1. Dr Nicholas Ryder Professor in Financial Crime
United Kingdom – Policy, Legislative, Regulatory and Enforcement Responses to White Collar Crime and the Financial Crisis
Dr Nicholas Ryder
Professor in Financial Crime
Fraud Act Ten Years On: A Critical Evaluation

2. Fraud Act 2006 - Ten Years On: A Critical Evaluation
Abstract
This paper critically considers the prosecution of fraud related offences by the Serious Fraud Office (SFO) the Financial Conduct Authority (FCA).
This paper concludes that the FCA have preferred to use financial sanctions at the expense of instigating criminal proceedings.
Fraud Act Ten Years On: A Critical Evaluation

3. Fraud Act 2006 - Ten Years On: A Critical Evaluation
Introduction
The financial crisis and financial crime
Financial Regulatory Agencies and Financial Crime
Securities and Investment Board
Serious Fraud Office
Financial Services Authority/Financial Conduct Authority
Conclusions
Fraud Act Ten Years On: A Critical Evaluation

4. The financial crisis and financial crime
There is an increasing amount of evidence that financial crime was a contributory factor to the most recent financial crisis:
Tomasic (2011),
Ryder et al (2014 and 2016),
Huisman (2013),
Osoka et al (2013),
Herlin-Karnell (2012),
Hardouin (2011),
Creseney et al (2009) and
Posner and Vermeule (2009).
Fraud Act Ten Years On: A Critical Evaluation

5. The financial crisis and financial crime
There is no ‘super villain’ that has become the face of financial crime during the financial crisis.
It is my contention that this includes the:
relationship between subprime mortgages and mortgage fraud,
predatory lending,
Ponzi fraud schemes,
market misconduct,
market manipulation and
The war on terror (Ryder, 2014)
Fraud Act Ten Years On: A Critical Evaluation

6. Financial Regulatory Agencies and Financial Crime
The Financial Services Act 1986:
Securities and Investment Board (SIB) was given new prosecutorial and enforcement powers:
apply for either an injunction or a restitution order against unauthorised investment businesses,
bar financial practitioners from operating in the financial services industry and
it could apply to the court to wind up either an authorised person or an appointed representative.
Fraud Act Ten Years On: A Critical Evaluation

7. Financial Regulatory Agencies and Financial Crime
The Financial Services Act 1986:
the prosecutorial role of the SIB was limited to the breaches relating to the authorisation to conduct investment business and insider dealing.
The enforcement performance of the SIB was hampered by their unwillingness to have a larger prosecutorial role and the agency did little to tackle or even prevent commercial fraud.
Fraud Act Ten Years On: A Critical Evaluation

8. Financial Regulatory Agencies and Financial Crime
Criminal Justice Act 1987:
The Fraud Trials Committee Report (the Roskill Report 1987)
Made 112 recommendations and its main recommendation was to create a unified fraud office
Recommendations implemented by Criminal Justice Act 1987 (s. 1)
Created the Serious Fraud Office (SFO)
Fraud Act Ten Years On: A Critical Evaluation

9. Financial Regulatory Agencies and Financial Crime
Serious Fraud Office
Percentage of Convictions
2001 to 2006
61%
2006/2007
71%
2007/2008
68%
2008/2009
91%
2010/2011
84%
2011/2012
73%
2012/2013
70%
2013/2014
2014/2015
78%
2015/2016
32%
Fraud Act Ten Years On: A Critical Evaluation

10. Financial Regulatory Agencies and Financial Crime
The effectiveness of the SFO has been questioned on many occasions:
Prosecutorial failures including:
Guinness,
Blue Arrow,
Maxwell and
Levitt.
SFO has been criticised for the bribery allegations against BAE Systems and its handling of the Tchenguiz brother’s investigation.
Reform?
Fraud Act Ten Years On: A Critical Evaluation

11. Financial Regulatory Agencies and Financial Crime
Financial Services and Markets Act 2000:
S.6, statutory objective to reduce financial crime
Very broad definition (s.6(3))
Includes fraud
Risk based approach
Initially concentrated on money laundering
Significant enforcement powers
Amendments by the Financial Services Act 2013
Fraud Act Ten Years On: A Critical Evaluation

12. Financial Regulatory Agencies and Financial Crime
One of the most commonly utilised powers by the regulator has been its ability to impose financial sanctions (FSMA 2000, s. 206(1)),
Another civil sanction available to the regulator is a prohibition (FSMA 2000, s. 56) and
The city regulator is also able to prosecute a number of fraud related offences (FSMA 2000, s. 402).
Fraud Act Ten Years On: A Critical Evaluation

13. Total Financial Penalty
Financial Penalties
Year
Total Financial Penalty
2008
£474.1m
2009
£35m
2010
£66.1m
2011
£89.1m
2012
£311.5m
2013
2014
£1.47bn
2015
£905m
2016
£22.2m
Fraud Act Ten Years On: A Critical Evaluation

14. Fraud Act 2006 - Ten Years On: A Critical Evaluation
Financial Penalties
2016:
Shay Jacob Reches £13.1m
2015:
Deutsche Bank £227m (with DoJ)
2014:
Lloyds Bank and Bank of Scotland, £105m
Martin Brokers (UK) Ltd £630,000
2013:
Rabobank, £105m
ICAP Europe Ltd, £14m
Royal Bank of Scotland, £85m.
2012:
UBS AB, £160m
Barclays Bank, £59.5m
Fraud Act Ten Years On: A Critical Evaluation

15. Criminal Prosecutions: FCA
The FCA is able to prosecute:
insider dealing offences (Criminal Justice Act 1993, s. 52)
misleading statements (Financial Services Act 2012, s. 89 and 90)
misleading statement relating to benchmarks (Financial Services Act 2012, s. 91)
breaches of the Money Laundering Regulations and terrorist financing (Counter-Terrorism Act 2008, schedule 7.)
Fraud Act Ten Years On: A Critical Evaluation

16. Criminal Prosecutions: FCA
There is some uncertainty if the FCA is able to instigate criminal proceedings for fraud,
The regulator stated that:
“we cannot prosecute most types of fraud and dishonesty … we have no direct powers to prosecute fraud or dishonesty offences” (FSA, 2003, p 18
Fraud Act Ten Years On: A Critical Evaluation

17. Criminal Prosecutions: FCA
Lord Turner, the former Chairman of the regulator:
“My understanding is that the FSA is not able to bring a criminal case in the UK.”
Tracey McDermott added:
“we are not a general fraud prosecutor … we do not have is a remit to prosecute false accounting, conspiracy”.
Fraud Act Ten Years On: A Critical Evaluation

18. Criminal Prosecutions: FCA
However, the FSA has successfully prosecuted:
Paul Haslam for breaches of the Banking Act 1987,
William Anthony ‘Robin’ Radclyffe, who was convicted Theft Acts, the Financial Services Act 1986 and Financial Services and Markets Act 2000,
Alex Hope and Raj Von Badlo were convicted of defrauding investors and
Phillip Boakes was sentenced to ten years’ imprisonment for defrauding investors of at least.
Fraud Act Ten Years On: A Critical Evaluation

19. Fraud Act 2006 - Ten Years On: A Critical Evaluation
Conclusions
No individual or ‘super-villain’ has become the face of white collar crime during the financial crisis
Underwhelming response by law enforcement agencies in the UK
Distinct lack of accountability and low level of prosecutions
Fraud Act Ten Years On: A Critical Evaluation