A criminal wearing a collar and tie is still a criminal and if he steals your pension should go to prison in the same way someone who steals your wallet should. We have to get serious about white collar crime.
Since the economic crash of 2008, financial scandal has rarely been out of the headlines. From Fred “the Shred” to LIBOR-rigging, we have been bombarded with revelations of White Collar recklessness, negligence and in some cases even criminality. Economic crime, moreover, is not just confined to the City. It is flourishing everywhere, particularly online. Official figures reveal that we are in the midst of an epidemic of fraud as criminal gangs learn to exploit new technology to rip people off. Sophisticated criminals are running rings around the authorities, yet this whole subject has been neglected by government policymakers.
That neglect is deeply mistaken. White collar crime is not victimless. The theft of a pension fund is as devastating, if not more so, than the theft of a wallet. The same applies to the serious corporate crime. The complexity of it can make it seem quite remote, but the repercussions are very real. When banks fail to implement money laundering controls, it means more money gets funneled to terrorists, warlords and drugs barons. Corporate bribery and corruption are the scourges of the developing world, holding back economic growth and propping up brutal regimes. Responsible capitalism, at home and abroad, begins with clamping down on economic crime.
Yet the law enforcement response has been underwhelming. In 2013 the number of frauds reported to the police soared 25 per cent on 2012 to 207,000, but prosecutions fell by over a thousand. The Serious Fraud Office, which is responsible for tackling the largest-scale economic crimes, concluded just three prosecutions and launched 12 investigations last financial year.
The record is weakest on corporate crime. It has been three years since the SFO prosecuted a corporation and none of the banks implicated in interest rate-rigging or money-laundering scandals of recent years face criminal sanction in the UK. What’s more, The SFO still hasn’t convicted a single company for bribery under the ambitious new Bribery Act of 2010.
Even when the criminals are caught, too often they are allowed to keep the proceeds of their crimes. The CPS considers less than a third of the £500 million owed to it by criminals to be realistically recoverable. The SFO has effectively written off all but 10 per cent of the £106 million it’s owed.
So what can be done? That’s a tough question, especially at a time when the budget of the Crown Prosecution Service is being cut by 28 per cent, while the SFO has been slashed by so much that it has to keep applying for emergency extra funding form the Treasury.
The first step has to be looking again at the law around prosecuting companies. I have called for the introduction of an offence on companies who fail to prevent economic crime by their employees and didn’t put the systems in place to stop them. That could be a game-changer for tackling corporate crime.
At the moment, the SFO has to prove that the director of the company was in on the scam. This is not realistic when we are talking about big multi-national companies with many levels of management and complex chains of command.
Companies found guilty of fraud also need to face stiffer penalties. UK fines are notoriously puny by international standards. A US court has just fined several subsidiaries of Hewlett Packard US$108 million over bribery claims. The largest UK corporate fine for bribery is £8.3 million. For fraud it’s over £2 million. I am in favour of a system where the starting point of a fine is a percentage of turnover, which can then be multiplied according to how bad the behaviour was. That is the essence of how they do it in the US and it would certainly help focus minds in company compliance departments over here.
We also need to give prosecutors more power to compel criminals to pay back what they have stolen with stiffer penalties for non-payment and siphoning it off abroad. Labour would like to see more of this money ploughed back into the criminal justice system to help plug the holes left by government austerity measures.
The current government has got its feet up when it comes to crime, particularly economic crime. It shows no real sign that it understands the magnitude of the fraud tsunami. There has been the odd review and consultation here and there, but these proceed at a snail’s pace. Time is running out for this government to make a difference. However, one of the first things that a new Labour government would do after the election in 2015 would be to introduce a new economic crime focused squarely at these problems.