Serious Fraud

Prayers – in the House of Commons at 2:29 pm on 16th February 1996.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ottaway.]

Photo of Mr John Marshall Mr John Marshall , Hendon South 2:35 pm, 16th February 1996

I have raised the question of serious fraud on several occasions in the House. I realise that I cannot refer to individuals who may have been subject to previous prosecutions but who are also subject to current prosecutions.

There are several serious issues which must be considered. First, there is the competence of the Serious Fraud Office. There have been a large number of acquittals in high-profile cases. Secondly, there is the cost of cases to the public purse and the national scandal whereby a number of wide boys have been helped by the legal aid fund. Thirdly, there is a widespread feeling that serious fraud cases are too complicated for the average jury.

We must remember who the victims of serious fraud are. They are frequently the financially unsophisticated—the small man. I remember, at the time of the Dunsdale Securities case, meeting a constituent who told me that he had concentrated all his financial investment in one company, Dunsdale Securities. He had even been persuaded by Mr. Miller, who ran Dunsdale Securities, to increase the mortgage on his house so that he could invest even more money in Dunsdale. He did not realise that the return offered by Dunsdale Securities was far higher than that offered by the gilt-edged securities in which it allegedly invested—so high as to be suspicious.

Similarly, those of us who were in the House at the time of the Barlow Clowes disaster will remember meeting constituents who had put money aside for a rainy day. One constituent had put money into Barlow Clowes to save for school fees. They were the people who suffered because they were not wise enough in the ways of the world and invested in a duff company. More recently, there was the Belling pension fund, about which pensioners suffered worry and concern.

In Sussex, two partners in a firm of solicitors engaged in an £8 million fraud. The victims were the employees of the firm, whose jobs disappeared from under them because it went bankrupt, and honest solicitors throughout the country who had, through the solicitor's compensation fund, to pay out £8 million to the clients of that company. That was all paid for by honest, decent solicitors.

Although the victims may often obtain compensation, as they did eventually in the Barlow Clowes case, the uncertainty before getting it can be fatal. I knew an investor in Dunsdale Securities who got a 7.30 am telephone call to tell him that Dunsdale had gone bust. Within a few days, he had died of a heart attack, which was clearly not unrelated to the worry and concern that he had suffered. While those who suffered as a result of Barlow Clowes were eventually pleased to get compensation, they went through many months of agony about which the perpetrators of the fraud were not concerned.

The other case is one of which I have spoken to my right hon. and learned Friends the Law Officers from time to time. About £59 million was misappropriated, and it was all investors' money. Some of those who suffered were very small investors.

It is not just the fact that small people suffer. The reputation of this country for honest dealing in finance is put at risk when one of these individuals gets away with tens of millions of pounds. Vast sums of money are involved, and the greed and dishonesty that enables people to seek to get away with it beggars belief.

The public have a sense of intense frustration that large sums of money are lost by the victims of fraud. In some of the high-profile cases, many tens of millions of pounds are lost. Many millions are spent on the cases themselves. The Government not only pay the costs of the Serious Fraud Office, but normally help the defendants through legal aid. All that happens—the money has been lost and the costs are paid out—but all too often there is no conviction.

The Serious Fraud Office is nicknamed by some the "seriously flawed office". When Mr. Nadir decided to fly to Cyprus, many people thought that he could have chanced his arm and been prosecuted. He probably would have been at liberty in England now, rather than a prisoner in northern Cyprus.

My interest in this issue was aroused by the Levitt case. I thought that the prosecution by Mr. David Cocks was bungled. He ended up blaming the judge, complaining unsuccessfully about defence counsel and misleading the director of the SFO, the Attorney-General and, indirectly, the House.

Many of us have complaints about the SFO. It has had three directors in its short life. Many question whether its budget is adequate. The Sunday Times recently pointed out that the SFO' s responsibilities have been increased, in that it is now responsible for cases in which the fraud is more than £1 million, whereas previously the threshold was £5 million.

A lawyer called Bob Goldspink—one could not have invented that name—who is a partner at Denton Hall and specialises in major fraud cases, says: To be the dynamic, fraud-fighting body the country desperately needs, the SFO must be given the resources to hire and train the very best lawyers. Another lawyer said that the SFO is already woefully under-re sourced.

The SFO has had a mixed record. I wish to thank the Lord Chancellor's Office for answering a question of mine today. In the year 1992–93, there were 21 trials, but in only 12 were all the defendants convicted. In 1993–94, there were 26 trials, but in only 14 were all the defendants convicted. In 1994–95, there were 12 trials, in five of which all the defendants were convicted. In 1995 and to date, there have been nine, in six of which all the defendants were convicted.

The scale of convictions is not always the best guide, however. Mr. Levitt was convicted after plea bargaining, but he did 185 hours of community service—scarcely an adequate penalty in view of the scale of the fraud that he had committed.

Apart from the cost of serious fraud to the individuals concerned, there is a huge cost to the legal aid fund. The wide boys who practise serious fraud are smart enough to transfer their assets before they are charged. In the Levitt case, for example, he was given the legal aid appropriate to a pauper, but he lived in a house worth £750,000 and celebrated the end of the case with champagne and going to the plush boxes of White Hart lane. Since then, he has moved up market in his housing rather than down. The victims suffered twice over—they lost because they were unsuccessful investors, and they lost again as taxpayers.

It sticks in the gullet of most decent people that villains who have been party to very large frauds can then live the life of Riley, having been helped with legal aid. When they apply for legal aid, they are allegedly penniless, but if they escape conviction they suddenly seem able to live the good life.

One of the most amazing cases was that of Mr. Ernest Saunders, who was always able to get legal aid when fighting his case in the United Kingdom courts. I saw recently that he was taking a case to the European Court' for which, I assume, he is having to pay solicitors but where he is not eligible for legal aid. One wonders whether this man, who at one stage suffered from Alzheimer's disease but discovered that Guinness was a good cure for it, may not occasionally suffer from amnesia when filling out his legal aid application forms.

In 1994, there were 1 million applications for legal aid and 600,000 for criminal legal aid, but only 15 prosecutions for fraudulent claims. Are we being told that the criminal fraternity is honest when claiming legal aid? I cannot believe that. I believe that all too often those who practise serious fraud have salted away their assets, so that, when they are brought to trial they can get legal aid paid for by the taxpayer. I welcome the Lord Chancellor's commitment to ensuring that those who are apparently rich and living in big houses will no longer be eligible for legal aid.

The House may like to know about the growth in expensive legal aid. I have today been given the answer to a question that I tabled to the Lord Chancellor's Department. It shows that, in 1993–94, there were 172 cases in which the cost of legal aid exceeded £100,000. In 1994–95, there were 237 such cases, and so far this year there have been 178. In other words, the cost to the taxpayer is considerable.

Finally, we must consider whether juries are suitable for trying serious fraud cases. The Roskill committee in 1986 recommended that serious fraud cases should be tried not by juries but by a judge and lay assessors. We have to ask whether juries are able to understand very complicated serious fraud cases. One recent case was so complicated that the court heard evidence only in the mornings because the judge thought that it would be too much for the jury to take in evidence in both the morning and the afternoon. The burden on the judge is magnified by the need to explain inherently complicated issues to a jury which may include some more simple people.

I have been told by Law Officers and others that the judges themselves are almost exhausted by the end of some serious fraud trials, because the judge has to understand issues that are foreign to him in his daily life. If complicated fraud trials are sometimes too much for the judges, they are certainly going to be too much for the jurors. Complicated fraud trials frequently last for many months, and I do not believe that the juries in such cases are representative of society as a whole.

In a recent case—the one that I am not allowed to mention in case it prejudges another trial—the potential jurors were asked whether they had any views on X. For people not to have a view on X meant that they could not have been frequent readers of newspapers. If they are not frequent readers of newspapers, I suggest that they are not typical of the average person.

If the judge had the benefit of lay assessors, accountants, solicitors and lawyers specialising in City matters, instead of trying to explain the almost inexplicable to people who will never again have to deal with such matters, he would have the arcane issues explained to him by technical experts who understand them very much better than he.

I believe that the history of serious fraud cases—such as the Levitt case, the Brent Walker case, the Guinness cases marks 2, 3 and 4, the Blue Arrow case and other high-profile serious fraud cases—shows very strongly that serious fraud is too serious a matter to be left to the normal system of prosecution. Just as we developed the Serious Fraud Office to prosecute, so we need to have a different system to try those cases, because they are far too complicated for the average person to understand.

Photo of Mr Derek Spencer Mr Derek Spencer , Brighton, Pavilion 2:49 pm, 16th February 1996

I congratulate my hon. Friend the Member for Hendon, South (Mr. Marshall) on obtaining the debate, albeit not at the first time of asking. We had an assignation about 18 months ago in the middle of the night which we were not able to complete. I have listened to his points with interest, and he made them with his usual force and effectiveness.

The debate gives me an opportunity to confirm the Government's view that the Serious Fraud Office plays and will continue to play a successful part in combating and deterring financial fraud. Since the SFO was set up in April 1988, it has developed a unique body of skills and expertise, and I speak as somebody who has appeared as counsel in a number of large and heavy fraud cases over the years.

There is much ill-informed and sometimes malicious comment about the record of the Serious Fraud Office by those who have not taken care to look at the complete picture. Their attack upon it is seriously flawed. The reality is that, rather than being in decline, the Serious Fraud Office is expanding, and it is dealing with an increasing work load. The work load was 50 active cases when the Davie report was received more than a year ago, and the case load is now 64.

What is more, the number of cases in which the SFO is answering requests for assistance from foreign jurisdictions by virtue of the extension of its powers under the Criminal Justice and Public Order Act 1994 has increased significantly, and has contributed to the effectiveness of the office's work. The number of staff, both professional and support, has increased to accommodate the expansion: 32 new posts have been created, of which 13 have been filled to date. More are to come.

I do not wish to bake old bread and go over cases such as Levitt and Guinness, so I would draw the attention of my hon. Friend to more recent successes. In January this year, Deacon, a solicitor who defrauded business men in an elaborate advance fee fraud, was sentenced to nine years' imprisonment after he had been convicted. His co-defendant, Fuller, received a seven-year sentence. Van der Horst received a three-year sentence of imprisonment for corruption at the Southampton crown court in January, after he had admitted taking £1.6 million in bribes for ship repair contracts.

Graham Ford, the Sussex solicitor about whose case my hon. Friend spoke, received 10 years' imprisonment in December last year after pleading guilty to stealing £5 million of clients' money. In July last year, Mohammed Naviede, the former chairman of Arrows, was sentenced to 10 years' imprisonment for an estimated £100 million fraud on international banks. To put the record of the SFO in its true context, it is quite untrue to say that it is a failing or unsuccessful organisation.

In the brief time available to me, I shall deal with the main points that my hon. Friend has raised. It is intrinsic in the prosecution of complex and serious fraud that the investigation will be expensive. There is no avoiding that. The Conservative party, having taken the political step to ensure that serious and complex fraud is prosecuted with energy, has then to will the means of achieving that by voting appropriate sums of money not only for the investigation, but for the subsequent prosecution.

The investigation and prosecution involve the use of private sector firms of accountants on a case-by-case basis, as in the case of the Bank of Credit and Commerce International, and they involve the employment of extremely experienced Queen's Counsel, again on a case-by-case basis—members of the independent Bar, of high calibre and with appropriate skills and experience to prosecute such cases.

It follows from what I have just said that, if those cases are to be prosecuted effectively, a fair trial requires that the defendants have appropriate representation. There must be equality of arms. It is unrealistic to think that large sums of money can be expended properly in the investigation and prosecution of offences but that justice can be done without appropriate recompense for those instructed to appear on behalf of the defence.

My hon. Friend has referred to the record of the SFO. It has prosecuted 147 cases to date, and convictions have been recorded against 62.3 per cent. of all defendants. In more than 75 per cent. of those cases, at least one defendant, usually the principal defendant, has been convicted. I am sure that my hon. Friend will agree that that is an impressive and enviable record. The answer that I have given him today should be taken in its full context.

Criticisms about the amount of legal aid expenditure and whether individuals in particular cases are entitled to the legal representation they receive are easy to make. The Legal Aid Board has at its disposal effective weapons to inquire into whether legal aid has been properly granted or not.

Another complaint from my hon. Friend is that large sums of money disappear, and at the end of the day no one is convicted. That is so in certain circumstances, but I am sure that he would agree that there can be misjudgment, mismanagement and financial catastrophe on a large scale, just as there can be dishonesty on a large scale. The mere fact that there has been a financial catastrophe on a grand scale does not necessarily show that there has been dishonesty.

My hon. Friend's final point related to trial by jury, and he repeated what others have said before him: that in such trials juries cannot understand the case that is put in front of them. Although many of the cases are by definition complex, it is the execution of fraud that is complex, whereas the central notion and principle behind it is often perfectly simple and can be expressed in a few words.

In 1986, recommendation 82 of the Roskill report stated that trial by jury should be replaced by trial by judge and two lay members. However, Lord Roskill would be the first to acknowledge that, since his report of 10 years ago, immense strides have been taken to improve the presentation of serious and complex fraud cases. The judge in the recent Deacon case, which involved loss to the Belling pension fund, praised its presentation and the use of information technology.

In Serious Fraud Office cases, it is becoming routine—rather than exceptional—for use to be made of information technology. It is used in the retrieval of documentation and in the presentation of graphics to the jury—showing the way in which the fraud operated, often in just a few seconds. Information technology is used so that counsel can highlight, on their screens, the important pieces of evidence, and they are supplied with virtually an instantaneous transcript of the evidence. This is a quantum leap forward in the conduct of such cases.

Before hon. Members repeat the contention that such cases cannot be understood by juries, I invite them to go to the Serious Fraud Office to see a presentation—which I have had the benefit of seeing—that shows how such cases are conducted. I extend that invitation to my hon. Friend, who I am sure will find it interesting and instructive. I suggest that it will cause him to reassess his criticism that juries cannot understand what is going on in those cases. Juries often have a very good nose for fraud. The sole issue before the jury is: what was the defendant's state of mind at the time; was he being dishonest?

There is a case for considering modes of trial other than trial by jury. However, such consideration must be edged with caution and not taken lightly. A number of questions have to be considered, particularly whether any replacement for the judge and jury will be any better than the existing procedure. Very often, when an issue in the case is the jury's perception of banking practice and financial institutions, and whether someone was turning a blind eye to what was going on, its members are remarkably independently placed to form such a judgment. It might not be easy to find people who are willing to sit on fraud panels.

It is also important to consider how to draw a distinction between, on the one hand, justifying a special tribunal for serious and complex fraud cases, and, on the other, not having a similar tribunal for other complicated cases. It is incorrect to believe that the only complicated cases involve fraud—other cases, such as multi-handed robberies and child abuse, are lengthy and may involve a detailed analysis of complicated medical or technical evidence, such as in cases involving manslaughter.

The issue is by no means clear; it requires great thought and examination. Certainly, my hon. Friend could say that there has probably been a shift of view since Roskill reported. Certain people who were then of the opinion that trial by jury was the only way to try these cases may, with the benefit of further experience, have shifted their view, although I doubt that they have finally come to the conclusion that such change needs to be made and that we must get rid of trial by judge and jury in most cases.

The Government have resolved to re-examine the issue and will do so in a careful and measured way, as my right hon. and learned Friend the Attorney-General has already explained to the House.

Question put and agreed to.

Adjourned accordingly at five minutes past Three o'clock.