When David Green joined the SFO in April, he found an organisation in internal chaos and subject to external abuse and ridicule. The case against Vincent and Robert Tchenguiz (in relation to Kaupthing Bank) was starting to unwind due to administrative failures. And the SFO had got bogged down in smaller cases of mortgage fraud while American prosecutors were bringing the likes of Standard Chartered and HSBC to book with money laundering investigations.
Meantime, the public was clamouring for retribution against bankers, whose woes and failings in the crisis were becoming ever more transparent.
Green’s remedy was to be tough and forthright. He cracked down on internal quality controls and announced to the world that he would give no quarter to corporate criminals. He also said he would bring focus to the SFO so that it made maximum impact with limited resources.
“I want to make it so that you don’t want to be investigated by the Serious Fraud Office,” he said.
“We will take you on, we will not run away from cases because they are difficult or expensive or take a long time to investigate or involve big numbers. The public expect us to do it. I would like the SFO to have a hard-edged, tough reputation. It should be something that is feared.”
The recent result in the Asil Nadir case — where the Turkish Cypriot businessman was convicted and given a 10-year sentence for stealing £29m from his company, Polly Peck — enforces Green’s message that misbehaviour has severe consequences. But the jury is out on the organisational changes, which will be tested to the limit by the SFO’s current investigation of the Libor case.
This will put the SFO at the forefront of global prosecutors and will set it in direct competition with American prosecutors who want to bring their charges first in New York.
Internal organisational chaos at the country’s prime investigator and prosecutor of high-value fraud was Green’s first target, and he moved on it swiftly. He describes the shambles that he found on his arrival at Elm Street on 23 April.
“The structure of the office that I inherited was like the television programme Game of Thrones. It was a slightly eccentric structure with all sorts of competing interests. I didn’t understand the logic of it. I am sure there was a logic at the time it was set up.”
I would like the SFO to have a hard-edged, tough reputation. It should be something that is feared
Green removed a system of domains which had resulted in overlapping interests between fraud and bribery experts and set up four casework divisions, two dedicated to fraud and two to bribery. Each is headed by a senior civil servant who will be the immediate supervisor of the case teams underneath. He has also added to the SFO’s top table by bringing in Alan Milford, the former head of the organised crime division at the Crown Prosecution Service, and Geoffrey Rivlin QC, a distinguished retired judge and fraud expert, who will be a special adviser.
“The new model won’t be totally siloed. But they will have lead specialisms. The main thing is the accountability, with mixed case teams of investigators and prosecutors reporting to a divisional level head who reports to me.”
Green’s own expertise is in fighting fraud. He worked for 25 years in private practice as a barrister in the area before joining the Revenue and Customs, where he managed the prosecutions arm. Sources familiar with this part of his career say Green worked closely with the intelligence services while at the Revenue, in particular in its role fighting the financing of terrorist activity after 9/11. Which may explain why he decided soon after joining the SFO to boost its intelligence resources.
“I am investing very heavily in our intelligence capability,” confirms Green. “There is a vast amount of information available in open source material. It is all over the place. It needs to be collated and worked up, and then blended with more sophisticated intelligence.” The City of London Police will support the SFO’s team in gathering what Green calls “exotic” intelligence, and he does not exclude the possibility of using undercover agents (covert human intelligence sources in the jargon) “if appropriate”. He insists however, “the basic is working on published material”.
The key focus of Green’s casework activity is now directed at bringing charges in its case against banks involved in the rigging of the Libor market. Green says he is looking to some highly sophisticated economists for support. He is bringing in swathes of accountants, lawyers (Green says he is currently looking for barristers of between five and 10 years’ experience) and city experts to add to the investigators from the Financial Services Agency, which has been investigating the Libor issue for some time.
But Green says the SFO will investigate the wrongdoing much more deeply than the regulator had. “It is an unbelievably complicated investigation. A criminal investigation is to an altogether different depth and thoroughness than that of the FSA, which has been regulatory. We have to take it much further than the FSA and spread it to other banks. There is an international dimension to the criminality.”
The SFO is under the cosh to produce results as its Libor probe is running in parallel with an American investigation. This started two years earlier than that by the British agency and Green wants to avoid being over-shadowed by a high-profile American prosecution. The SFO is aiming to narrow down its prosecution to some key points to save time. “We have to make this really focused on particular types of misconduct. This is not going to drag on for years, this is not going to be a four-year investigation, two-year break and three-year trial. I want results as quickly as possible. We have to be surgical about it. At the moment the effort is at defining the most promising (from a prosecutorial point of view) conduct.”
Green’s goal is to be able to announce a decision in early 2013. He admits: “There is a timing issue, we will go forward as fast as we can. We will co-operate as fully as we can with anyone else who’s interested. But some people may get to the finishing post first in terms of charges against corporations and individuals. So be it. There isn’t much I can do about it. I am not going to break our necks and bring some sort of crap prosecution just for the sake of it. It isn’t going to work.”
Green concedes “there is a competition for jurisdiction” and he has had some “frank and fair discussions with the Securities and Exchange Commission in the US”. In arguing for a trial in the UK, he says, “We are dealing with British incorporated banks, we are dealing with British bankers although others were involved. These things should be dealt with in London if they possibly can.”
In fact, the SFO has only itself to blame for this lag in the start of its investigation. The Libor evidence was presented to then-director Richard Alderman and he opted to send it down the regulatory route. Green has mixed feelings about that decision. “With hindsight it would have been better [if the SFO had made the initial investigation]. I couldn’t say if I was in Richard’s shoes, I would have made a different decision.” The investigation is now in full flow, however, funded by a special government-granted annual top-up to the SFO’s budget of £3.5m, and Green is staking his reputation on it. “Every director is judged by one particular case. Robert Wardle was judged by the BAE case, Richard Alderman by Tchenguiz and this will be mine.”
Green on the Tchenguiz case
The big lesson from it is so obvious it screams at you
The BAE case involved Middle Eastern alleged bribery in an arms deal and was closed down before coming to court. The Tchenguiz case ended in humiliation. “The big lesson from it is so obvious it screams at you,” says Green. “It is that the SFO made a mistake, in fact several mistakes, in the information — the formal document which was put before a judge to get a warrant. There were factual errors in it. That should never have happened.”
One outcome of the failure is the SFO’s decision to cease to conduct dawn raids on suspects. These have been used by the authorities to put media attention on a suspect as well as catch that suspect off guard, but Green says they carry high risks and are not appropriate to the prosecution of large financial institutions and their executives. “Would you use a dawn raid against Barclays?” he asks. “It doesn’t make sense.”
Another outcome of the Tchenguiz case has been a discussion about the SFO’s funding and resources. In the course of his summing up of a Judicial Review brought by Vincent Tchenguiz, the judge Sir John Thomas, acting with Mr Justice Silber, attacked the quality of SFO staff. “It is clear that incalculable damage will be done to the financial markets of London if proper resources, both human and financial, are not made available for such investigations.” The judges also said the SFO investigators did not have a “proper understanding” to set out the “commercial background to events”.
David Green now says that he wants to start a discussion about funding. “We probably need a new funding model for the SFO. We need the ability and the confidence to buy in the best expertise when we need it. We need the money to do so.” He raises the possibility of a return to “blockbuster funding” where provision is made for additional funds to resource large and complex cases. This form of funding financed the complex “oil for food” case following the Iraq war. “It means if you have a huge stonking case,” explains Green, “you go to the Treasury and reach an agreement about how much extra money you need ring-fenced for that particular financial year.”
The government’s decision to allow additional funding for the investigation of Libor abuses points the way to the formal adoption of blockbuster funding for future cases. Green says: “We have an undertaking that that money is available. I have an undertaking that if more is required to run this investigation then we will have it. That is ring-fenced to Libor.”
Green raises the suggestion that the Asset Recovery Incentivisation Scheme (ARIS) should be renegotiated to put further funds at the SFO’s disposal. ARIS is funded by the proceeds of crime confiscated by law enforcement. Currently the Home Office receives half, with the investigator and the prosecutor receiving 18% each. However, he also points to some flaws in the scheme: “These funds could be quite substantial if we get a large civil recovery order or a criminal recovery order. But you can’t rely on it, and you cannot calculate how much in any one year, looking ahead, that will generate. It is a good source of income, and as a matter of principle I see nothing wrong with prosecutors being in part funded by money taken from criminals. I am all for that.”
You can co-operate but don't think you are buying us off. Because in the right circumstances we will prosecute
Green also welcomes wider acceptance, particularly among the judiciary, of Deferred Prosecution Agreements (DPAs). These are made when a prosecutor agrees a settlement with a company that admits an offence and makes a payment in return for a stay of prosecution. The company will be subject to certain strictures while the prosecutor may also require the company to agree to have its behaviour monitored by an independent auditor, at its expense. Green denounces strongly the suggestion that companies will self-report an infraction as a way of getting a DPA.
“Some people say a DPA gives companies an element of certainty. It certainly doesn’t. They may get prosecuted even if they self-report. You can co-operate but don’t think you are buying us off. Because in the right circumstances we will prosecute.”
As Green embarks on what will certainly be a tumultuous — in his words “highly risky” — period at the Serious Fraud Office, he has undoubtedly moved decisively away from the style of his predecessor, Richard Alderman, who suggested inviting bankers into the SFO to ask questions about deals and business ethics.
But Green wants to put banks and companies on the spot. Any that come to his door to get advice will likely be sent away with a flea in their ear.
“I don’t think the sign downstairs says ‘free advice given on serious fraud and corruption’. They can bloody well go and get their own advice from their very expensive ritzy experts,” he says. “I am not here to give advice. I am here in the same way that the Revenue is, to enforce the law. I don’t think the public would be very impressed by cosy deals.”
Banks are under the microscope as never before for their misbehaviour, he says. “We do need the banks, but we need straight banks and honest bankers.” His mission is to persuade the public he can deliver them.
Read more from the December issue of economia