers from the Metropolitan, Cityof London and regional fraud squads are located withinthe SFO and work with each SFO team.

Barbara Mills is a Queen's Counsellor and Director of the Serious Fraud Office.