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Survival of U.K. Fraud Office Said to Create Rift Among Government Leaders

The future of the U.K. Serious Fraud Office, which prosecutes Ponzi schemes and corruption, has created a rift among government leaders with some officials giving late support to its bid to remain as a stand-alone agency, according to two people familiar with the talks.

The solicitor general supports SFO Director Richard Alderman’s plan to preserve the agency and give it expanded powers, said the people, who declined to be identified because the talks are private. The Home Office, in a report as soon as next month, may recommend abolishing the SFO and combining part of it with the Crown Prosecution Service, the people said.

The SFO has been under siege since Chancellor of the Exchequer George Osborne announced plans to fold the department into an economic crime agency last year. While Osborne dropped his initial plans for a white-collar fraud prosecutor that also took insider-trading enforcement from financial regulators, the SFO’s future is still in doubt.

“There is a need to have the prosecution part of the SFO have some independence from the investigation part, because some objectivity is lost. The Home Office proposal would properly address that,” said Arnondo Chakrabarti, a lawyer at Allen & Overy LLP in London. “Whatever happens there isn’t going to be an all-encompassing economic crime agency; that’s gone.”

National Crime Agency

Under Home Secretary Theresa May’s plan, SFO investigators would become part of an economic crime unit of a National Crime Agency, along with the National Fraud Authority, teams from the Serious Organized Crime Agency, and possibly the National Policing Improvement Agency, according to one of the people. The SFO’s lawyers would be added to the Crown Prosecution Service.

“Such structural issues are for ministers, we cannot express a public opinion,” said David Jones, an SFO spokesman.

Susan Givens, a spokeswoman for Attorney General Dominic Grieve and Solicitor General Edward Garnier, said that different options are being discussed for the Economic Crime Agency and declined to immediately comment further. The attorney general’s office has oversight of the CPS.

Home Office spokesman Andrew Bell said that no decisions have been made on the crime agency or on whether the Home Office will propose any changes. An announcement won’t come until after local elections next month, he said. The Home Office is the lead agency for counter-terrorism, policing and crime policies.

‘Greater Focus’

“The government is determined to give greater focus to tackling both serious and economic crime,” Bell said. “We are looking at whether current tools and powers for tackling this are adequate and are considering new structures, in close conjunction with work to establish the National Crime Agency.”

Keir Starmer, the director of public prosecutions, has lobbied for his agency to handle prosecutions for any new crime agency.

CPS Chief Executive Officer Peter Lewis went to Washington earlier this month to meet with counterparts from the U.S. Department of Justice and other agencies. The trip angered the SFO, which believed Lewis was lobbying U.S. officials to back a merger with the U.K. fraud agency, according to one of the people.

Lewis is leading a project on how to handle high-cost cases and the CPS and the trip was designed to share strategies with U.S. officials, CPS said in a statement. The CPS said that “issues about any expanded role for the CPS are matters purely for the government.”

BAE, KBR Cases

The SFO works closely with the Justice Department on bribery prosecutions. They have coordinated on probes of BAE Systems Plc, Innospec Inc., Johnson & Johnson, and KBR Inc.

The Home Office is also considering whether to fold the Financial Services Authority’s enforcement powers into the national crime agency after the regulator is split into two new agencies in 2012 as part of a government overhaul. The FSA has received assurances from the Treasury that that won’t happen, according to one of the people.

FSA spokesman Chris Hamilton declined to comment.

The SFO, often criticized for its prosecution track record and low fines against companies for corruption, fears that bribery investigations would be hurt if it is combined with a national crime agency. The attorney general’s office estimates that the U.K. loses about 38 billion pounds ($62 billion) a year to fraud, with the finance industry bearing the largest loss in the private sector.

Rosalind Wright, the chairwoman of the Fraud Advisory Panel and a former SFO director, said splitting the agency’s investigators and prosecutors would “only benefit the criminals.”

“If you let even quite experienced police officers handle the cases without legal input, they go off on tangents, they go down rabbit holes, without attention to what’s going to be a prosecutable case,” Wright said. “When you come to a very complex fraud, they need all the legal advice they get at the earliest possible stage.”

To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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