Report
of the
SERIOUS
FRAUD OFFICE
TE
TARI HARA TÃWARE
For
the year ended
30
June 2000
Presented to
the House of Representatives pursuant to
Section 30 of
the
State Sector Act 1988 and Section 39 of
the Public Finance Act 1989
Hon.
Margaret Wilson
Attorney-General
Pursuant
to Section 22 of the State Sector Act 1988 and Section 39 of the Public
Finance Act 1989 I refer to you the financial statements for the Serious Fraud
Office for the year ended 30 June 2000.
D
J Bradshaw
Director
Statement
of Purpose
The
Serious Fraud Office (SFO) is an operational department whose purpose is to
detect and investigate cases of serious or complex fraud offending (in terms
of the Serious Fraud Office Act) and expeditiously prosecute offenders.
These
services provided by the Serious Fraud Office contribute to the Government’s
strategic objectives, principally in the areas of encouraging a strongly
growing, internationally competitive enterprise economy and building an
economically strong and cohesive New Zealand.
Honest
capital markets are crucial to achieving the objective of maintaining a strong
and internationally competitive economy.
Successful investigation and prosecution of “white collar” crime
sustains New Zealand’s reputation for honest capital markets, as well as
deterring potential offenders.
By
maintaining an effective “white collar” law enforcement department, the
Serious Fraud Office is contributing towards enhancing investor confidence and
encouraging investors to invest in New Zealand
Chief
Executive’s Overview
In
March of this year the Serious Fraud Office celebrated the 10th
anniversary of its establishment. In that same month the Office successfully
completed a depositions hearing that saw three defendants committed for trial
on charges of conspiracy to defraud and using documents with intent to defraud
involving over $3m. That case had
begun with the reporting to the Office by the Police of a suspicious financial
transaction involving $70,000 cash. After
12 months investigation which involved locating and interviewing witnesses and
suspects, and the collation and analysis of over 11,000 documents, the Office
laid the very substantial charges. This
case exemplifies the low key and professional approach of the Office to its
work. The case has not attracted
a great deal of media attention – only a few of our cases do.
But it does highlight the thoroughness of our investigations and the
commitment of the Office to prosecute cases of white collar fraud in all
appropriate cases.
The
number of prosecutions commenced has risen in the past few years from around
12 – 15 per year to 18 – 19 per year.
The success rate in those prosecutions continues at the excellent level
of over 90%. There were some
people who, in 1990, questioned the merits of establishing a Serious Fraud
Office and there are still a few who continue to question the need for its
existence. The Office has
answered that in the best way possible. It
has not relied on public relations experts or media campaigns.
Rather it has proven itself by becoming an effective law enforcement
agency in the fight against white collar crime and is recognised as such not
only within New Zealand but also abroad.
Recent
trends in the cases being dealt with by the Office have shown that the need
for such an Office remains as important today as it was in 1990.
Although the excesses in and around corporate New Zealand in the late
1980’s have long since passed there are still people in New Zealand who are
prepared to take advantage of others by fraudulent means.
The
white collar criminal does not wear a balaclava, nor carry a gun or knife in
perpetrating fraudulent offending. The
fraudster does not threaten physical harm or forcibly break into your home.
But the consequences of the activities of the fraudster can be just as
devastating for the victim. The
tools of trade for the fraudster include the ability to obtain the absolute
trust of the intended victim, to appear credible and to promise substantial
rewards. Fraudsters often rely on
that faculty of human nature – greed – to entice victims to part with
their money under the guise of “get
rich quick” schemes.
With
individuals being encouraged to provide for their retirement by saving money
now, the opportunities for the fraudster are many.
The need to exercise common sense and vigilance with investments has
perhaps never been greater. The
temptation, however, to go for the so called “higher return” can often see
risks ignored especially when the investor believes that he or she is dealing
with someone who is trustworthy.
The
Office has from time to time, sought to alert the public to various types of
investment fraud. Similar
warnings are given by other agencies such as the Ministry of Consumer Affairs
and the Securities Commission. Despite these warnings, it is not unusual in any year to
discover that million of dollars have been “invested” by New Zealanders in
non-existent investment schemes, mostly overseas.
It continues to be a concern to me that despite all of the publicity
there are still many New Zealanders who are prepared to risk significant sums
of money in the expectation of receiving totally unrealistic returns.
I will continue to do all that I can to expose these schemes for what
they really are.
I
have observed a similar trend with mortgage frauds for housing.
People, frequently from lower income backgrounds, are being told that
they can own their own home without the need to save for a deposit.
Through a series of dishonest schemes, fraudsters are putting people
into houses that the individual can often not afford.
The fraudster takes his or her cut from the deal, frequently leaving
the victim to face a mortgagee sale of their home and a significant financial
loss. The lending institutions
are also left with a security that does not cover the monies lent.
Given
the very high stakes involved for individuals, you might think that people
would welcome the Serious Fraud Office investigating and (if appropriate)
prosecuting suspected fraudulent offending.
Surprisingly, that is not always the case.
The involvement of the Serious Fraud Office is not always welcomed by
those who are the victims of a fraud. In
many of our cases the involvement of the Serious Fraud Office is the first
indication that something is amiss and is often a signal that an investment
has been lost. For some there is
the embarrassment of having been defrauded, for others there is the (forlorn)
hope that the suspect – who may well be a trusted friend – if left alone
by the Serious Fraud Office will put things right.
The trust and the credibility that enabled the fraud to be perpetrated
in the first instance will sometimes be used by the fraudster in an attempt to
discredit the Office in the eyes of the victims. Victims may be persuaded not
to cooperate.
The
decision of the High Court in June 1999 on the Report of the Commission of
Inquiry into Certain Matters Relating to Taxation saw yet another chapter in
the Winebox saga. I decided that
I needed to take a careful look at all of the material on the Magnum
transaction in the light of that Court ruling - the Magnum transaction being
the transaction on which there was the best documentation and the strongest
likelihood of possible fraudulent offending.
I was aware that the approach taken by my predecessor in 1993 had been,
following an examination of the documents, to refer the Magnum papers to the
Inland Revenue Department for its assessment on the tax issues.
If the Inland Revenue Department had reason to suspect serious tax
fraud then under the protocol between the two agencies the Inland Revenue
Department would have referred the matter back to the Serious Fraud Office.
The Revenue reached a view that no tax fraud was disclosed and did not
refer the matter back to the Serious Fraud Office for investigation.
After
the High Court ruling (which concerned the proper interpretation of the tax
laws) I decided to assess for myself whether or not there was sufficient
evidence to bring a
prosecution
against any individuals associated with Magnum.
This involved me in having to fully familiarise myself with the many
Magnum documents, the various Court comments on the transaction, the testimony
taken under oath at the Commission of Inquiry, and the views expressed by many
of the commentators over time. I
liaised with the Solicitor General as to the process I followed and I sought
advice from the Crown Solicitor in Auckland on the sufficiency of the
evidence. Ultimately I had to
decide whether or not there was a sound basis on which to launch any
prosecution. Shortly after the
financial year ending 30 June 2000 I reached my decision not to prosecute
anyone.
The
year was a busy one for the Office. The number of complaints and investigations has remained
consistent but the increase in the number of cases proceeding to prosecution
has created additional demands on staff who are called upon to balance
investigation work and work for and in trials.
The
Office continues to co-operate with overseas law enforcement agencies and in
return receives the assistance of those agencies when requested.
We have regular contact with ASIC (the Australian Securities and
Investment Commission), the US Customs Service, the FBI and the Serious Fraud
Office in the United Kingdom. During
the year we have also worked with the Ministry of Justice in Japan in relation
to our investigation of odometer fraud, the Nigerian authorities in relation
to the Rutherfurd prosecution, the Hong Kong authorities on an investigation
involving that jurisdiction, the City of London Police on a prime bank
instrument fraud, the Australian authorities in relation to the extradition of
several persons who had been charged with serious offences by the Office, and
the Philippine authorities regarding an individual who, having defrauded his
company of over $2½ m in New Zealand, was residing in the Philippines.
In most of these instances the real value has come from the personal
contacts overseas that have been developed by individuals in the Office over
the years.
It
was pleasing to see the Courts making use of new technology in our cases.
In a depositions hearing (Porter) the Court agreed to take the evidence
of key witnesses through a video link. This
entailed our sending an investigator to Los Angeles, New Orleans and New York
to ensure that all the relevant documents were available to the witness for
any cross examination. This was a
cost effective way to conduct this part of the hearing without compromising
the ability of the defendant to question the witnesses and the Justices to
assess their demeanour. In
another case (Faisandier) the Serious Fraud Office forensic accountant in
giving evidence made use of a “PowerPoint” presentation to assist the
Court in understanding the complexities of a cheque-kiting scheme
involving around $40m of cheques. The use of such equipment poses a challenge
to the Department of Courts to ensure that its Courtrooms are designed to
facilitate the efficient use of electronic media.
The challenge for the Office continues to be how to present a complex
case to a jury in a way that will enable
lay people to understand the nature of the alleged financial offending.
Over-all I believe that the Office, and its panel of senior
prosecutors, have been most successful in explaining complex matters to the
Courts in a way that is readily understood.
I would expect, however, that the Office will use the electronic media
much more extensively in the future in its presentations to the Court.
I
am pleased to be able to report that the Serious Fraud Office is in good
heart. It has a highly skilled
and dedicated staff who are committed to the important work that the Office
undertakes on behalf of the people of New Zealand. The Office is ably assisted
by the excellent panel of independent prosecutors who lead our prosecutions in
Court. The Serious Fraud Office will continue to discharge its
responsibilities, without fear or favour, in the years to come.
D
J Bradshaw
Director
Statement
of Responsibility for the Year
Ended
30
June 2000
In
terms of sections 35 and 37 of the Public Finance Act 1989, I am responsible,
as Chief Executive of the Serious Fraud Office, for the preparation of the
Department's financial statements and the judgements made in the process of
producing those statements.
I
have the responsibility of establishing and maintaining, and I have
established and maintained, a system of internal control procedures that
provide reasonable assurance as to the integrity and reliability of financial
reporting.
In
my opinion, these financial statements fairly reflect the financial position
and operations of the Department for the year ended 30 June 2000.
D
J Bradshaw
Neville Macindoe
Director
Chief Financial Officer
29
September 2000
29 September 2000
Report
of the Audit Office
Performance
Information
Statement
of
Objectives and
Service Performance
for
the
Year Ended 30 June 2000
|
|
1997/98
Actual
$000
|
1998/99
Actual
$000
|
|
1999/2000
Actual
$000
|
1999/2000
Budget
$000
|
|
|
|
Output
|
|
|
|
2,456
|
2,559
|
Investigation of Serious Fraud1
|
|
|
|
1,674
|
1,709
|
Prosecution of Persons for
Serious or Complex Fraud1
|
|
|
|
|
|
Investigation and Prosecution of
Serious or Complex Fraud
|
4,491
|
4,472
|
|
_______ |
_______ |
|
______ |
______ |
|
4,130
_______
|
4,268
_______
|
Total
(excluding GST)
|
4,491
______
|
4,472
______
|
|
|
|
|
|
|
|
1
In 1999/2000 the two output classes were combined into one output class
“Investigation and
Prosecution of Serious or Complex Fraud”.
Statement
of
Service Performance
1.
Summary of
Total Cases for
the
Year
Ended 30 June 2000
|
|
Total |
Assess.
Stage |
Detect.
Stage |
Invest.
Stage |
Prosec.
Stage |
|
On
hand at 1 July 1999 |
54 |
0 |
6 |
27 |
21 |
|
Received
in period |
128 |
102 |
16 |
10 |
|
|
Reinstated |
1 |
1 |
0 |
|
|
|
|
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
TOTAL |
183 |
103 |
22 |
37 |
21¹ |
|
|
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
Passed
to Detection |
|
(3) |
3 |
|
|
|
Passed
to Investigation |
|
(2) |
(10) |
12 |
|
|
Prosecutions
Commenced in Period |
|
|
|
(19) |
19 |
|
Closed
in period |
(134) |
(94) |
(7) |
(15) |
(22)² |
|
|
______ |
______ |
______ |
______ |
______ |
|
On
hand at 30 June 2000 |
49 |
4 |
8 |
15 |
20 |
|
|
______ |
______ |
______ |
______ |
______ |
Notes
¹
In addition, there are two cases continuing against defendants who were
previously included within the one case reference, but these matters are
continuing as separate and distinct criminal prosecutions.
²
Includes the closure of 5 cases that had previously been recorded as
suspended due to offenders being overseas.
2.
Class of
Output: Investigation and
Prosecution of
Serious or
Complex Fraud
Description
The
output class involves the investigation of suspected cases of serious or
complex fraud brought to the attention of, or detected by, the Serious Fraud
Office, and the prosecution of those cases where the Director is satisfied
that a prosecution should be commenced.
Following
investigation, the Director makes a decision on whether or not any criminal
charges should be laid.
The
prosecution of a case requires the preparation of a well-researched and
documented prosecution case. This
encompasses the filing of all court documents, the preparation, researching
and collating of all documentary and oral evidence; and appearing as Counsel
at all preliminary court hearings and as Junior Counsel at trial.
This
output class includes the briefing of the outside Counsel engaged for the
trials, the giving of evidence at trials and the provision of expert advice
throughout the course of trials.
Outcome
To
combat serious or complex fraud offending.
Details
of Complaints and Investigations
The
following briefly outlines the actions taken during the period 1.7.99 to
30.6.00. As at 30 June 1999 there
were 33 cases on hand at the assessment/detection or full investigation stage.
During the current year, a further 128 new complaints were received and
one case was reinstated, giving an overall caseload of 162
cases that were at the Assessment/Detection or Investigation stages. During the reporting period;
19
investigations were completed and proceeded to prosecution;
15
were fully investigated but did not proceed to prosecution, but one was
referred to the Police;
11 were
referred to other more appropriate agencies, namely;
4
to the Police
4
to the Ministry of Economic Development
1
to Overseas agencies
3
to the Commerce or Securities Commission
1
to the Inland Revenue Department
1
to Immigration
1
to various other more appropriate Government Departments or agencies
(Note – a case may be referred to more than one other agency.)
90
90 files were closed
following consideration and assessment as they were found not to justify
further action;
12
files are at the assessment or detection stage.
15
Investigations are under way.
Performance
Targets
to
focus the assessment and/or detection stage and decide within six months
whether to abandon preliminary work or to proceed to a full investigation
Total Cases Assessed and Closed or referred
101 (1
exceeded the 6 month target)
elsewhere
Cases on hand at Assessment/Detection Stage
12 (none
exceed the 6 month target)
Total
exceeding the 6-month target
1
The
performance target was met in all but one case with the decision point being
reached well within the timeframe, usually within one month.
The one case that fell outside of the timeframe exceeded the 6 months
target by one month.
The
Management Team formally reviewed all the cases on hand at least monthly to
ensure that the desired level of momentum was sustained and that the
investigations were focusing on the key issues.
None
of the cases on hand at assessment or detection stage as at 30 June 2000
exceeds the target of six months.
During
the 12 month period, 101 cases at assessment / detection stage were closed or
referred to other more appropriate agencies.
In
97 (97%) of the cases this decision was reached well within the 6 months
target (generally within one month) and, in the 4 outside the target, the
average length of the assessment period (excluding the case referred to below)
was 11 months. The most delinquent of the four cases involved a suspect who
was overseas. We had to await his
return to New Zealand to finalise our consideration of the case.
It took 16 months to reach our conclusion on that matter.
that
in 80% of the cases sufficient work will have been completed within 12 months
to reach the prosecution decision point
During
the reporting period a total of 49 cases
were at the investigation stage and of these;
15
were completed but did not proceed to prosecution
19
resulted in a prosecution
15
remain under investigation
In
the 19 cases where the investigations were concluded and proceeded to a
prosecution, the average length of time from the receipt of the complaint to
the prosecution commencing was 11½ months. Two prosecutions, however, had
taken 2½ years and 4½ years respectively to get to the prosecution stage.
Those were exceptional cases – one involving odometer fraud and enquiries
within Japan, the other requiring investigations within Australia.
Putting those two cases to one side the average time for a complaint to
reach the prosecution stage was 8 months.
Of
the 15 investigations that were completed but did not result in a prosecution
four exceeded the 12-month target, two by 3 months and two by 1 month.
Of
the 15 cases on hand at the investigation stage, the "average age"
of the investigation is 5 months with three having been under action for 12
months or more.
Two
of the outstanding files have involved the analysis of complex transactions
involving many people. Both
investigations are now nearing completion.
The third case has been delayed due to a Court challenge over the
access of the Office to legal documents.
Overall,
the performance target has been achieved with 9 cases out of the total of 49
(18%) exceeding the 12-month target.
to
present properly prepared and well researched prosecution cases, achieving a
minimum of 85% successful prosecutions
During
the year ended 30 June 2000, 19 new prosecutions were commenced and 17
prosecution cases were concluded. Of
the cases completed during the year 13 ended with a guilty plea, two ended
with a guilty verdict, and 2 cases were dismissed by the Judge under section
347 (one after a hung jury on the first trial).
At
the end of the period there are 20 prosecution
cases under action.
The
fact that the majority of the prosecutions completed in this period were
successful was very pleasing. This success rate has also maintained the
overall high rate of success in the prosecutions pursued by the Office since
its inception and up to 30 June 2000.
These
statistics are summarised in Appendix A – page 52.
to
meet the dates set by the Courts
All
dates set by the Courts have been met.
to
achieve at least an 80% Senior Counsel satisfaction rating for the quality of
the case investigation, preparation and prosecution
Senior
Prosecuting Counsel and Judges made favourable comments about the high quality
of case preparation. The overall professionalism of the case presentation by
the Office was identified as a factor in the successful determination of the
cases.
There
were no unsatisfactory reports. Assessment
will continue to be carried out by observation by the Director, peer review
and Judicial comment.
A
formal debriefing process is in place and is continuing to be refined to
ensure that prosecutions taken by the Office are fully researched and, well
prepared and presented.
that
the outputs are provided within the appropriated sum - financial performance
|
Statement
of Cost of Services (GST exclusive)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main
|
Final
|
Actual
|
1998/99
|
|
|
|
Estimates
|
Estimates
|
|
Actual
|
|
|
|
$000
|
$000
|
$000
|
$000
|
|
|
Revenue
– Crown
|
4,463
|
4,463
|
4,463
|
4,467
|
|
|
Revenue
– Other
|
9
|
9
|
6
|
2
|
|
|
Total
Revenue
|
4,472
|
