Speech to Annual Conference of the Institute of Money Laundering Prevention Officers
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by Solicitor General Edward Garnier QC MP
“I want to begin with a brief overview of the organisations involved in dealing with economic crime, reporting to or superintended by different government departments. There are several of them and when I first looked at the question of how best to investigate, prosecute and deter complex economic crime 18 months ago when in opposition it all looked to me very much like alphabet soup.
“The Attorney General and I are the government’s ‘Law Officers’. We are both Ministers of the Crown, politicians appointed by the Prime Minister to be part of the political government. We can also get sacked or moved by the Prime Minister just like any other minister.
“We vote with the government and we accept collective responsibility with our colleagues, but in some major respects we are quite different to other ministers by virtue of the office we hold. Harold Macmillan told Peter Rawlinson on his appointment as Solicitor General in the early 1960’s that his first loyalty was to the rule of law; his second was to Parliament and only in third place came his loyalty to the government.
“This is because we are not jobbing political ministers but Law Officers to the Crown and just like lawyers in private practice we spend a good deal of time advising and acting for our main client, the government in its many guises. We are by statute interchangeable, each can carry out each other’s work and since there are only 2 of us, it frequently happens that one of us will be away, abroad or out of London, even occasionally on holiday, so we need to be able to step into the other’s shoes.
“Put shortly, we exercise a number of functions in the public interest, such as the power to bring contempt proceedings to protect criminal trials and the administration of justice. We appear in the courts of England and Wales, in the European Court of Justice and the European Court of Human Rights on behalf of the government or to assert the public interest. We also superintend the Law Officers’ departments.
“Two of these are of direct relevance to your conference and are concerned with economic crime: the Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS).
“The SFO is the independent government department that investigates and prosecutes serious or complex fraud, and corruption, with jurisdiction in England, Wales and Northern Ireland. The Director of the SFO is appointed by and accountable to the Attorney General. The key factors that the SFO considers before taking on a case are:
- does the value of the alleged fraud exceed £1 million?
- is there a significant international dimension?
- is the case likely to be of widespread public concern?
- does the case require highly specialised knowledge, eg of financial markets?
- is there a need to use the SFO’s special powers?
“By taking on appropriate cases, investigating them and bringing them to a successful conclusion as quickly as individual circumstances allow, the SFO contributes to bringing financial criminals to justice; to the reduction of fraud and corruption and their cost to the public, our economy and our national reputation; and to the maintenance of confidence in the United Kingdom’s business and financial institutions.
“Other economic crime is investigated, but not prosecuted, by the police. The City of London Police is the national lead force for fraud. The Serious Organised Crime Agency (SOCA) tackles serious organised crime that affects the United Kingdom, including fraud and money laundering but of course its remit takes in human and drug trafficking as well.
“Local police forces are responsible for investigating less serious fraud in their areas - and by that I mean frauds that can be measured in hundreds of thousands of pounds, as opposed to multi-millions, and although perhaps less significant in terms of each individual case when looked at from the centre, these cases represent a huge loss to the country and to individual victims.
“The Home Secretary is the Minister responsible for the police, and for the criminal law on money laundering. The Treasury leads on what I would loosely call the City and the financial services sector, dealing with the regulatory framework and industry guidance, and through what is presently called the Financial Services Authority, but will before too long become the Financial Conduct Authority, disciplines the financial services sector and prosecutes financial crime, for example, insider trading, market abuse, and boiler room scams.
“The FSA is accountable to Treasury Ministers and, through them, Parliament, but is operationally independent of government and funded entirely by the firms it regulates and, like the SFO, is an integrated investigator-prosecutor. HM Revenue & Customs, the Office of Fair Trading and a number of industry bodies supervise compliance with the Money Laundering Regulations by businesses.
“Financial crime investigated by the police (or HM Revenue & Customs) is prosecuted by the Crown Prosecution Service. Within the CPS, the Central Fraud Group prosecutes all cases of direct tax, indirect tax, excise duty and tax credit fraud. This work used to be done by the Revenue and Customs Prosecution Office but that has now been merged within the CPS through the Central Fraud Group.
“It is also responsible for prosecuting cases involving export control, illegal arms trafficking and sanctions violations, together with money laundering offences where any of the above appears as the trigger offence. The Group prosecutes fraud cases where the value of the fraud is in excess of £1 million or, if the case is considered to be complex, sensitive or to have a potentially high media profile. Other fraud cases are prosecuted by CPS Areas.
“This government has made crime reduction a top priority and this includes reducing the amount of economic crime. All crime, but particularly complex economic crime, is expensive both in time and money to investigate and to prosecute but its effects can be as devastating to its victims as violent or other acquisitive crime.
“The most cost-effective way of cutting crime is prevention. Individuals and organisations need to recognise that they have to take responsibility for protecting themselves from fraud and the consequences of other economic crime, but the state has a duty to ensure that there is an effective criminal justice system that can respond quickly, proportionately and economically.
“We need therefore to ask ourselves whether the current system does what it should, to see whether it working?
“All the agencies I have mentioned can point to notable recent successes but in January this year the National Fraud Authority (NFA) published its Annual Fraud Indicator, which estimated that fraud is costing our national economy over £38 billion a year. The breakdown by sector was:
- public - £21 billion
- private - £12 billion
- individuals - £4 billion
- charity - £1.3 billion
“Fraud not only has serious consequences for individuals, businesses and public services: it is also often used to fund serious crimes, such as terrorism, drugs or human trafficking.
“The estimated cost of organised crime to the UK economy is £20-40 billion a year. The importance of tackling organised crime through disruption of criminals, plots, conspiracies and crime itself cannot be overstated. Money, and particularly tax-free access to other people’s money, both motivates criminals and constitutes the reward for the risk of conducting criminal activities and it provides the capital available to invest in future scams and conspiracies.
“Organised criminals may accumulate wealth in cash and assets or spend their profits sustaining a lavish lifestyle, and the profits from crime are used to buy the goods and services needed to fuel future criminal activity. Criminal finances run through and link all aspects of organised criminality, from burglaries committed locally to pay for drugs, to supporting the networks needed to smuggle the same drugs across international borders.
“So what are the government and the relevant agencies doing, and going to do, to bear down on economic crime?
“First, we need better to coordinate the work of the alphabet soup of organisations already referred to. The infrastructures underpinning criminal finances are as varied, complex and sophisticated as the methods of criminality employed by the gangs and individuals who operate locally, nationally and internationally.
“Money laundering shifts resources between fraud and financially-motivated organised crime and most criminals will be involved to some extent in laundering their criminal proceeds, to hide their true origins and to legitimise them. They will go to great lengths to hide or disperse their ill-gotten gains so that they cannot be recovered by the police or stolen by some other crook.
“They will use more than one money laundering method at a time, from relatively low level laundering such as investing in property, putting the cash through front companies, foreign exchange dealing and using false accounting, to more sophisticated methods such as layering and online money transfers.
“So we need to be ahead of them, more sophisticated than they are and more resolute to catch them than they are to avoid. The government made clear in our Coalition Programme, published a year ago, that we take white collar crime as seriously as other crime, and that to achieve success and to avoid duplication and gaps in our criminal justice system that could be exploited by criminals we would create an Economic Crime Agency to take on the work of tackling serious economic crime that is currently spread between the Serious Fraud Office, the Financial Services Authority and the Office of Fair Trading.
“This was a project that was being worked on by both the Treasury and my own department but last autumn, the government decided that criminal prosecution powers in relation to market abuse should for the time being remain with the FSA’s successor body, the FCA thus ensuring that the FCA’s markets unit will have powers to both regulate and prosecute market abuse. The legislation that will bring about the reorganisation of the Bank of England’s role and those of the FCA and the Consumer Protection and Markets Authority will be introduced later this year but it meant that consideration of the way we deal with non-City specific economic crime, whilst remaining with my department transferred from the Treasury to the Home Office.
“The Home Secretary, the Law Officers and other relevant colleagues are currently considering options for delivering this commitment, and we hope, ending the piecemeal approach to tackling white-collar crime. The economic crime landscape, to use the Whitehall jargon, is diverse, and it is complicated so all our efforts need to be focused not on creating structures but on attacking the very thing that causes us all to be concerned: that hydra-headed monster which is complex economic crime.
“We need to deploy the right resources, the right skills and the right intelligence against the several types of economic crimes currently bedevilling us. In this, the Home Office is working closely with the Attorney General’s Office and others including the Ministry of Justice, the Treasury and the Cabinet Office. It is important to get this right, and we are giving careful consideration to all the issues.
“How can we improve the international and high end work we presently do through the SFO in investigating and bringing to justice foreign-based and British-based criminals who attempt to corrupt and undermine our economy and those of countries overseas, to use our top FTSE companies without their knowledge as cover for international crime, who work across national and continental boundaries to achieve their criminal ends?
“How can we ensure that the City of London Police can better lead and coordinate our investigative effort with international partners and, within this jurisdiction, with county police forces whose focus tends, quite properly, to be on drug dealers, burglars, and Friday night city centre violence, rather than on those conducting medium-size frauds and financial crimes on the domestic stage? How do we ensure that cases that are not big enough or lack a sufficiently international dimension for the SFO are taken up by the police, the CPS Central Fraud Group or by the CPS and are not left un-investigated and not prosecuted so that those who have committed crime get away with it?
“One organisational consolidation that will improve our ability to fight economic crime is already in place. From 1 April, the Home Office took over responsibility from the Attorney General’s Office for the National Fraud Authority (NFA), which leads on combating fraud across the public and private sector through research and public dissemination of knowledge and good practice.
“It is hoped that this change will strengthen the country’s ability to crackdown on fraudsters by building closer links with those engaged in the wider fight against organised and cyber crime. At the time, the Home Secretary commented: ‘The government is determined to give greater focus to tackling both serious and economic crime… the move of the NFA to the Home Office… will forge even closer links with our key partners in the police, Serious Organised Crime Agency and other law enforcement agencies.’
“Secondly, to improve our response to economic crime, we need to ensure that the criminal justice system, at every stage, prioritises economic crime and has the powers to deal with it effectively. Economic crime is not a ‘victimless crime’, but includes, for instance, stealing from pension funds. The public expects the police and prosecutors to combat fraudsters as much as other villains.
“Many of the necessary operational and legal weapons are already in place. Our law enforcement agencies already have formidable powers for investigating criminal finances and recovering assets from criminals under the Proceeds of Crime Act 2002 (POCA). These powers provide robust and valuable means by which to detect, disrupt and deter criminals, and the amount of criminal finances disrupted since the introduction of POCA has gone up every year. We can and should do more though to recover the proceeds of crime, criminal assets and to return to victims the money they have lost.
“So we need to encourage all police forces, not just the City of London Police, to have a real focus on fraud and money laundering. The effective investigation of money laundering helps in the recovery of stolen assets and disrupts funding for terrorism and for human and drug traffickers. There is not a police force in the country that is not facing organisational change and financial constraints, but the Home Secretary has said that despite this they should be able to deal with their main activities, including the investigation of financial crime.
“Of course, to identify and investigate economic crime, the police need good intelligence. The private sector has a key role to play here. I know that some of you may have concerns about the regulatory burden of Suspicious Activity Reports. But SARs are a crucial information and intelligence resource for law enforcement action against money launderers and fraudsters. SOCA receives over 200,000 SARs a year, the majority of which come from the financial services industry. I understand that the Treasury is currently reviewing how the money laundering regime works in practice, and will issue a response to that review shortly. No doubt you will hear more about that from Hugh Burns, who is speaking to you later this afternoon.
“I am also aware that difficulties can arise about what officers in the regulated sector can tell clients while awaiting SOCA consent to complete a reported transaction, or for the moratorium period to expire. Section 333 of the Proceeds of Crime Act is not an easy provision to understand both as to its offences, its exceptions and its defences so I appreciate that nominated officers have genuine concerns about whether their conduct, either through omission or commission, could lead to their being implicated in or prosecuted for the offence of tipping off contrary to section 333.
“However, the CPS is of the view that if tipping off happens inadvertently, the nominated officer would have a viable defence. Under the Code for Crown Prosecutors, a prosecution for any offence requires, first, enough evidence to provide a realistic prospect of conviction, and, secondly, that the prosecution is in the public interest. In cases of minor harm or where the offence under sections 330-332 or 336 of POCA has been committed as a result of a genuine mistake or misunderstanding, the public interest may be better served by referring the matter to the relevant regulatory or supervisory authority to deal with, rather than by pursuing a criminal prosecution or a caution.
“Moving on to the prosecution of economic crime more generally, the Attorney General and I are concerned to ensure that prosecutors and the courts have all the tools and powers they need. We are discussing this with our ministerial colleagues in the MoJ. Should the government decide to take any changes forward to legislation it will consider whether there is a need for consultation on specific issues but the areas we are considering making changes have to do with, for example, deferred prosecution arrangements and more effective use of civil remedies and asset recovery, more effective indications of sentence under the Goodyear principles and pre-conviction changes in disclosure requirements. In the longer term, we also plan to look at whether the law on corporate criminal liability needs to be readjusted.
“Turning to the sentencing of convicted offenders, fraudulent conduct can come within a variety of common law and statutory offences such as conspiracy, money laundering, handling, theft, corruption or bribery, all with different maximum or likely sentences. In 2009, the Sentencing Guidelines Council produced a Definitive Guideline on Sentencing for statutory offences of fraud which addressed this issue. And its successor the Sentencing Council, chaired by Lord Justice Leveson, has recently agreed to consider the scope for a guideline on bribery and corporate or financial crime, and will begin work on this in the current financial year.
“One of the our powers as Law Officers is to ask the Court of Appeal to review sentences which we consider to be “unduly lenient” - not less than we would have sentenced or another judge could have sentenced but so far below what is manifestly correct that a judge could not reasonably have given that sentence. Only certain cases are eligible: the more serious crimes which can be dealt with only in the Crown Court, including all conspiracy charges and cheating the Revenue; and some other specified offences (none of which relate to economic crime).
“Any such referral has to be made within 28 days of the passing of the sentence. Anyone can alert us to an unduly lenient sentence, and we consider all such cases personally. If we refer a case, and if the Court of Appeal agrees the sentence was unduly lenient, it can increase the sentence. These powers have been used in a ‘missing trader’ fraud case in 2006, in which the Court of Appeal increased the sentencing levels for this kind of crime.
“Last but not least, when financial and other criminals are brought to justice, it is important to try to recover the proceeds of their crimes. The POCA powers are being used increasingly effectively as agencies become practised in their use, and internationally we are seen as world leaders in asset recovery. When used to their full effect these powers have dramatic consequences, and common sense and police intelligence tell us that many organised criminals are far more concerned about losing their (or more accurately, other people’s) money than spending time in prison. But no matter how good we get at recovering the proceeds of crime there will always be a huge number of crooks who have the means and the wherewithal to stay one step ahead of the police so we need to make their lives uncomfortable and their ambitions less global.
“That’s why the government will soon publish an Organised Crime Strategy, which will set out how we will increase our ability to hit a far wider range of criminal finances in particular through:
- increasing the effectiveness of asset recovery activity and unblocking our bureaucratic systems, including stepping up our ability to recover and disrupt criminal finances held overseas
- recognising and broadening the use of asset denial
- stepping up work to target conspirators, back-room crooks and money launderers
“Thirdly, we need to recognise the importance of international cooperation in combating economic crime. The volume of financial business in London means it can be used by criminals to move money quickly and easily into other markets and jurisdictions through the international financial community. To counter this international cooperation between police forces and prosecutors is vital. Criminal activities are now more often transnational, exploiting the deficiencies, particularly failures in cooperation and mutual assistance. Criminals and their professional advisers know how international cooperation works and they know how to exploit its weaknesses to stay ahead of the law enforcement authorities.
“The SFO is President of the Organisation for Economic Co-operation and Development (OECD) Task Force on tax crime and other crimes (including money laundering) and influential in providing training on money laundering to OECD member countries. The SFO has extensive strategic and operational experience of working with overseas law enforcement agencies and jurisdictions in fraud and corruption cases, through mutual legal assistance and via Europol, Eurojust and Interpol.
“Its relations with the US Department of Justice are close and mutually advantageous as I was able to confirm with the US Attorney General last week when he was in London. The SFO is the evaluator for the Council of Europe’s Group of States against Corruption (GRECO), looking at other countries’ legislation and operational methods and recommending improvements at the Council of Europe in Strasbourg.
“The CPS also has good experience of working with overseas partners in economic crime cases. By its nature, MTIC, ‘missing trader’, or ‘carousel’, fraud in particular cannot be prosecuted without law enforcement and prosecutors working effectively with their overseas counterparts.
“A recent example was Operation Duma, which involved the prosecution of 7 defendants for conspiracy to Cheat the Public Revenue, relating to a £45 million missing trader fraud concerning the purchase and sale of mobile phones. The investigation focused upon the activities of 6 companies operated by the defendants. Important evidence was provided by investigators in a number of European countries and the Far East. All 7 defendants were convicted over the course of 2 trials and each received sentences of between 4 and 15 years imprisonment.
“I hope I have shown you that the government is determined to increase the salience of economic crime within the justice system, to demonstrate that we Law Officers are determined to play our part in leading the campaign against it and to help enhance and make more efficient the efforts of our criminal justice and law enforcement agencies. To do this we need the support of the private sector, and close working relationships with our overseas’ counterparts.
“It is our mission to bring these crooks to justice, to take their ill-gotten gains from them and to see them sentenced in such a way that they will be deterred from trying it again and that those who think this an easy way to make a living come to see it as a quick and certain way to prison.”