The country’s top fraudbuster Richard Alderman may be retiring next year but after arresting Robert and Vincent Tchenguiz he has very publicly taken on the fight of his life.
Earlier this month, the Serious Fraud Office (SFO), of which the 58-year-old Alderman is the director, briefly arrested and questioned the billionaire brothers along with seven others and seized computers from their central London offices under the glare of the world’s press. All nine were subsequently released without charge.
The raid is part of the SFO’s investigation into the collapse of the Icelandic bank Kaupthing in 2008, to which the brothers were connected. The raid led to Bank of America Merrill Lynch pulling a £125m loan to the brothers, which in turn led to the collapse of part of their empire, the property management unit Peverel.
The Tchenguizes complain they have been used as scapegoats for the troubled investigator to try and rebuild its reputation. Robert has hired lawyers to see if the SFO acted within the law. Vincent has also threatened to sue the SFO. The SFO maintains it has acted properly.
The 23-year-old public body desperately needs to win a high-profile case because it has gained notoriety as an investigator that embarks on lengthy cases that all too often fail to get prosecutions.
Observers often look at the US and point to the way its prosecutors are regularly able to win meaningful convictions. Bernard Madoff is currently serving 150 years for running a £50bn ponzi scheme.
Last year, chancellor George Osborne dammed the whole of the country’s fraud investigators – the SFO, the Financial Services Authority, the Office of Fair Trading and the fraud section in the Crown Prosecution Service – which are tasked with battling the £38bn a year the government estimates is lost to fraud. Osborne said: “We are very, very bad at prosecuting white-collar crime.”
Alderman leans forward in his seat in a meeting room in the SFO’s grey building on the edge of the City and says: “Considering what we do we have produced very good results. But can we do better? Yes, we can.”
But the truth is that the SFO, which employs 300 people, is running out of time. The coalition says it plans to merge this body, along with a number of other fraud units into the Economic Crime Agency (ECA) once a consultation has been concluded. Alderman would like to see Margaret Cole, head of enforcement at the Financial Services Authority, head the new agency.
It also seems that governments have been losing faith in the SFO for some time now. When Alderman took over from the previous director Robert Wardle in April 2008, his budget was £55m. It is currently £35m, and Alderman says “in a few years” it will fall again to £28m.
But this has not stopped Alderman fighting hard for new powers for the ECA when it opens up for business. “I want to see it start life with the right tools,” he says.
The first item on his wishlist is the power to handle deferred prosecutions. This is when a firm admits a charge, pays a fine, changes its practices, and as long as the same offence is not committed again within a certain period of time, the offence no longer counts against the business.
“This will need legislation,” says a courtly and candid Alderman. “But my colleagues in the US say this is one of the most effective methods they have in their armoury.”
He would also like to see the introduction of plea negotiations “which is a better way of handling big cases, particularly when they cover a number of jurisdictions.”
The SFO director would also like to see judges getting involved in cases earlier. He says: “They would not sit in on negotiations, but they would be kept informed of what is being proposed. The SFO would need the approval of a judge before reaching a plea agreement.”
Often in the past the agency has spent years preparing a case – only to have the judge criticise the settlement, or throw the case out after only a few days in court.
Reliance on whistleblowers is key for every investigator. In late 2008, at the height of the financial crisis, the SFO set up a whistleblowers’ hotline hoping to catch frauds that a shrinking market was expected to expose.
But he says: “I was expecting far more, it was a little disappointing.” Part of the reason for this is that Robert Dougall, the whistleblower in the DePuy International case, which involved executives paying Greek officials £4.5m to use its medical products, was sentenced to 12 months in jail last April. This was later suspended on appeal but the damage was done.
Alderman says: “This sent out a message. It led to fewer whistleblowers coming forward as well as a dip in the quality of information. Although some good stuff is beginning to come forward again.”
He adds that a whistleblower coming forward with good information and no involvement in the case is a “perfect scenario”, but not a common one. Often the whistleblower will have played some part in the fraud.
The SFO director welcomes the Bribery Act, which is currently in consultation and has proved to be extremely controversial, triggering widespread opposition. But he says “corporate worries are misplaced” and the bill will not criminalise corporate hospitality. He adds: “This is good for the SFO. Honest companies should not be put at a competitive disadvantage because a rival pays an official a bribe to win a contract.”
Since Alderman arrived almost three years ago he has tried to streamline the way the body works as well as boost its caseload. He says cases were “too complex and covered too many issues.” He adds that its prosecutions are now “much sharper” and as a result under his tenure the average time it takes to bring a case to court has dropped from five years to 13 months. In the year before Alderman took over, the body handled 63 cases. It currently has 103 cases on its books.
As part of Alderman’s new broom, he set up a challenge panel, where the senior directors judge the cases the SFO’s teams prepare on a monthly, or weekly basis if necessary. The panel has the power to change the direction of an investigation or close it down altogether.
As a result, under his watch he says the body’s conviction rate has risen from 62 per cent to 92 per cent. But critics complain that many of these convictions are against individual conmen rather than large corporations.
They point to the 14 defendants in the Operation Holbein NHS drugs price-fixing case who walked free in 2008 after the judge threw out the SFO’s case before it reached a jury. The case had taken eight years to assemble at a cost of £40m.
The two cases that frame Alderman’s time at the SFO both concern UK defence contractor BAE Systems. The first was the Saudi Arabian Al-Yamamah arms deal bribery case, which was stopped by the UK government in 2006 after the Saudis threatened to withhold security information. This came before Alderman took office, but the body was badly wounded. He was brought in to help restore its confidence.
He decided to go after BAE again, this time for corruption involving a number of contracts in countries including Tanzania, the Czech Republic and South Africa.
The SFO settled this case last February, with BAE pleading guilty to accounting technicalities but not to bribery. The contractor paid the SFO a £30m fine, and the US Department of Justice (DoJ) £255.7m. The SFO had originally said it would pursue a £1bn fine.
Alderman says: “The BAE settlement was as good as I could get. A lot of the fines related to central and Eastern Europe and the DoJ had jurisdiction there. I would have liked more cash.”
The SFO boss says that because many of the corporate cases his body investigates involve multinationals, a lot of the settlements involve the US or other regulators. However, the problem with working with US regulators is that the SFO too often comes out of it looking second best.
Alderman admits: “We are four to five years behind where the Americans are in prosecuting corporate crime. Part of it is that we have to demonstrate a board has a ‘directing mind’ to win a corporate prosecution. The US doesn’t have such a high standard. If anyone in a US firm commits a crime where the intention is the firm should benefit, the corporation is responsible.”
Alderman has also worked hard to change the problematic working culture of the SFO. After the collapse of the first BAE case five years ago, former New York prosecutor Jessica de Grazia was brought in by the UK government to report on the body. She found it was “a demoralised and underperforming agency” with a strong drinking culture where competent staff were “blocked by inadequate management and leadership.”
Alderman accepted many of de Grazia’s findings and five of the body’s top 15 leaders left the organisation within six months of him joining the agency.
He also appointed accountants to head case teams, where before they had always been led by lawyers, to demonstrate that there is no glass ceiling on talent under his leadership.
He says: “The place did have a reputation as a lawyer’s club run from the pub. When I came here I made it clear I did not drink. And I made it clear that a booze culture was not acceptable.”
He says that although morale has improved, the impact of the agency’s looming merger cannot be overlooked.
“If you talk to people now about the cases, their faces light up. It is uniquely satisfying doing this type of work,” he says. “But when they think about the ECA, people here think: have I got a future? Should I look for another job? All I can tell people is that they are doing a job that society needs, and they should do it to the best of their ability. But even then there are no guarantees.”
Richard Alderman has worked hard to improve the UK’s approach to corporate crime. Until he succeeds in a high-profile prosecution, however, the jury will remain out on how succesful he has been.
CV | RICHARD ALDERMAN
Work: Before joining the Serious Fraud Office Alderman worked as the director of national teams and special civil investigations at HM Revenue & Customs, overseeing tax investigations; from 2003 to 2005, he was the director of the Inland Revenue’s special compliance office; in 2002, he was invited by the Attorney-General and Treasury Solicitor to work with the Home Office in setting up the now-merged Assets Recovery Agency.
Education: University College, London; read law; studied for the bar at Gray’s Inn
Family: Married, one daughter.
Lives: North London