At the end of the 64 page judgment that is the Tchenguiz appeal judgment is an unusual Postscript.  A message from the Court of Appeal about the importance of the funding investigation and prosecution of economic crime.

It is a mandatory read from politicians to city execs.

While the headlines today speak of the SFO’s defeat perhaps the error of the former SFO Director was to go along with massive government budgetary cuts.

Four years ago the SFO budget was around £50 million, this year it is c. £36.5 million and by 2014 it is slated to reduce to c. £30 million.  Peanuts.

The former Director, Richard Alderman, made a virtue of cutting the SFO’s cloth accordingly.  However, against the back drop of the Tchenguiz litigation and claims for costs which will no doubt run into millions with damages claims anticipated to run into many millions more the wisdom of government cuts has been exposed to be a false economy.

The debate about the future of the Serious Fraud Office has never really gone away.  In March this year the FT reported that respected anti-corruption guru Mark Pieth told the FT: “We have to stop the abolition of the Serious Fraud Office…” before going back into an OECD meeting.

But talk of closing the SFO masks a much more important debate.

Indeed, today the argument should not be about the future of the SFO, the new Director David Green CB QC needs to be given a chance to deliver on his plans, but instead about how much its budget should really be.

The current reality is policing economic crime in the UK has not been a government priority for years.  Fraud has not been Police KPI for a long time.  The SFO budget continues to shrink and victims of fraud complain that complaints to the Police are met with the retort: ‘this is really a civil matter…’.

Yet, contrary to popular belief many have complained loudly of the failure of government to prioritise the investigation of fraud.

Today the global pendulum is swinging towards more regulation. Not less.

Opportunistic US commentators  refer to the ‘London Problem’ – conveniently omitting reference to the US financial scandals of Madoff and Peregrine (both of which ran for nearly 20 years each, yes we did say 20 years each), MF Global and let’s face it the invention of the Ponzi Scheme.  Yet these cynical and self serving criticisms are ignored at our peril.

Ironically, increased regulation is no longer a threat  to the competitiveness of the UK but instead necessary to maintain confidence in UK PLC.  Of course this must be done sensibly and effectively.  We don’t want to kill the goose that laid the golden egg. Neither do we want the goose to fly off to New York.

For those who secretly think funding law enforcement would create heightened risk of unjustified investigation and would rather the UK maintain inadequately funded economic crime law enforcement – Ask the Tchenguiz brothers what they think about that. They argue the botched search warrants crucified their businesses.

For those concerned that additional regulation will kill off the City, look to the USA.  Regulation and feared enforcement in the shape of the DOJ and the SEC have done little to hamstring New York as a key financial market.

A properly funded and competent law enforcement function is in everyones interest in the UK.

Against that back drop the the message from the Court of Appeal which we have extracted below is a must read for the Coalition Government and anyone interested in the continuing prosperity of London and the UK as a global financial hub.

“292. The case review manager at the SFO for the judicial review sets out in her evidence to us two lessons that she considered should be learnt:

i) The need for the Information to be supported by a schedule so that it was clear what underlying material justified the statement made.

ii) The need to see that the Information was checked and assured by those with sufficient expertise and experience

293. In our view, there is a more important lesson to be learnt which in fairness to the then Director of the SFO we must make clear. The investigation and prosecution of serious fraud in the financial markets requires proper resources, both human and financial. It is quite clear that the SFO did not have such resources in the present case:

i) A fundamental error was a failure to set out the commercial background to the events. The identification of suspected criminality and the drafting of an Information for presentation to a judge requires a team with a proper understanding of the financial markets in which the transactions have been effected.

ii) The drafting of a document such as the Information in a case relating to the financial markets is a formidable task that requires a draftsman with an understanding of the markets, the agreements in issue and accounting issues. The facts and issues must be set out in a clear and analytical manner; this requires very considerable skill. Its presentation to the judge then requires a lawyer with great skill and experience.

iii) Although many investigators are reliant in the first instance on the provision of information by those who have an interest in the transactions such as administrators or lawyers or accountants involved in disputes, it is essential that those charged with investigation and prosecution can scrutinise the information provided with the same level of skill. The SFO should have scrutinised what it was told by Grant Thornton through the use of expertise of at least equivalent experience. The SFO should not have been compelled to rely on Grant Thornton who owed duties to their own clients which rightly took precedence over the interests of the public.

iv) The execution of a warrant requires the presence of independent lawyers where there is the prospect of privileged documentation. This expense has to be resourced.

v) The prosecution of such offences necessitates equality of arms being provided to those investigating and prosecuting. Equality of arms is used most commonly to apply to the unequal position of defendants to an investigation or a prosecution. However, the public interest in upholding the integrity of the financial markets is destroyed if those who investigate and prosecute do not have access to the same level of legal and accountancy skills and human and financial resources as those who are the subject of investigation and prosecution.

vi) The matters in issue occurred in the period between late 2007 to October 2008. Although there are some complex details as regards some of the individual transactions, the case is not a complex one. The investigation should have been concluded a very long time before now, but again this required adequate resources, both human and financial.

All of these considerations must be taken into account in any consideration of the present case and criticism of those involved, as it is clear to us that the SFO was not properly resourced for this investigation.

294. In the present case, the result has been our decision to set aside search warrants against two well known businessmen after a long investigation of transactions in the financial markets. In other cases, the result could have been the failure properly to investigate and prosecute successfully conduct where there could be no doubt as to its criminality and serious effect on public confidence in financial institutions and the financial markets. 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 and prosecutions in the financial markets of London.”

A four word summary of the present funding strategy for the SFO might be – penny wise, pound foolish.