News & what's on - Written by on Wednesday, October 17, 2012 5:49 - 1 Comment

It’s all about the money. A picture of a new SFO funding model begins to emerge as new Director sharpens the knives…

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Monday October 15th 2012 may prove to have been a major turning point for the SFO but not in the way that most predict.

On the 15th the SFO made the formal announcement that it was terminating its enquiry into the collapse of the Kaupthing Bank and of Robert Tchenguiz.

The SFO realise the financial consequence that will potentially follow.  Both Vincent and Robert Tchenguiz have indicated that they are to sue for substantial damages.

We recently discussed funding for the SFO with the new Director.  He outlined the need for alternative funding model for the agency.

The reality is that use of a new model is already underway…

Media reports surrounding the Tchenguiz matter seized on SFO funding and its budget.

Likewise in the summer, the President of Queens Bench Division, Sir John Thomas and Mr Justice Silber gave  a detailed  judgment in the Tchenguiz action on the 31st July 2012 [2012] EWHC 2254 (Admin) and found that the warrants issued in the case at the request of the SFO had been unlawfully obtained and that all materials seized, which had not already been returned, should be returned forthwith.

Paragraph 293 and 294 of the judgment are worth reading in the context of funding for the SFO:

Parapraph 293 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 the same level of legal and accountancy skills and human and financial resources as those who are the subject of investigation and prosecution”.

After making it clear that the following comments did not apply to either Vincent or Robert Tchenguiz Sir John Thomas observed:

“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 as to its criminality or 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 investigation and prosecutions in the financial markets of London.”

So, the funding of the SFO is no secret.

The short point is that an agency whose duty it is to investigate and prosecute serious corruption and fraud needs to be properly resourced.

If it is not, the reputation of UK PLC will be susceptible to incalculable harm by the inability of the SFO to take proper investigatory steps and if necessary action in the appropriate case.

The new Director is aware of the strength of this argument.

LIBOR is a good window on the likely future.

A large and expensive investigation the SFO is receiving significant additional funding for LIBOR from the UK Government in connection with it.

Anyone who gambled that the SFO budget was not enough to investigate LIBOR - lost.

Opinion

Going forward the LIBOR funding model will likely be used for other large case investigations.

No doubt this will involve a process of justification on an evidential basis, if only to avoid another Tchenguiz.

However, those banking on limited SFO resources equating to a limited enforcement risk now need to factor in special funding for investigations in addition to revenues generated by the SFO itself through the use of UK money laundering laws on top of the existing budget.

Sadly it will almost certainly turn out to be a costly gamble for some.

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[...] Department and regulators are ramping up anti-money laundering enforcement. Thebriberyact.com talks about the SFO [...]

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