Report of the

SERIOUS FRAUD OFFICE

TE TARI HARA TĂWARE

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 10^th 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 $2˝ 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	21ą
	______	______	______	______	______
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)˛
	______	______	______	______	______
On hand at 30 June 2000	49	4	8	15	20
	______	______	______	______	______

Notes

ą         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.

˛         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 11˝ months. Two prosecutions, however, had taken 2˝ years and 4˝ 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	4,472	4,469	4,469
	Expenses	4,472	4,472	4,491	4,268
	Net Surplus/(deficit)	-	-	(22)	201

3.         Use Of Statutory Powers

  Target                                                                      Delivery

To report on all instances where the Director has exercised powers in accordance with the Serious Fraud Office Act

In the twelve months to 30 June 2000, effective use of the Office’s powers has continued. In total, 1081 Notices (1029 in 1998/99) were issued requiring people to give information and/or produce documents. 41 (19 in 1998/99) search warrants were executed.  (Note this number is higher than usual as in one case there were multiple search warrants issued.)

The breakdown of the use of the statutory powers during the year was as follows:

SFO Act, Part I

Detection of Serious or Complex Fraud                                                                                              

                                                                                               1999/2000           1998/99

S5(a)    Requiring documents                                                         133                    156

S5(b)   Requiring answers to questions                                             nil                       nil

S6       Search warrant obtained                                                         3                        1                       

 

SFO Act, Part II

Investigation of Suspected Offences Involving Serious or Complex Fraud

                                                                                               1999/2000           1998/99

S9(d)   Requiring answers to questions                           )              948                      64

S9(e)    Requiring information                                         )                                            2

S9(f)    Requiring documents                                          )                                        807

S10      Search warrant obtained                                                     38                      18

Performance

The Director (or the Assistant Director, Prosecutions, in the Director’s absence) personally signs all Notices requiring persons to attend to answer questions.  An Assistant Director under delegated authority signs notices requiring the production of documents.  To ensure that requisite grounds exist for the exercise of these powers an internal control procedure is followed before the Notices are referred for signature.

Search Warrants are issued on written application to a Judge.  The Director, or an Assistant Director, must be notified of any request for a search warrant.

There is, therefore, an audit process in place in all instances of the exercise of these statutory powers to ensure that the provisions of the Serious Fraud Act are met.

Prosecutions Completed

Case 1

BEGG, Charles William

The defendant had obtained over $2m credit for his computer company by misrepresenting his relationship with the Wellington Polytechnic.  The first trial had to be aborted when the jury number dropped to 10.  At the second trial, which lasted two weeks, Begg was convicted on 4 out of the 5 charges brought against him.  He was sentenced to 2 years imprisonment on each charge to be served concurrently.

Case 2

BROWNIE, Mathew

The defendant pleaded guilty to 8 charges of using a document with intent to defraud.  Brownie was a solicitor in Christchurch who misused the trust accounts of his firm for his own personal benefit.  He was sentenced to 9 months imprisonment on each of the counts, to be served concurrently.

Case 3

BURRELL, Michael

Burrell pleaded guilty to stealing over $1m from the trust account belonging to the firm of solicitors where he was employed as the trust account manager.  He was sentenced to 4˝ years imprisonment and required to pay $18,000 reparation.

Case 4

FAISANDIER, Anita

This offending involved cheque-kiting between various banks.  The defendant wrote out cheques to the value of approximately $40m, siphoning off nearly $750,000 for herself.  After a 15 day trial Faisandier was found guilty on 20 out of 21 counts and was sentenced to 3˝ years imprisonment.  Faisandier has appealed both the conviction and the sentence.

Case 5

JONES, Peter David

MASLIN, John William

QUALISCHEFSKI, Karina

This offending relates to the fraudulent obtaining of mortgage finance.

Jones and Qualischefski had pleaded guilty and been sentenced in the preceding financial year.

Maslin pleaded guilty to 3 charges in July 1999 and was sentenced to 7 months periodic detention.

Case 6

KEIGHLEY, Daniel

Keighley pleaded guilty to 5 charges of uttering forged documents in order to persuade people to loan him money to fund the Sweetwaters music festival or to contract to perform at the festival. He was sentence to 12 months imprisonment.

Case 7

LAWRENCE, Mason Brian

CALLENDER, Guy Phillip

SIVANANTHAM, Siva Vadivelu

The alleged offending involved the obtaining of 100% mortgage finance for new home purchases.  All the defendants were discharged under section 347 following a ruling by the District Court Judge that the material he had seen did not disclose the deceit that he ruled was essential to establish an intent to defraud.

Case 8

MEATES, Karen Ann

Meates pleaded guilty to stealing around $2.7m from her employer, a Christchurch firm of solicitors.  The offending occurred over a number of years during the time that the defendant was in charge of the accounts at the firm.  Meates was sentenced to 5 years imprisonment.  She subsequently unsuccessfully appealed that sentence

Case 9

MEROITI, Euera Gary Wiringi

The defendant created false documents to encourage investors to support a forestry project he was promoting.  Meroiti pleaded guilty to 2 charges of forgery and uttering and was sentenced to 8 months imprisonment.

Case 10

PORTER, Jennifer Clare

The defendant set about obtaining overseas travel, legal and accounting advice and bank loans by representing that she had multi million dollar contracts with major publishing houses in England, Australia and the United States.  False bank statements, letters and contracts were used to support her representations.

Porter pleaded guilty to 23 charges and was sentenced to 18 months imprisonment.

Case 11

RADEMACHER, Volker Erich

LANE, Kenneth Alexander

EVANS, Allan James

HOLDEN, Robert Francis

SMITH, John George

The five defendants were facing a new trial on a charge of conspiracy to defraud in relation to the alleged misappropriation of monies raised by the defendants through gambling machines which were installed in various hotels.  The alleged offending was in excess of $1m.

The first trial resulted in a hung jury after 5 weeks of evidence and submissions in the Christchurch High Court.  A further trial was set down for November 1999.  Prior to that trial commencing the defendants raised a legal issue as to the extent of their fiduciary obligations in relation to the monies in question.  The initial trial judge had found for the Crown on this point, but after an extensive argument the second trial judge found in favour of the defendants and dismissed all of the charges under section 347 of the Crimes Act.  Despite there being two different rulings on the same point from the High Court the Serious Fraud Office was not able to appeal this ruling.

Case 12

ROSSER, Paul

JULIAN, Jeffrey Francis

The defendants were charged with a conspiracy to enable Julian to access cash funds from American Express and Diners without a true transaction to support the details.  Julian pleaded guilty in October 1999 and was sentenced to 2 years imprisonment.  Rosser pleaded guilty on 28 January 2000 and was also sentenced to 2 years imprisonment.

Case 13

ROWELL, Brian Cyril

The defendant, a solicitor, misapplied over $1.2m of client’s funds for his own use.  He pleaded guilty to 21 counts and was sentenced to 5 years imprisonment.

Case 14

SEAMER, Michael John

The fraudulent offending in this case involved the widespread use of false documents in the course of carrying out the activities of an import/export business.  Many millions of dollars were involved but there was no agreement as to the amount of the actual benefit to the defendant.  Seamer pleaded guilty to 43 charges and was sentenced to 4 years imprisonment.

Case 15

SMITH, Gareth

This offending involved the theft of some $200,000 by Smith from his employer.  Smith pleaded guilty to 11 counts and was sentenced to 9 months imprisonment and 12 months supervision on certain conditions.

Case 16

TANNAHILL, John Andrew

The defendant, a solicitor, used client’s funds without authority and contrary to direction, to replace Tannahill family funds invested in a defaulting mortgage advance.  Tannahill pleaded guilty to the charges and was sentenced to 4 months imprisonment and ordered to pay $10,500 reparation.

Case 17

TELEA, Pesamino Pio

A former New Zealand Immigration Department officer who accepted $100,000 in bribes to secure permanent residency for Korean immigrants.  He pleaded guilty to 17 charges and was sentenced to 2˝ years imprisonment.  

Statement of Accounting Policies for the Year Ended 30 June 2000

Reporting Entity

The Serious Fraud Office is a government department as defined by section 2 of the Public Finance Act 1989.

The Serious Fraud Office’s financial statements have been prepared in accordance with section 35 of the Public Finance Act 1989.

The Serious Fraud Office does not administer any Crown activities or trust monies.

Measurement System

These financial statements have been prepared on the basis of modified historical cost except for certain items with specific accounting policies outlined below.

Accounting Policies

Budget figures

The budget figures are those presented in the Budget Night Estimates as amended by the Supplementary Estimates and any transfer made by Order in Council under section 5 of the Public Finance Act 1989.

Revenue

The Serious Fraud Office derives revenue through the provision of outputs to the Crown and interest on its deposits with the New Zealand Debt Management Office (NZDMO).   Such revenue is recognised when earned and is reported in the financial period to whikh it crelateso re/.

-*

Cost Allocation

The :` Officofhas derived the costs of outputs shown in these statements using a cost allocation system which is outlined below.

Cost Allocation Policy

Direct costs are charged directly to significant activities.  Indirect costs are charged to significant activities based on cost drivers and related activity/usage information.

Criteria for Direct and Indirect Costs

“Direct Costs” are those costs directly attributed to an output.  “Indirect Costs” are those costs that cannot be identified in an economically feasible manner, with a specific output.

Direct Costs Assigned to Outputs

Direct costs are charged directly to outputs.  Personnel costs are charged by recording the  time spent on each output.

Basis for Assigning Indirect Corporate Costs to Outputs

Indirect costs are allocated to outputs according to the proportion of time spent on each output.

Receivables

Receivables are recorded at estimated realisable value, after providing for doubtful and uncollectable debts.

Operating Leases

Leases where the lessor effectively retains substantially retains all the risks and benefits of ownership are classified as operating leases.  Payments under these are expensed in the period in which they are incurred.

Fixed Assets

The initial cost of a fixed asset is the value of the consideration given to acquire or create the asset and any directly attributable costs of bringing the asset to working condition for its intended use.

Fixed assets, or groups of assets forming a network or which are material in aggregate, costing more than $1,000 are capitalised and recorded at historical cost.

Depreciation

Depreciation of fixed assets is provided on a straight line basis so as to allocate the cost of assets, less any estimated residual value, over their useful lives. 

The useful lives and associated depreciation rates for major classes of assets are:

                Furniture, fixtures and fittings                                 5 years           20%

                Office equipment                                                   5 years           20%

                Motor vehicles                                                      4 years           15%

                Computer equipment and software                        3 years           33¹/3%

The cost of leasehold improvements is capitalised and amortised over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter.

Provision for Employee Entitlements

Provision is made in respect of the Office’s liability for annual leave entitlements.  The provision has been calculated on an actual entitlement basis at current rates of pay. In terms of employee’s contracts, there is no provision for retirement or long service entitlements.

Statement of Cash Flows

Cash means cash balances on hand, held in bank accounts, and deposits with the Debt Management Office.

Operating activities include cash received from all income sources of the Office and record the cash payments made for the supply of goods and services.

Investing activities are those activities relating to the acquisition and disposal of non-current assets.

Financing activities comprise capital injections by, or repayment of capital to the Crown.

Financial Instruments

The Office is party to financial instruments as part of its normal operations.  These financial instruments include instruments such as bank balances, investments, accounts receivable and accounts payable. All financial instruments are recognised in the Statement of Financial Position and revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance.

All financial instruments are shown at their estimated fair value.

Goods and Services Tax (GST)

The Statement of Unappropriated Expenditure and the Statement of Departmental Expenditure and Appropriations are inclusive of GST. The Statement of Financial Position is exclusive of GST, except for Creditors and Payables, or Debtors and Receivables and which are GST inclusive. All other statements are GST exclusive

The amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in Creditors and Payables or Debtors and Receivables (as appropriate).

Taxation

Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994.  Accordingly, no charge for income tax has been provided for.

Commitments

Future payments are disclosed as commitments at the point a contractual obligation arises, to the extent that there are equally unperformed obligations.

Contingent Liabilities

Contingent liabilities are disclosed at the point at which the contingency is evident.

Taxpayers’ Funds

This is the Crown’s net investment in the Office.

Changes in Accounting Policies

There have been no changes in accounting policies, including cost allocation accounting policies, since the date of the last audited financial statements.

 

The accompanying accounting policies and notes form part of these financial statements.

 

The accompanying accounting policies and notes form part of these financial statements.

 

The accompanying accounting policies and notes form part of these financial statements.  

The accompanying accounting policies and notes form part of these financial statements.

 

The accompanying accounting policies and notes form part of these financial statements.

 

 

The accompanying accounting policies and notes form part of these financial statements.

 

Note 7: Financial Instruments

The Serious Fraud Office is party to financial instrument arrangements as part of its everyday operations.  These financial instruments include instruments such as bank balances, investments and accounts receivable.

Credit Risk

In the normal course of its business the Serious Fraud Office incurs credit risk from trade debtors, and transactions with the New Zealand Debt Management Office (NZDMO).

The Office does not require any collateral or security to support financial instruments with the NZDMO, as this entity has a high credit rating.

Fair Value

The fair value of financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

Currency and Interest Rate Risk

The Serious Fraud Office has no material exposure to currency risk, and its financial instruments are not interest rate sensitive.

Note 8: Contingencies

The Serious Fraud Office does not have any contingent assets at 30 June 2000 (30 June 1999: nil).

Contingent liabilities are separately disclosed in the statement of contingent Liabilities.

Note 9: Related Party Transactions

The Serious Fraud Office is wholly owned by the Crown, which is also its source of revenue.

If the Office enters into transactions with other government departments, these transactions are carried out on an arm’s length basis.  They are not considered to be related party transactions.

Note 10: Major Budget Variances

Major variances in financial statements compared to the Budget Night Estimates are:

Statement of Financial Performance

Personnel costs

Personnel costs were $183,000 less than budgeted. The level at which vacant positions were filled resulted in actual costs being lower than budgeted.

Operational Costs

Operational costs were $210,000 higher than budgeted.  This relates in the main to counsel fees that were higher than anticipated largely as a result of additional legal costs associated with the “Winebox” issues (arising from the Commission of Inquiry into Certain Matters Relating to Taxation).

Statements of Financial Position and Cash Flows

Accounts payable

Accounts payable, which at year end were higher than budget by $78,000, included amounts owing in respect of Counsel fees which had been incurred but not paid at balance date.

Management Performance Information

 

Corporate and Collective Interest Management Report for the Year Ended 30 June 2000

Integrity of the Public Service

Staff of the SFO are aware of and observe the standards of behaviour required of them as public servants.  A very high standard of professional conduct is “a must” for staff, who are also required to observe the secrecy provisions of the Serious Fraud Office Act.

Inter-departmental Liaison

The Office continued to play an important role as a member of the inter‑departmental Money Laundering/Financial Action Task Force (FATF) Working Group.  The contribution that the Office can make to policy debates is to provide advice based on the actual experience that it has as an operational department.

In addition, the development of sound working arrangements with other local enforcement agencies is a practical means of ensuring there is interdepartmental co‑ordination and the best use of available resources.  Senior staff have been allocated a specific responsibility for liasing with the appropriate local agencies and formal operating protocols have been developed with a number of key agencies such as the Police and the Inland Revenue Department.

Accommodation

The Office is located only in Auckland and occupies 1272 square metres spread over two floors of the Duthie Whyte Building at 120 Mayoral Drive, Auckland City.  There is no vacant space as at 30 June 2000.

The rental costs for the year were $352,652 ($345,900 in 1998/99) including landlord operating expenses but excluding other utility costs such as cleaning and energy costs which were;

1999/2000           1998/99

Energy costs                                                 $18,207              $23,793

(excluding those included

in the operating costs above)  

 

Telecommunication costs                              $63,098               $68,200  

 

Cleaning and maintenance                             $24,880               $23,430

 

Energy Usage and Costs

1997/98                                       1998/99                                        1999/2000

154,506 units used                       157,363 units used                        166,155 units used

Cost $21,745                               $23,793                                        $18,207

 

Fuel Usage and Costs

1997/98                                       1998/99                                        1999/2000

32,311 kms                                  10,200                                          17,011

$2,803                                         $980                                            $1,424

Management of Information

The operational information held by the Serious Fraud Office relates to the investigation and prosecution of cases and, as it is “protected” in terms of the Serious Fraud Office Act, very stringent security provisions apply.

Information is shared with other agencies only in very limited circumstances as permitted by the legislation and as required for the proper enforcement of the law, both in New Zealand and overseas.  The over-riding consideration for the Office in all cases is to ensure that all information is accorded the level of confidentiality required by the Serious Fraud Office Act 1990.  There is no “on line” or similar access to any Serious Fraud Office information.

Computing and Year 2000 Issues

Computer System

The Office had successfully upgrade its computer system approximately 18 months ago.  During the year there were minor enhancements to the system to ensure that the Office was getting full value from its investment.  Such enhancements are an on-going process.

The Office has also taken steps to improve its capacity to conduct searches of computers seized in the course of an investigation.

Year 2000

The Office has not encountered any Year 2000 difficulties.

Management of Human Resources

With extra funding for training obtained for 1998/99 the enhancing of investigative skills and techniques continued to be a priority for the Management Team to ensure that the Office keeps abreast of developments in relation to serious fraud offending, and the investigative skills and tools needed to combat such crime.  For example training was provided to investigators to improve their capability of retrieving and analysing information held on computers seized as a part of an investigation.

Professional training for the lawyers and the accountants in the Office continued and the Office supported staff with part-time relevant tertiary studies.

Prosecutors have the opportunity to obtain additional Courtroom experience through an arrangement with the Crown Solicitor in Auckland.

The pace of change and development, particularly in technology is rapid and provides new fraud opportunities.  The Office continues to keep abreast of international developments by maintaining close relationships with our counterpart overseas agencies and also by participation in inter-departmental working parties such as the Asian Crime Unit and the Money Laundering (FATF) Group.

Four staff left the Office during the year and all of those positions were filled.  We have been in the fortunate position of having very strong schedules of applicants for all positions.

Equal Opportunities

We are committed to equal opportunities for all our staff and to ensuring that the employment policies and practices support the recruitment and retention of the widest possible range of skills.

As a small, highly specialised department it is difficult to achieve a wide "mix" of ages, genders and cultural diversity.  Furthermore there are relatively few vacancies occurring each year.

Including the Director, the staff complement as at 30 June 2000 is 37  - 22 men and 15 women (with one position vacant, the appointee commencing in August).

Departmental Information

The Office is committed to the maintenance of high professional standards in the attainment of its objectives.

Policy on Acceptance of Cases

Selection

For the purposes of determining whether an offence involves serious and/or complex fraud, the Serious Fraud Office Act 1990 provides that the Director, among other things, may have regard to the following four factors:

          •   the suspected nature and consequences of the fraud;

          •   the suspected scale of the fraud;

          •   the legal, factual and evidential complexity of the matter;

          •   any relevant public interest consideration;.

It is not possible to be specific as to the cases that will be investigated and prosecuted by the Serious Fraud Office.  However, the following criteria are generally considered.

  •      all fraud involving over $500,000;

  •      all fraud perpetrated by complex means;

  •      any other complaint of fraudulent offending which is, or is likely to be, of major public interest or concern.

The Director has full discretion in the selection of cases.

Referral of Cases

The Complaints Officer is available to be contacted by the public in the first instance.

Complaints and referral of cases come from Government Departments, liquidators, receivers, statutory managers, professional associations and the general public.  On occasions the Office is also pro-active in undertaking inquiries.

The Serious Fraud Office emphasises the need for expedition in enquiries relating to fraud and therefore encourages such contact at an early stage.

Indep endence of Director 

It is an important constitutional principle in New Zealand that decisions by law enforcement agencies on the investigation and prosecution of individuals should not be subject to political control or direction.

The Serious Fraud Office Act 1990 provides that, “in any matter relating to any decision to investigate any suspected case of serious or complex fraud, or to take proceedings relating to any such case or any offence against this Act (the SFO Act), the Director shall not be responsible to the Attorney-General, but shall act independently”. 

Where complaints are considered inappropriate for the Office, every endeavour is made to refer them to the relevant enforcement and/or regulatory body for further action.

Handling of Cases

Every complaint received undergoes an initial assessment to determine whether it is a matter for the Serious Fraud Office.   After this assessment, if the Director decides to act on a complaint, the first step is often a further consideration of all the documentary material  - referred to as “the detection stage”.

At the completion of the detection stage the Director, after consultation with senior management, will then decide the next step.  Some cases will be closed at this stage, others upgraded to a full investigation.

Some cases will move to the full investigation stage immediately after assessment, where the evidence available supports that step.

Experienced investigators and forensic accountants work together on investigations, under the overall supervision of the senior management team.  Typically, potential witnesses and suspects are interviewed, documents obtained and analysed, and financial transactions researched. Investigation teams regularly exchange information, share experiences and expertise in order to maintain consistency.

Prosecutors are assigned to each investigation.  They advise on legal issues, including the exercise of the powers of the Office.

Appraisal meetings are held regularly (currently monthly) to ensure that for each investigation and prosecution an appropriate level of resources is being applied, professional standards and disciplines are being adhered to, and proper progress and direction is being maintained.  All current files being worked on are considered at these appraisal meetings.

On the completion of a full investigation the Director holds a review of that case attended by the investigation team and senior management.  At the conclusion of the review, the Director, having consulted with senior management, determines whether a prosecution is appropriate.

The Serious Fraud Office Act provides for a panel of experienced barristers to conduct all prosecutions.   The Director instructs a member of this panel to conduct a particular prosecution.  The Office staff prepare the prosecution files, brief evidence and assist in the conduct of the prosecution.

Powers of the Serious Fraud Office

The powers of the Office are prescribed in the Serious Fraud Office Act 1990. The Director has wide powers to undertake the detection and investigation of serious or complex fraud. 

It is essential that the Serious Fraud Office obtains the necessary information to assess a complaint, carry out detection and decide whether an investigation should be commenced.

The powers for detection and investigation are far-reaching; it is not only persons suspected of offences that must provide information to the Director, but also anyone holding information, which the Director considers may be relevant to an investigation.   These powers of compulsion are a vital investigative tool in the area of serious fraud offending.

The Director’s powers are delegated to investigative staff who obtain documents and conduct investigations on behalf of the Director.  The statutory powers are always exercised with great care and are powerful in reducing the timetable for investigations.

Legal Responsibilities

The Serious Fraud Office operates under the Serious Fraud Office Act 1990.  All requirements of that Act have been met.  In Part II of this report (pages 21 - 22) there is an analysis of the Notices issued in terms of the provisions of the Act.

Management And Structure

Three appointments were made during the year and four staff resigned.  As at 30 June 2000 the staffing level is 37*.  This compares with a staff level of 38 as at 30 June 1999.

Organisational Structure

*                There is one additional investigator who had been appointed as at 30 June 2000 but who will not be commencing with the Office until August 2000.