Working in partnership: a new approach to economic crime
February 2018 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2018 Issue
Despite a plethora of new legislative provisions, the criminal justice system continues to confront a dangerous enforcement deficit when it comes to economic crime. While fraud is on the rise, public funding to tackle it is being squeezed. These realities demand a radical rethink of the role of the private sector in the enforcement of economic crime. Specifically, they call for a new approach under which we stop viewing access to justice as a binary choice between the state’s resources and those available in the private sector. Now is the time for a serious debate about how the public and private sectors can instead work in partnership to pool and make effective use of their respective skills and experience for the ultimate benefit of victims of economic crime.
The status quo
It is no secret that, despite its best efforts, the criminal justice system as currently modelled is unable to investigate and prosecute significant volumes of economic crime. Law enforcement has been severely hampered by the squeeze on public resources and police funding has fallen in real terms. Likewise, the Crown Prosecution Service (CPS) continues to suffer from consecutive budget cuts, and even the Serious Fraud Office (SFO) is forced to rely on exceptional blockbuster funding to pursue high-profile frauds. Meanwhile, fraudsters have become increasingly sophisticated in their schemes and therefore more difficult to pursue. The net effect is telling. In 2017, it was reported that the number of white-collar prosecutions had plummeted to a six-year low, while the number of reported frauds had increased fourfold in the same period.
This amounts to an apparent absence of any meaningful deterrence, made all the more significant in an area already marred by the type of moral ambivalence that sets ‘white-collar’ crime apart from other, ‘real’ crime. Potential fraudsters are encouraged in their schemes by the improbability of being caught and the perception of a culture that appears to trivialise, or even condone, many instances of fraudulent behaviour. The message that economic crime pays is heard as loudly by those contemplating fraud on their employer, on an insurer, or in relation to television, music and film services, as it is by organised crime groups.
According to PwC’s Global Economic Crime Survey 2016, in the UK, 55 percent of organisations reported that they had been victims of economic crime between 2014 and 2015. In 2016/17, British businesses lost at least £40m to frauds perpetrated by their own employees. Overall, according to government estimates, financial fraud costs the UK economy £6.8bn every year. The realities of public sector enforcement in the face of overstrained budgets and increasing levels of economic crime therefore demands a wider reconsideration of the private sector’s role in this area.
A new approach
There are three key initiatives that are capable of delivering immediate and positive change, but which – importantly – do not require a corresponding injection of additional, valuable state resources.
Information and intelligence sharing
While accepting that there will remain elements of information and data in the state’s possession that cannot readily be shared, there is also a significant body of intelligence which, if more widely disseminated, would allow industry to better target its own efforts to prevent, disrupt or take enforcement action against those who are responsible for the most prolific economic offending in the UK.
There is an upward trend in the number of private prosecutions being brought in England and Wales, driven in no small part by the difficulties that victims of economic crime have had in achieving timely access to, and effective relief from, the criminal justice system.
The critical question is therefore whether, in 2018, there are any good reasons why – in the field of economic crime at least – public and private prosecutions should continue to be seen as mutually exclusive solutions to a shared problem?
There are already pockets of cases where police resources are deployed in support of investigations in which it is anticipated that the victim will be prosecutor, rather than a state agency. Such an approach brings with it a significant array of benefits to the case, most notably in relation to powers of search and seizure and of financial investigation. If those benefits could be harnessed more strategically and more formally, the capacity for all stakeholders to see an immediate improvement is manifest.
For the police. An increase in the number of crimes detected without the corresponding long-term, resource-intensive commitment to progressing the case and dealing with disclosure.
For state prosecutorial agencies. The opportunity to focus their own resources on those cases particularly in need of the state’s unique skills and capabilities, for example prosecutions involving complex and sensitive requests for international mutual legal assistance, or where extradition proceedings are required.
For victims. More offences investigated, an increase in the number of offenders brought to justice and improved prospects of recovering what they have lost.
Regarding the proceeds of crime. Under current arrangements, assets recovered under a post-conviction confiscation order are paid to the state and thereby form part of the overall investment in the criminal justice system, which is ultimately to the benefit of its stakeholders. Accordingly, if there are more proceedings brought in relation to acquisitive offences such as fraud, the expectation is a corresponding increase in the number of meaningful orders being made.
Such an approach would of course need to be appropriately and proportionately deployed, with the corresponding expectation of full transparency at every stage of a case. But by allowing the private sector a greater opportunity to work with the state while simultaneously bringing to bear its own experience, specialism and increasing use of cutting-edge technology in the management and presentation of complex criminal proceedings (for example in the field of e-disclosure), it provides a solution that is respectful of the roles of all interested parties while also recognising the existence and importance of a shared objective – to improve access to justice for victims of what is now the crime that is most likely to affect people in the UK.
Not all complaints involving economic crime are best suited to criminal litigation, but that does not alter the fact that the victims in those cases wish to see the perpetrators stripped of their illicit gains.
The civil recovery powers available through the Proceeds of Crime Act 2002 are not the answer, not least because of the state’s corresponding exposure to costs that comes with the exercise of those powers. However, that does not mean that asset recovery through the civil courts cannot form part of the solution to the number of economic crime cases that are currently not dealt with.
The private sector has a significant body of experience when it comes to identifying, securing and subsequently realising unlawfully obtained assets. It works with litigation funders who are in a position to facilitate access to justice while at the same time bearing the risk of the proceedings.
That said, the private sector is only as good as the information it has and can get, which is yet another reason why information sharing, together with a correspondingly enhanced approach to case allocation and coordination, has the capacity significantly to widen the scope for victims of crime to achieve access to justice.
Given that the majority of these so-called ‘volume cases’ may never end up being investigated by the police, much less referred to a state prosecuting agency with a view to commencing proceedings, this proposal is again not about diverting cases that would otherwise be dealt with elsewhere. Instead, it is about widening the number of offences being detected and making sure that more victims achieve a successful outcome.
It is clear from the statistics that the current approach to tackling economic crime is not working. A new, flexible framework is therefore needed to allow public and private sector resources to work in partnership to ensure that financial crime does not go unpunished.
Instead of insisting on the rigid, all-or-nothing allocation of responsibility that packages investigative and prosecutorial resources together, the system needs to assign these different tasks flexibly and according to a greater array of factors and considerations.
Importantly, such an approach does not necessitate admission that one or more parts of the system are unable to cope. Rather, it would be an expression of mutual strength and a recognition that by pooling skills, expertise and resources, the parties involved can best achieve their shared aim of providing a robust and enduring solution to economic crime.
Alison Levitt QC is a partner, Gareth Minty is a managing associate and Ciju Puthuppally is a paralegal at Mishcon de Reya LLP. Ms Levitt QC can be contacted on +44 (0)20 3321 7450 or by email: email@example.com. Mr Minty can be contacted on +44 (0)20 3321 7451 or by email: firstname.lastname@example.org. Mr Puthuppally can be contacted on +44 (0)20 3321 7521 or by email: email@example.com.
© Financier Worldwide
Alison Levitt, Gareth Minty and Ciju Puthuppally
Mishcon de Reya LLP