To catch a white collar thief

With the impending retirement of director David Bradshaw, the Serious Fraud Office is seeking a new boss. It will be a critical appointment, writes Jenni McManus.

Nick a $2 tube of toothpaste from Woolworths and it's almost inevitable you'll be caught. It's an easy and clear-cut crime to prosecute and, better still, the offender is likely to plead guilty.

But defraud investors and creditors of $15 million, get yourself a good QC and your chances of seeing the inside of a courtroom are slim. It takes guts, intellect and serious perseverance for enforcement agencies to get a white collar criminal in handcuffs.

Nowadays many enforcers simply don't bother.

To many investors and much of the commercial community, the bigger and more complex the fraud, the less likelihood of a prosecution and conviction.

Worse still is the perception, popular among investors and business people, that fraud targets are chosen more with an eye to potential political fallout and the career prospects of enforcement agency bosses rather than the magnitude and seriousness of the crime.

Most remember the Winebox Inquiry evidence of a senior SFO staffer who said he'd been told by then SFO director Chas Sturt that "our friends in Wellington" would be displeased if the SFO began investigating the Fay Richwhite-owned BNZ. When it came to his turn to give evidence, Sturt denied the claim. But the dirt stuck.

In other situations, files and investigations might be quietly closed down and charges dropped, usually citing "public interest" considerations. Or, claiming a lack of jurisdiction to investigate, the case might be passed to another enforcement agency where it is likely to receive similar treatment.

The objective in all this is to get the radioactive file off your desk and on to someone else's. Or so the story goes.

All up, six agencies are responsible for enforcing the law against white collar crime: the Serious Fraud Office, the IRD, the police, the National Enforcement Unit of the Ministry of Economic Development, the Official Assignee's office, and the Securities Commission.

Few would go so far as to suggest individuals in these offices are corrupt. But only a fraction of the fraud complaints pouring into their offices every week is investigated. Even fewer eventually make it to a prosecution.

Battling the perception that our fraud enforcement agencies are, at best, dysfunctional, slow and incompetent, the State Services Commission is soon to make a critical appointment - a replacement for retiring SFO director David Bradshaw.

Business people spoken to by the Sunday Star-Times say credibility issues and widespread public cynicism mean the commission cannot afford to get it wrong.

But unless the State Services Commission increases the new SFO director's salary package, from the current $250,000 to $299,000 band to a level comparable with the $500,000 paid to the governor of the Reserve Bank, NZ First leader Winston Peters says he fears no halfway decent applicants will be interested.

Those charged with uncovering fraud at the coalface, such as company receivers and liquidators who have a statutory duty to report fraudulent activity to the Companies Office, have told the Star-Times they have all but given up on reporting their findings to enforcement agencies. Seldom, if ever, is there any response to their complaints.

Insolvency practitioner Bernie Montgomerie says even with the SFO, fraud complaints seem to disappear into a big black hole, never to be heard of again. In his view, "soft" targets are often pursued at the expense of trying to reel in bigger fish.

If Montgomerie stumbles upon fraud during a liquidation, and if there's funding available, he now hires private investigators to do the probing and produce the paperwork so a ready-made prosecution can be presented on a platter to the police.

Even then the police may not bite.

Ron McQuilter, managing director of Paragon New Zealand - the country's biggest private investigation company - says that in 1999 the police quietly dropped fraud as one of their "core strategies", a list that includes drugs, family violence, traffic enforcement, theft from cars and organised crime.

Lack of specialist fraud expertise within the police and insufficient resources mean McQuilter's clients, often defrauded commercial entities, are prepared to pay big money for his team of 30 investigators to do the leg-work and put together a prosecution. But when he offers this information to the police "they tell me they'd love to help and they might eventually get on to it, but their priorities are elsewhere".

McQuilter says he advises clients to let his staff investigate and get the evidence, then do a deal with the offender.

"Don't expect the police to prosecute or take it through the courts."

A blast in parliament last month by Peters lifted the lid on the frustration felt by the victims of white collar crime. In the firing line was SFO director Bradshaw.

During a snap debate on the $20m settlement Sir Michael Fay and David Richwhite agreed to pay the Securities Commission on the back of allegations of insider trading in Tranz Rail, Peters said the two businessmen were "guilty as sin" and had profited from a string of transactions ranging from their one-time ownership of a cornerstone shareholding in the BNZ (subsequently bailed out to the tune of $1 billion) and the winebox inquiry.

The settlement struck by the Securities Commission was, Peters said, "the first time anyone in officialdom has done anything about these men who just robbed this country blind, transaction after transaction after transaction, and robbed a whole lot of New Zealanders as well".

Particularly savage criticism was levelled at Bradshaw for failing to prosecute the pair.

"Too much time went by because (Bradshaw) sat on his backside and did nothing and was politically corrupt and failed to act," Peters thundered.

It was "ridiculous" that the SFO had targeted former Act MP Donna Awatere Huata for a $30,000 fraud but left more significant offenders untouched.

In evidence to the Winebox Inquiry, Peters told the commissioner the Sturt-led SFO was suffering from "terminal atrophy or deliberate paralysis". Outside parliament, the nicest description he could manage for Bradshaw was unprintable.

Unsurprisingly, Bradshaw does not share that opinion.

A slight and quietly-spoken bureaucrat from the State Services Commission, he was appointed to head the SFO in 1997 after the office's founding director, Sturt, quit in a blaze of notoriety after giving evidence at the winebox inquiry showing he had misled parliament about the extent of the SFO Winebox "investigation".

Over a beer, Sturt once said the only time he'd felt fear was when pointing a gun at Mr Asia, drugs boss Peter Fulcher. Ironically, he came unstuck in the winebox witness box surrounded by his colleagues and peers in an office in downtown Auckland.

Both Sturt and Bradshaw are lawyers, but there the resemblance ends. The personality and management style of the flamboyant, macho and much-married Sturt - once the youngest cop to head the police Armed Offenders Squad - is light years away from Bradshaw's measured and mild manner.

Prickly and often defensive with the media, Bradshaw says he hasn't been fired or shunted aside; nor has he grown tired of the job. But after two five-year terms, it was time for new blood at the helm.

Under his leadership, critics say the SFO's performance has been patchy. There have been some good wins, but there have also been some notable and high-profile failures, such as Powdergate, DigiTech, and the four men associated with the Auckland Rescue Helicopter Trust - not to mention a bungled attempt with an invalid search warrant to seize computers from a firm of Auckland solicitors in a bid to prove some of its partners were in cahoots with their client who was - and still is -under SFO investigation on suspicion of stealing nearly $15m.

But most galling to Winston Peters and other Winebox-watchers was Bradshaw's failure to prosecute named individuals connected with Magnum, the central Winebox transaction, despite a legal opinion from the Auckland Crown solicitor Simon Moore that there was sufficient and admissible evidence to lay criminal charges.

Not only did Bradshaw refuse to prosecute, but he refused to give reasons. Nor would he release Moore's legal opinion. When parliament's law and order select committee demanded the document he simply threatened to quit. Rather than calling his bluff, the select committee backed down.

Also heavily criticised has been Bradshaw's agreement with the attorney-general, in force until 2003, that the SFO maintain an 85% strike rate for successful prosecutions.

Bradshaw says the performance measure was dropped as it could be "subject to misinterpretation". Critics say the existence of such a target has encouraged the SFO to take only guilty-plea and easy cases rather than testing the law. In their view, there are not too many ways such an objective can be interpreted.

In his most recent annual report to parliament, Bradshaw says that in the past 16 years the SFO has maintained an average conviction rate of more than 90%. It reflects well on the foresight of our legislators back in 1989, he says, in providing the SFO with special powers to do its job.

In terms of management style, Bradshaw sees himself as a good delegater - another area where he is light years away from Sturt, whose staff lambasted his divisive and control-freak tendencies in their evidence to the Winebox Inquiry.

He says his successor will need sound judgement and understanding, and an ability to make decisions based on the "totality of evidence".

But a colleague from another law enforcement agency says the new director will also need charisma - an attribute generally believed to have bypassed Bradshaw.

In this man's view, the primary task of Bradshaw's successor will be to rebuild confidence in the SFO. While the office is no longer the bickering, political, jealous and dispute-riven workplace of the Sturt era, he says the SFO nonetheless "oozes arrogance".

"Bradshaw has distanced it from other enforcement agencies and this has really affected its reputation. This `neither confirm nor deny' policy when dealing with media queries about specific investigations is just bollocks. We all need the media for public interest and deterrence reasons, and it's a question of finding a balance. It's all too `secret squirrel' in there."

Much of the criticism surrounding the SFO centres on its extraordinary (some say draconian) powers, enshrined in the Serious Fraud Office Act 1990, and the fact the director is prepared to use them.

Most controversial is Section 5 - the power to require documents to be handed over if the director has reason to believe they may be relevant to any suspected fraud investigation - and Section 9, effectively removing the right to silence (or, more correctly, the privilege against compelled self-incrimination) for anyone the director believes can usefully answer questions relevant to an investigation. The answers, however, will not be used in evidence in court if the suspect's evidence does not contradict his original story.

Then there is Section 20, preventing anyone from challenging the SFO director's powers of investigation. His decision to prosecute cannot be "challenged, reviewed, quashed or called into question" in any court, meaning the SFO is the only government department not subject to judicial review.

In addition, the SFO has been charged with enforcing the yet-to-be-enacted Criminal Recovery Bill - the civil forfeiture legislation enabling the court to seize assets, without first getting a criminal conviction, if it is satisfied the suspect obtained them as a result of serious crime. The evidential threshold is the relatively low civil standard - the balance of probabilities. Not surprisingly, civil libertarians are girding their loins for battle.

Bradshaw says he needs these special powers because his brief - the investigation of serious and complex fraud - is a special case. Without them, it is likely many white collar crooks would go unprosecuted.

"The powers that the director has are really well thought out for the work we have to do," he says. "I think they're being exercised responsibly and in 17 years there has been no major outcry, no huge level of public unrest.

"The powers are appropriate for fraud but may not be appropriate for any other offences. Our witnesses aren't interested in the right to silence. They just want to be able to feel comfortable - banks and accountants and people like that - that they can give us this information and nobody can point the finger at them for talking to the SFO. We have to have compulsion for people to talk to us because otherwise they wouldn't."

Maybe not, says Auckland University associate law professor Scott Optican, but there are other, equally important competing rights at stake. Many of the SFO's powers breach the Bill of Rights Act and in his native United States would be struck down by the courts as unconstitutional.

The updated Evidence Act, due to come into force later this year, will cure Bill of Rights Act breaches when it comes to the compelled production of documents, as pre-existing documents will no longer be covered by the privilege against self-incrimination.

But forcing people to front up and answer questions is a different matter, Optican says. It includes not simply compelling the suspect to utter self-incriminating words, which breaches their right to refuse to co-operate in an investigation, but also includes information which could be used to form a link in the investigatory chain. Moreover, the SFO is the only regulator with this power. Not even the police can compel people to answer questions or to co-operate.

"Effectively the SFO is asking you to participate in its own investigation," Optican says. "I can think of lots of police investigations where there is key information in people's minds that the police might want to know. There are very good policy reasons for not doing this. It tramples on rights that are equally worth protecting."

Optican says it seems the SFO is saying compulsion is an effective tool and, because serious fraud is difficult to investigate, the office should have this power. "But the justifications are pretty thin on the ground. The police would like this power too. What is so unique or special about white collar crime? Is the SFO saying it's harder to investigate and more serious than murder?"

A good example, he says, is the killing of the Kahui twins, where several people clearly know what has happened but refuse to co-operate with the police.

"If the Kahuis can't be forced to co-operate, why should white collar fraudsters?"

 

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