Treasurer Joe Hockey has announced a new Serious Financial Crime Taskforce to crack down on white collar crime.
Mr Hockey said that:
The Government will provide $127.6 million over four years for investigations and prosecutions that will address superannuation and investment fraud, identity crime and tax evasion.
The new taskforce includes the Australian Taxation Office, Australian Crime Commission, Australian Federal Police, Attorney-General’s Department, Australian Transaction Reports and Analysis Centre, Australian Securities and Investments Commission, Commonwealth Director of Public Prosecutions and Australian Customs and Border Protection Services, according to a press release issued by his office.
In what will be a popular – even populist – initiative, the taskforce will scrutinise a very diverse community of wrongdoers known as white collar criminals.
Good luck to them. Mr Hockey may wish to reflect, for a moment, on the turbulent history of similar efforts by other countries to fight white collar crime.
Lessons from the UK and US
The UK equivalent of the new taskforce, the Serious Fraud Office (SFO) – known in some quarters as the Seriously Flawed Office – has had a very chequered history. The SFO has handled some very high profile cases – but convictions have been few and far between.
The SFO was created in the late 1980s as a result of public outrage about financial scandals involving some very colourful characters, such as publisher and MP Robert Maxwell, who was accused of defrauding pension funds.
Maxwell died after falling off his yacht in 1991 but his sons and advisers were charged with fraud.
Just last month, some 20 years after the trial was started, the Maxwell brothers were acquitted of charges of defrauding the Maxwell pension funds. Other charges remain, but after this rebuff it is likely that the SFO will drop them.
You see, charging people with fraud is easy. Securing a conviction is extremely difficult. After sitting through weeks and months of mind-numbing detail that only a forensic accountant would love, juries made up of the average man or woman on the street are often left confused and many end up acquitting.
As long as the accused in such cases have pockets deep enough to keep hiring good QCs, they can – like the Maxwells did – spin litigation out for decades until everyone gets tired and gives up.
But it is not only the SFO who have found it difficult to bring down prosecutions in cases of financial misconduct. The equivalent authorities in the US have not fared much better.
After all the investigation and soul-searching that followed the GFC, only one senior financial executive, former Credit-Suisse trader Kareem Serageldin, has been jailed.
New taskforce for an old problem
Of course, the new Serious Financial Crime Taskforce will not be Australia’s first effort to fight white collar crime.
The Australian Tax Office’s Project Wickenby, famous for pursing actor Paul Hogan, has had some success in prosecuting small fry for tax evasion but their success rate is only 44 convictions out of 76 charged. Project Wickenby winds up this year. They have recouped almost A$1 billion out of tax liabilities of $2.1 billion identified.
A big number, sure, but still a drop in the ocean compared to the hundreds of millions the ATO misses out on every year.
It so happens that Mr Hockey’s announcement about the new Serious Financial Crime Taskforce comes during the same week the government hinted one agency that has traditionally helped tackle white collar crime – the Australian Institute of Criminology (AIC) – was to be wound up and folded into the Australian Crime Commission to save money.
Blowing the whistle
One key element is missing from Mr Hockey’s announcement. Because white collar criminals are typically hiding in plain sight, one of the most effective deterrents is whistle blowing.
If people believe that they will get dobbed in by their colleagues, they will be less tempted to commit crime. An example in Australia is that of the foreign exchange scandal at National Australia Bank (NAB) in 2004, which was only brought to light by a junior staff member blowing the whistle. Prosecutions followed and white collar criminals went to jail.
The US gets it. There, the Securities and Exchange Commission (SEC) now hosts an Office of the Whistleblower, and the SEC has recently announced an award of over US$1 million to a compliance officer who blew the whistle on their company. The Office has handed out over US$50 million to other whistleblowers in the last four years.
Joe Hockey should follow suit. To assist the new Serious Financial Crime Taskforce, the Treasurer should immediately introduce legislation to strengthen whistleblower protection in Australia by creating an office similar to that in the US SEC.