Report
of the
SERIOUS
FRAUD OFFICE
TE
TARI HARA TĂWARE
For
the year ended
Presented to the House of Representatives pursuant to Section 30 of
the
Rt Hon Sir Douglas Graham KNZM 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 1999. D J Bradshaw Director 30 September 1999 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 enhancing community security, maintaining and accelerating economic growth and encouraging enterprise and innovation. As honest capital markets are critical to a healthy investment climate, successful investigation and prosecution of "white collar" crime sustains this reputation, 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 In June I co-hosted with the Crown Solicitor’s Office in Auckland a two-day conference on the investigation and prosecution of Electronic Crime. Speakers had been invited from the United States and Australia to share their experiences in this field. Two weeks later my Assistant Director (Investigations) was addressing a selected international audience at a United States Customs Service Conference in Las Vegas on a similar topic. These two events highlight a number of emerging factors in the fight against serious or complex fraud. Advances in technology are revolutionising the way the people around the world are doing business with each other. For the most part this is a positive development but there is a downside to it. That same technology that is assisting businesses around the world is equally available to the criminal fraternity to use for the commission of offences on an international or global scale. Money can be moved electronically from one country to another virtually instantaneously. Credit cards are easily obtained, and are widely accepted internationally making them a regular target of abuse. The internet provides a means of communicating with literally millions of people with ease. The challenge facing law enforcement agencies throughout the world is to strike the appropriate balance between allowing globalisation of commerce to proceed unconstrained or creating barriers to these opportunities in order to reduce the incidence of global fraud and money laundering. The most common occurrence of a global fraud in New Zealand at the moment is what is referred to as Prime Bank Instrument fraud. Under such an arrangement an investor is promised, possibly via the Internet, an exceptionally high rate of return for an investment, usually on a totally confidential basis i.e. the investor is often told that the returns will not eventuate if the arrangements are disclosed to any other person. (This element of confidentiality serves only to protect the fraudster.) The money is sent away but the returns do not eventuate and in most cases the money is never seen again. Despite all the warnings some New Zealanders continue to be tempted by the high returns offered and invest their money in such schemes either directly or by pooling their monies through a financial adviser. The actual fraudsters are rarely in New Zealand, but rather operate somewhere overseas beyond our jurisdiction. That is of little comfort to any New Zealanders who have lost their investment. Several million dollars were sent from New Zealand last year in the hope of instant riches. Where we do discover offending in New Zealand a prosecution will follow. During the year a financial adviser in Auckland was convicted on 16 counts of theft, false pretences, failing to account and using a document to defraud, where he had without authority used about $500,000 of his client’s monies to explore the prime bank instrument market. In another case a person is facing 23 charges for sending over $8 million to Nigeria contrary to the advice that he gave to investors as to where the money he had raised was to be invested. In both cases the investors have lost significant amounts of money. International co-operation is essential if global fraud offending of this nature is to be tackled effectively. Such co-operation is best achieved where the respective organisations are in regular contact and have confidence in each other. Mutual co-operation legislation can be helpful but direct contacts with equivalent agencies overseas have proved to be far more effective in ensuring a timely and meaningful response. The real value in organising or attending conferences very often lies in the contacts that are made, in being able to explain to overseas agencies the type of work being undertaken by the Serious Fraud Office in New Zealand, and most importantly in being able to achieve a level of personal trust that will allow often very sensitive information to be shared between law enforcement agencies. The increasing use of the electronic media in business has created new challenges to investigators and prosecutors for the gathering and the presentation of evidence. Key documents are no longer necessarily discovered in a filing draw, but are often now to be found on a computer disk. Banking transactions no longer have the supporting paperwork but often are done electronically. Passwords are replacing signatures. Yet the fundamental element of the offence remains the same – namely the dishonest taking or prejudicing of someone else’s property or rights. It is important that the investigators in the Serious Fraud Office are skilled in the ways of gathering and analysing electronic information, and that the prosecutors are skilled in the ways of presenting such evidence in a prosecution. Our criminal laws will need to evolve to meet these changes. It was an appeal to the Court of Appeal from a conviction obtained by the Serious Fraud Office (R v Wilkinson) that saw the Court of Appeal pronounce that legally it is not possible to steal an electronic credit as the law requires that there be something movable that has to be stolen. As His Honour Justice Thomas said in that case – "In New Zealand, as well as in other jurisdictions, the concept of being movable has traditionally been viewed as applying to something having physical characteristics, which could be taken into a person’s actual possession." Certainly, on the basis of my alternative analysis, a convincing argument could be mounted to the effect that the financier’s chose in action with its bank was transferable and therefore a movable. Such a view would accord with both common-sense and the general law. But the definition of theft reflected in s 217 is encrusted with historical barnacles which cannot be detached by a process of judicial interpretation." It was pleasing to see the Law Commission reporting promptly on this case and recommending changes to specific sections of the Crimes Act. It is also pleasing to see that consideration is being given to updating the whole of Part X of the Crimes Act to reflect our modern society. The Serious Fraud Office will be looking to make a contribution to these reforms. Our Courts of law must also keep abreast of advances in technology and be prepared to adapt procedures and rules of evidence where appropriate in the interests of achieving justice whilst not sacrificing fairness. For the Serious Fraud Office, for example, the opportunity to be able to use a multi media display to take a jury through a technical and complex financial transaction would be invaluable. It is not clear whether or not a forensic accountant when giving evidence would be allowed to present the evidence in this format. The Office will be doing all that it can do to persuade the Courts to take full advantage of the electronic aids available that will allow witnesses to present their evidence in the clearest possible way. The Office has an emphasis on ensuring that the staff receives thorough training in the use of modern technology and in the presentation of evidence in Court. My authority to videotape compulsory interviews of suspects was challenged during the year. It was claimed that in the absence of a specific statutory authority it was wrong for the Office to videotape such an interview without the consent of the suspect. My view was that the videotaping of a compulsory interview did not need specific legislative authority but was properly incidental to my power to require a person to attend at an interview. Videotaping the interview represented the most accurate method of recording the interview. The High Court agreed with me, but it is an interesting reflection on the use of technology in law enforcement that the Office faced a legal challenge in relation to a form of technology that has been widely used in our society for many years. To be successful in the fight against serious or complex fraud the Serious Fraud Office needs to understand and wherever possible harness the capabilities offered by modern technology. During the year the Office undertook a significant up-grading of its computer facilities. Training has been provided to all staff. There will be a need for on-going training, however, to ensure that the Office is using the computer system to its fullest capacity. For example there are still further advantages to be achieved within the Office in the way that we utilise our litigation support software package in the preparation and presentation of our Court cases. This is only a part of what is required, however. It is important that all of the elements of our justice system adapt to the needs of our modern society. Ultimately, however, the success of the Serious Fraud Office will turn on its ability to recruit and retain experienced staff who are able to maximise the benefits of modern technology, bring sound judgement to investigations, and who will ensure that the powers entrusted to the Office are exercised in a proper manner. I have a staff that is second to none in this regard. The results that the Office has achieved this year, and equally importantly the way that it has gone about achieving those results, reflects extremely well on the competence and professionalism of the staff at all levels. There are many issues facing law enforcement agencies in today’s environment. I have concentrated in this Overview on the impact of technology. The Serious Fraud Office is well placed both domestically and internationally to continue to contribute in a meaningful way to the fight against serious or complex fraud. D J Bradshaw Director Statement of Responsibility for the Year Ended 30 June 1999 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 1999. D J Bradshaw Neville Macindoe Director Chief Financial Officer 30 September 1999 30 September 1999
***insert here*** Statement of Objectives and Service Performance for the Year Ended 30 June 1999
Statement of Service Performance 1. Summary of Total Cases for the Year Ended 30 June 1999
Notes 1. In addition, there are two cases continuing against defendants who were previously included within the onecase reference, but these matters are continuing as separate and distinct criminal prosecutions. 2. Class of Output: Investigation of Serious Fraud Description This class of outputs involves investigating suspected cases of serious or complex fraud brought to the attention of, or detected by, the Serious Fraud Office. Where the fraud is serious or complex, the investigation continues until the Director makes a decision on whether criminal charges should be laid. Outcome To combat serious or complex fraud offending by the expeditious detection of serious or complex fraud and the obtaining of evidence for the laying of charges. Delivery The following briefly outlines the actions taken during the period 1.7.98 to 30.6.99. As at 30 June 1998 there were 36 cases on hand at the assessment/detection or full investigation stage. During the current year, a further 120 new complaints were received, giving an overall caseload of 156 cases that were at the Assessment/Detection or Investigation stages. During the reporting period; 18 investigations were completed and proceeded to prosecution; 5 were fully investigated but did not proceed to prosecution, but one was referred to the Police; 3 investigations were suspended, as the "suspects" have left the country and further work cannot proceed; 26 were referred to other more appropriate agencies, namely; 4 to the Police 6 to the Ministry of Commerce 2 to Overseas agencies 3 to the Commerce or Securities Commission 4 to the Inland Revenue Department 3 to Immigration 4 to various other more appropriate Government Departments or agencies 71 files were closed following consideration and assessment as they were found not to justify further action; 6 files are at the detection stage. 27 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 97 (7 exceeded the 6 month target) elsewhere Cases on hand at Assessment/Detection Stage 6 (1exceeds the 6 month target) Total exceeding the 6-month target 8 The performance target was met in the majority of cases (92%) with the decision point being reached well within the timeframe, usually within 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. Of the 6 cases on hand at assessment or detection stage as at 30 June 1999, only one exceeds the target of six months. This case, whilst only warranting a "Part 1" designation (in terms of the Serious Fraud Office Act), was of particular complexity and involved Prime Bank Instrument fraud. The evidence was very difficult to obtain, as witnesses were unhelpful and reluctant to provide details given the so-called "confidentiality" provisions included in some of these schemes. The remaining five cases are under review to ensure that action is being taken to either progress the matter to a full investigation or close the file. During the 12 month period, 97 cases at assessment / detection stage were closed or referred to other more appropriate agencies. In 90 (93%) of the cases this decision was reached well within the 6 months target (generally within one month) and, in the 7 outside the target, the average length of the assessment period (excluding the case referred to below) was 11 months. One of the seven cases involved Prime Bank Instrument fraud and peripheral finance related matters and the evidence of any alleged fraud was extremely sketchy and hard to obtain. As a result this case was at the detection stage for more than 2˝ years. Whilst insufficient evidence has been found to move to an investigation, this case will continue to be monitored by the Suspicious Financial Transactions unit. 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 53 cases were at the investigation stage and of these; 5 were completed but did not proceed to prosecution 3 were suspended as the alleged offenders are overseas and further action cannot proceed 18 resulted in a prosecution 27 remain under investigation In the 18 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 nine months. This falls well within the performance target and in only three cases (17%) the investigations continued for longer than three months outside the target period. In these cases, one was "held" pending the outcome of other legal action; and in the second case there have been jurisdictional issues related to interviewing important witnesses overseas. Furthermore, in this case, there have been legal issues, including an unsuccessful challenge to the SFO powers, and the refusal to answer questions. The third case involved an exceptional number of documents (some 20,000) and the consequent need to analyse many of these in considerable detail. Of the 8 investigations that were either completed but did not result in a prosecution, or were suspended, only 2 exceeded the 12-month target. One was a very complicated tax case and independent legal advice was sought on tax and other relevant legal issues. Of the 30 cases on hand at the investigation stage, the "average age" of the investigation is 8 months with 3 having been under action for more than 12 months. In one of these cases those involved are all now resident in Australia and the investigation has been prolonged, as arrangements have had to be made to pursue the case. A second case relates to the alleged winding back of odometers and obtaining evidence from Japan has proved extremely difficult. Overall, the performance target has been achieved with 8 cases out of the total of 53 (15%) exceeding the 12-month target. that the outputs are produced within budget - financial performance
3. Use of Statutory Powers
Target Delivery
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 1998/99 1997/98 S5(a) Requiring documents 156 90 S5(b) Requiring answers to questions nil nil S6 Search warrant obtained 1 nil
SFO Act, Part II Investigation of Suspected Offences Involving Serious or Complex Fraud
1998/99 1997/98 S9(d) Requiring answers to questions 64 110 S9(e) Requiring information 2 17 S9(f) Requiring documents 807 734 S10 Search warrant obtained 18 9 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 power to ensure that the provisions of the Serious Fraud Act are met. 4. Class of Output: Prosecution of Persons for Serious or Complex Fraud Description This class of outputs involves all stages of the prosecution of persons for serious or complex fraud, including preparation and filing of all court documents; 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 class of outputs also includes the briefing of the Senior Counsel engaged for 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. Performance Targets to present properly prepared and well researched prosecution cases, achieving a minimum of 85% successful prosecutions During the year ended 30 June 1999, 18 new prosecutions were commenced and 12 prosecution cases were concluded. Of these latter, only one case (Gavin William and Anthony John ROBINS) was unsuccessful. At the end of the period there are 21 prosecution cases under action. 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. 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 1999. These statistics are summarised in Appendix A – page 56. 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 where 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 timely information is available from the Review. that the outputs are provided within the appropriated sum - financial performance
Prosecutions Completed Case 1 FARKAS, Thamas Deszo Realtor This prosecution arose out of the case previously reported in the 1997/98 Annual Report (refer page 23) which was offending related primarily to mortgage finance arrangements. Following a jury trial in the Wellington District Court, from 16 – 20 November 1998, the abovenamed was convicted on one charge of conspiracy and two of fraudulent use of documents. On 17 December 1998 he was fined $5,000. Case 2 FRANKLIN, Stephen John Director WILSON, Gary Henry Former Director ROD, Stephen Paul Former Director Following a Jury trial in the Wellington District Court from 12 April – 5 May 1999 two of the three defendants Wilson and Rod, were convicted on the charge of conspiracy to defraud. Franklin was acquitted. On 2 June 1999 Stephen Paul Rod was sentenced to 18 months imprisonment and Gary Henry Wilson was sentenced to 12 months imprisonment (suspended for 12 months) and 6 months Periodic Detention. Case 3 WILLIAMS, Archill Financial Adviser This was offending related to the activities as a financial consultant. Following a Jury trial in the Auckland District Court from 15 – 25 February 1999, the abovenamed was convicted on all 16 counts of theft, false pretences, failing to account and using a document to defraud. On 25 March 1999 he was sentenced to 4 years imprisonment. Case 4 SMITH, Bruce Solicitor This offending involved misappropriating clients funds. Following a trial in the Whangarei District Court from 22 June – 3 July 1998 the abovenamed was convicted on all 6 counts of fraud and on 24 July 1998, in the Auckland District Court (adjourned from Whangarei) he was sentenced to 2 years 9 months imprisonment. Case 5 KNAPE, William Company Director On 15 June 1999, in the Auckland High Court, the abovenamed pleaded guilty to 14 charges of extortion and on 26 July 1999 he was sentenced to 3˝ years imprisonment. In this case the defendant was alleged to have extorted $700,000 from another person by threatening to reveal offences committed by that person. Ironically the person threatened had to steal from the employer to meet those demands and, following our investigation, the Office has successfully obtained convictions both for the theft from the employer and for the extortion. Case 6 MATHEWSON, John Company Director Following a depositions hearing in the Christchurch District Court in September 1998, this case was committed for trial and an application was successfully made to transfer the proceedings to the High Court. This is offending related to using false figures and false accounts in the purchase of a company and its re-financing. On 9 June 1999, just before the start of his trial in the Christchurch High Court, Mr Mathewson decided to plead guilty to 2 charges. On 24 June 1999 he was sentenced to 9 months imprisonment. Case 7 ROBINS, Gavin William Chief Executive ROBINS, Anthony John Realtor The abovenamed were on trial for allegedly defrauding the Accident Compensation Commission in the unauthorised buying of two aircraft. On 19 November 1998, following a 3˝ week trial in the Wellington High Court the jury found the abovenamed "not guilty" on all counts. Case 8 WALLACE, Richard Mark Motor Vehicle Dealer This fraud related to falsifying documentation and conspiring to sell cars with wound back odometers. On 20 July 1998, in the Auckland District Court, the abovenamed pleaded guilty to falsifying documents and conspiring to sell vehicles with wound back odometers. He was sentenced to 2 ˝ years imprisonment. Case 9 RABBETT, Paul Stanley Property Developer RABBETT, Anthony George* Property Developer McDONALD, Malcolm James* Solicitor’s Clerk JONES, Lynette* Housewife This was offending related to mortgage frauds. Although initially investigated as a single case there were quite distinct proceedings against these defendants*, the outcomes of which are detailed below. On 19 April 1999, in the Christchurch District Court, Paul Rabbett pleaded guilty to the charge of conspiracy to defraud and on 3 May 1999 was sentenced to 2˝ years imprisonment. On 6 May 1999, in the Christchurch District Court, Anthony George Rabbett pleaded guilty to two charges of fraud and on 24 May 1999 was sentenced to 5 months Periodic Detention and ordered to make reparation of approximately $70,000. On 28 June 1999, in the Christchurch District Court Lynette Jones pleaded guilty to the fraud charge and on 16 July 1999 was sentenced to 120 hours community work. The case against Malcolm James McDonald is continuing at the end of the reporting period with depositions scheduled for October 1999. Case 10 HEALD, James Leslie Tax Adviser This was offending related to a tax consultant making false claims on the Inland Revenue Department. On 25 September 1998, in the Wellington District Court, the abovenamed pleaded guilty to the fraud charge and on 6 November 1998 he was sentenced to 4 years imprisonment and a reparation order of $50,000 Case 11 BATIE , Linda Mary Bank Officer KINGSTON, Jillian Bank Officer Both defendants were Bank Officers who electronically altered accounts and transferred money into their personal accounts. On 4 March 1999, in the Auckland District Court, the abovenamed pleaded guilty to the fraud charges. On 30 April 1999, Linda Batie was sentenced to 3 years imprisonment and Jillian Kingston was sentenced to 18 months imprisonment (suspended for 2 years), 8 months Periodic Detention and ordered to make reparation of $22,300. Batie appealed, and her sentence was reduced to 2 years and three months imprisonment. Case 12 CHAND, Aneal Prakash Bank Officer This case involved a bank officer defrauding the bank in which he worked. On 25 May 1999, in the Auckland District Court, the abovenamed pleaded guilty to the 5 fraud charges. On 23 July 1999 he was sentenced to 3 years imprisonment. Case Partially Completed In addition to the above, the following case was partially completed; JONES, Peter David Panel Beater MASLIN, John William Investment Adviser QUALISCHEFSKI, Karina Property Developer This offending relates to mortgage finance. On 7 May 1999, in the Wellington District Court, Karina Qualischefski pleaded guilty to a charge of mortgage fraud and was sentenced to 200 hours community service. On 8 June 1999, in the Wellington District Court, Peter Jones (alias Johnson) pleaded guilty to 3 charges of using a document with intent to defraud . On 25 June 1999 he was sentenced to 8 months Periodic Detention. The proceedings against Maslin are continuing. New Trial RADEMACHER, Volker Erich Company Director LANE, Kenneth Alexander Company Director EVANS, Allan James Company Director HOLDEN, Robert Francis Company Director SMITH, John George Company Director (KIWI FOUNDATION LIMITED) This offending relates to the alleged misappropriation of monies raised by these business men, through gambling machines which were installed in various hotels. The alleged offending is in excess of $1m. The trial of these 5 defendants resulted in a hung jury after 5 weeks of hearing evidence and submissions in the Christchurch High Court. The Office intends to proceed with a retrial and a new trial date has been set for November 1999. Prosecution Cases Under Action As at 30 June 1999 there are 21 prosecution cases under action and these are summarised in Appendix B, page 57. Statement of Accounting Policies for the year ended 30 June 1999 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 which it relates. Cost Allocation The Office has 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.
Statement of Financial Performance for the Year Ended 30 June 1999
The accompanying accounting policies and notes form part of these financial statements. Statement of Movements in Taxpayers’ Funds for the Year Ended 30 June 1999
The accompanying accounting policies and notes form part of these financial statements. Statement of Financial Position as at 30 June 1999
The accompanying accounting policies and notes form part of these financial statements Statement of Cash Flows for the Year Ending 30 June 1999
The accompanying accounting policies and notes form part of these financial statements. Reconciliation of Net Surplus to Net Cash Flows from Operating Activities for the Year Ending 30 June 1999
The accompanying accounting policies and notes form part of these financial statements. Statement of Commitments as at 30 June 1999
Statement of Contingent Liabilities as at 30 June 1999
Statement of Unappropriated Expenditure for the Year Ended 30 June 1999
The accompanying accounting policies and notes form part of these financial statements. Statement of Departmental Expenditure and Appropriations for the Year Ended 30 June 1999 (Figures are GST inclusive where applicable)
The accompanying accounting policies and notes form part of these financial statements
Notes to the Financial Statements for the Year Ended 30 June 1999
Note 8: 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 9: Contingencies The Serious Fraud Office does not have any contingent assets at 30 June 1999 (30 June 1998: nil) Contingent liabilities are separately disclosed in the Statement of Contingent Liabilities. Note 10: 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 11: Major Budget Variances Major variances in financial statements compared to the Budget Night Estimates are: Statement of Financial Performance Personnel costs Personnel costs were $323,000 less than budgeted. The level at which vacant positions were filled resulted in actual costs being lower than budgeted, and a senior staff member took unpaid leave while seconded to an overseas agency. Statements of Financial Position and Cash Flows Accounts payable Accounts payable, which at year end were higher than budget by $192,000, included retentions and other amounts owing in respect of capital expenditure. Cash Balance The closing balance was higher than budgeted by $383,000 reflecting a higher than budgeted operating surplus and higher than budgeted creditors. Management Performance Information Corporate and Collective Interest Management Report for the Year Ended 30 June 1999 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 those agencies where there is potential for fraud offending. Accommodation The Office is located only in Auckland and, following the negotiations outlined below, now 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 1999. During the reporting year lease negotiations were successfully concluded and the following goals achieved; bringing the several leases which reflected the incremental growth of the Office into one document.
moving to a market rental without any ratchet clauses.
acquiring the remainder of the 3rd floor at minimal cost to allow for the files currently stored off-site to be brought within our secure area.
removing the obligation to re-carpet the premises upon the expiry of the lease. Several renovations occurred during the year and arrangements were made to re-carpet the entire Office. That work is almost complete. The rental costs for the year were $345,900 ($346,100 in 1997/98) including landlord operating expenses but excluding other utility costs such as cleaning and energy costs which were; 1998/99 1997/98 Energy costs $23,793 $21,745* (excluding those included in the operating costs above)
Telecommunication costs $68,200 $55,500
Cleaning and maintenance $23,430 $21,842
Energy Conservation* The energy costs for the 1997/98 year reflected the impact of the Mercury Energy power crisis time and the rental adjustments made by Mercury Energy by way of compensation. Similarly, the reduction in the energy usage also reflected the Mercury Energy crisis. In the current financial year, energy usage was monitored and steps taken to ensure efficient use. Although there was an increase in consumption, (when compared with the "atypical" 1997/98 financial year, given the Mercury energy problems), the total units used in 1998/99 represent savings achieved when compared with the "more standard" 1996/97 financial year. The total usage figure in that year was 170,495 units. Energy Usage and Costs 1996/97 1997/98 1998/99 170,495 units used 154,506 units used 157,363 units used* (refer note above) Cost $24,380 Cost $21,745 $23,793 Fuel Usage and Costs 1996/97 1997/98 1998/99 65,570 kms 32,311 kms 10,200 $6,189 $2,803 $980 At the beginning of the 1998/99 financial year the Office ran three vehicles. During the year the usage and need was reviewed and the "fleet" reduced to two cars with the consequential savings in costs and usage as reflected above. As at 31 August 1998 the number of vehicles was further reduced to only one and this accounts for the reduction in fuel usage and costs as outlined above. 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 Upgrade The implementation of the upgrade to the computer system referred to in the 1997/98 Report was successfully completed during the year. This was a major undertaking for the Office with almost a total replacement of our hardware, and the need to integrate existing software with the new equipment. The exercise was completed within the budget of $345,000, and within acceptable time lines, and most importantly without any serious disruption to the work of the Office. The Serious Fraud Office now has a state of the art document management system, which combines the use of computer technology for our investigative work and preparation of prosecutions, with the need to retain original documents as the "best evidence" in any prosecution. Alongside the introduction of the new computer equipment was a comprehensive training package on the new system for all staff. Year 2000 The Office has undertaken the necessary checks to ensure that as far as possible it will not be adversely affected by the Year 2000 issue. For example, the computer system was run forward to the year 2000 and did not experience any problems. The immediate impact of the Year 2000 on the Office will be minimal as the Office is closed until the 10th January. Management of Human Resources With extra funding for training obtained for 1998/99 the enhancing of investigative skills and techniques was considered a priority by 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 the crime. Special training courses on interviewing skills and on presentation skills were designed for investigators and forensic accountant (although several prosecutors also attended). A very experienced US fraud investigator attended the Office and shared some of his experiences with fraud investigations and interviewing suspects. A conference on electronic crime was organised by the Office in conjunction with the Crown Solicitor in Auckland. There will be follow-up work in the coming year to give effect to some of the matters arising from this Conference 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. Two members of the Office attended by invitation a seminar held by the US Customs Service. One member of the Office was an invited speaker at the 25th anniversary of the Hong Kong ICAC. 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. A senior forensic accountant spent the year on secondment to the Australian Securities and Investment Commission (ASIC) where he was assisting the ASIC develop its forensic accounting capability. 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. During the reporting period seven new staff were appointed and five of these were women. Including the Director, the staff complement as at 30 June is 38 - 24 men and 14 women. 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:
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.
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. Independence 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 Seven appointments were made during the year and four staff resigned. As at 30 June 1999 the staffing level is 38, compared with 35 as at 30 June 1998. However, at that date (30/6/98) there were three appointments under action to fill vacancies. In practice there has been little change in the overall numbers. Organisational Structure Note: Total staff as at 30 June 1999, including the Director, is 38, with one of the forensic accountants on secondment to the Australian Securities and Investment Commission. Two recent vacancies are in the process of being filled. Public Relations The goal of the Office in relation to public relations over the past year or so has been to demystify the Serious Fraud Office without sensationalising the work of the Office. Information about the Office has been conveyed in a low-key manner whenever an appropriate opportunity has arisen. The Office does not, however, routinely provide media releases about cases that it has under investigation nor cases that it is prosecuting in the Courts. The general policy of the Office is to neither confirm nor deny whether the Office is investigating any matter, except where there is an over-riding public interest. Such an approach protects the integrity of the investigation and limits the potential harm, either commercial or personal, that can be done to an individual or companies if the Serious Fraud Office was to publicly announce that it was investigating their affairs. Similarly with prosecutions, the Office does not generally regard it as its role to be making press releases about every prosecution. It will, however, assist the media in its coverage of Serious Fraud Office prosecutions by confirming the dates of Court appearances or details of charges, if requested. In many cases name suppression affects the extent of the media coverage given to prosecutions brought by the Serious Fraud Office. From time to time the Director may determine that there is a need to alert the public to a particular fraud or scam that is known to be affecting New Zealanders. During the year media releases were made on the issue of Prime Bank Instrument fraud with a particular emphasis in the Nelson region where there was some evidence of these sort of approaches being made to members of the public. Senior managers and other members of staff undertook a number of speaking engagements during the year and the Office responded to various requests for written information. The Assistant Director (Investigations) and an Investigator were invited to attend a seminar held by the US Customs Service, where they presented an outline of investigations undertaken by the Office. The Assistant Director (Prosecutions) was an invited speaker at the 25th anniversary of the Hong Kong Independent Commission Against Corruption. A relationship has been established with a number of the local Polytechnic Institutes and operational staff present seminars to the commercial/management students. The Office also hosted a senior delegation from China during the year. Appendix A Total Serious Fraud Office Prosecutions to 30 June 1999 from Date of Inception
1. Total Prosecution Cases Taken 109 (individual defendants) (179) 2. Total Prosecution Cases Determined 88 (individual defendants) (144) 3. Total Successful Prosecution Cases 80 (individual defendants) (123) 3a. Other Cases 0 (individuals) (2) 4. Total Unsuccessful Prosecution Cases 8 (individual defendants) (19) 5. Total Prosecution Cases Still To Be Determined 21 (individual defendants) (36) Prosecutions Success Rate - Cases 90.90% - Individual Defendants (85.42%)
Notes: a. Prosecution case refers to a prosecution involving either one defendant or multiple defendants. b. Prosecution success refers to cases successfully prosecuted in whole or in part: (i) "Whole" – where all the defendants have been convicted on all charges or a significant number of charges. (ii) "Part" – where a prosecution case results in the conviction of the majority of defendants on all or a significant number of charges. (iii) "Other" – this deals with situations where cases are disposed of by the offering of no evidence against some accused
Appendix B Prosecution Cases Under Action as at 30 June 1999
Case 1 RADEMACHER, Volker Erich Company Director LANE, Kenneth Alexander Company Director EVANS, Allan James Company Director HOLDEN, Robert Francis Company Director SMITH, John George Company Director Charges 60 Value $2.8m Following the trial in the Christchurch High Court (3 – 27 May 1999) and two full days of deliberations, the Jury was unable to reach a decision and the Judge ordered a retrial. This is due to commence 1 November 1999.
Case 2 NAME SUPPRESSED Company Director) Charges 5 Value $4m (approx) Set down for trial in the Wellington District Court from 29 November 1999.
Case 3 NAME SUPPRESSED Former Solicitor Charges 22 Value $1.028m Depositions completed. Awaiting trial date in the Christchurch District Court.
Case 4 TANNAHILL, John Solicitor Charges 18 Awaiting Depositions hearing set down for August /September 1999 – Wellington District Court.
Case 5 NAME SUPPRESSED Former Chief Executive (Retired) Charges 8 Pre-depositions hearing date set down for 30 July 1999 – Auckland District Court.
Case 6 LAWRENCE, Mason Bryan Salesman CALLENDER, Guy Philip Accountant SIVANANTHAM, Siva Solicitor Charges 13 All three accused were committed for trial following a depositions hearing in April 1999 in the Wellington District Court. Awaiting trial date.
Case 7 COURTNEY, Mark Company Executive CHILD, Keith Wayne Company Executive Charges 13 Value $3.5m BANSAL, Sunil Car Dealer Charges 14 Value $3.7m Depositions hearing set down for 20 September 1999 – Auckland District Court.
Case 8 NAMES SUPPRESSED Defendant 1 Salesman Charges 3 Defendant 2 Company Director Charges 4 Depositions set down for August 1999 - Auckland District Court.
Case 9 NAME SUPPRESSED Immigration Officer Charges 35 Value $200,000 (approx) Depositions hearing set down for 4 October 1999 – Auckland District Court.
One of the defendants in this case (name suppressed) has already pleaded guilty to a charge of bribery and corruption under the Crimes Act and on 6 November 1998, in the Auckland District Court, was sentenced to 15 months imprisonment suspended for 18 months, plus 5 months periodic detention.
Case 10 MASLIN, John William Investment Adviser Charges 3 Depositions hearing set down for 21 July 1999 - Wellington District Court. Two other defendants in this case have already pleaded guilty to their offending (refer page 29).
Case 11 FAISANDIER, Anita Entrepreneur Charges 23 Value $42m Depositions hearing set down for 26 July 1999 – Wellington District Court
Case 12 MEROITI, Uruera Gary Wiringi Investment Broker Charges 3 Committed for trial and awaiting a hearing date – Wellington District Court.
Case 13 PALMER, Gary Ashleigh Company Director First appearance to face charges on 14 July 1999 – Auckland District Court
Case 14 RUTHERFURD, Graeme Kenneth Retired Banker Charges 23 Value US$4m Pre – depositions hearing set down for 9 July 1999 – Auckland District Court.
Case 15 NAMES SUPPRESSED (2 Defendants) Former Chief Executive Officer and former Banker Next hearing date 9 July 1999 in Auckland District Court.
Case 16 JULIAN, Jeffery Retired Banker Name Suppressed of Another Defendant Merchant Charges 1(joint) Depositions hearing set down for 18 October 1999 – Auckland District Court.
CASE PARTIALLY CONCLUDED (refer page 27)
McDONALD, Malcolm James Solicitor’s Clerk
Awaiting depositions hearing date – pre-depositions hearing set down for 2 July 1999 – Christchurch District Court.
CASES SUSPENDED - (Until Alleged Offenders Located - 5 Cases)
WILSON, Ross Anthony Insurance Salesman A Warrant for Arrest has been issued.
LAHAV, Simon Company Director Warrant for Arrest has been issued.
SPEEDY, James Solicitor A Warrant for Arrest has been issued.
OH, Yong Jin (aka) Steve Jin Oh) Company Director A Warrant for Arrest has been issued.
SPOORS, George Eric A Warrant for Arrest has been issued.
Notes:
The $ value relating to some of the offences is relatively low in terms of those prosecuted by the Office. The reasons for this can be summarised briefly:
(i) in some instances these are the charges ultimately brought when the potential offending initially was seen as far greater than that which followed after detailed investigation;
(ii) in other cases the complexity of the offending was such that the Police sought Serious Fraud Office involvement;
(iii) in one case (Speedy) this is simply an offence enabling the obtaining of the Warrant to Arrest. Ultimately, on execution, interview(s) of the offender would need to be conducted regarding other possible areas of offending (he is currently residing in Northern Ireland but his extradition is not being sought);
(iv) the status of the person categorised the offence as serious fraud (public interest considerations); or
(v) where offenders come to light as ancillary to the principal offences for which others were charged. |
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