Annual report

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