Tue Aug 20

Just 1% of serious fraud complaints result in prosecution

Written by: Lisa Marriott, Professor of Taxation, Te Herenga Waka — Victoria University of Wellington

Despite long being considered one of the least corrupt countries – ranked third in the world by Transparency International ^[1] – New Zealand is lagging behind when it comes to handling white-collar crime.

This can be loosely defined as financially motivated crime committed by individuals, businesses and government professionals. Recent cases in New Zealand have included uncompetitive procurement processes ^[2], ponzi schemes disguised as financial services ^[3], or large scale mortgage fraud ^[4].

But just 1% of the complaints made to New Zealand’s Serious Fraud Office (SFO) result in prosecutions.

Corruption and white-collar crime are increasingly under the microscope overseas. The European Union is currently negotiating ^[5] the final version of a new directive on combating corruption. The World Bank has launched a set of anti-corruption initiatives ^[6].

Closer to home, Australia recently celebrated the one-year anniversary of the National Anti-Corruption Commission (NACC ^[7]). The NACC is tasked with detecting, investigating and reporting serious corruption in the public sector.

Funding for the NACC is roughly comparable to New Zealand’s SFO, accounting for population size. But the SFO is tasked with investigating and prosecuting the most serious and complex financial fraud, including bribery and corruption, across both the public and private sectors. The NACC only investigates the public sector.

Complex cases

The SFO focuses on complex financial fraud that is usually outside the capability of other agencies such as the Commerce Commission, Inland Revenue and the Ministry of Social Development to investigate and prosecute. The office typically has 30 to 40 investigations open at a time.

However, these cases are complex – often comprising of more than one million documents. They are time-consuming to prosecute and can take years to conclude.

Cases also usually involve millions of dollars. In 2022-23, the SFO completed six trials and concluded 24 investigations, obtaining convictions for fraud valuing NZ$32 million.

The SFO receives around a thousand complaints yearly, a 100% increase from ten years earlier. But over the past six years, fewer than 1% of complaints resulted in an SFO prosecution.

Referring corruption to Police

So where do the other 99% of complaints to the SFO go?

The Police’s Financial Crime Group ^[8] has several core functions relating to analysing financial intelligence, restraining criminally acquired assets and investigating money laundering.

I asked the SFO how many referrals (of complaints or cases) they made to the police over the past three years. I also asked the police how many referrals they received from the SFO over the same period.

The agencies provided different data, but it is somewhere between five and nine referrals. This means there is a huge gap between the number of complaints to the SFO and the number of offences either investigated or prosecuted by the SFO, or passed on to the police.

Of the five the police reported, four were the subject of Criminal Proceeds (Recovery) Act investigations. And two of these four resulted in restraining orders issued in the High Court.

Not enough

The key obstacles for both agencies are limited funding and resources, rather than an absence of corruption.

SFO funding remained largely static between 2013 and 2020, at around $10-12 million, but increased to $16 million in 2023. Some of the increased funding allowed the SFO to expand its operations.

However, as crimes become more complex and require more investigative resources, this has not resulted in an increased number of investigations or prosecutions.

A 2022 Independent Police Conduct Authority (IPCA) review of police management of fraud allegations ^[9] found several agencies have responsibilities relating to fraud.

But the review also found these different agencies operate “within narrow parameters”, and police “end up being the lead agency for the vast majority of fraud investigations, even though their investigative staff are not generally qualified, trained or experienced in dealing with complex financial matters”.

The review acknowledged frauds may not always be pursued “on the basis that the resources required to reach a possible outcome are not justified given other priorities”.

In addition, the IPCA documents its concern that “those processes are applied to fraud much more readily than to other types of cases which are not necessarily more serious, nor more susceptible to resolution”.

Time to take corruption seriously

So, is New Zealand doing enough to combat corruption and white-collar crime? In short, no. The government must signal that it takes corruption seriously by properly funding agencies to investigate and prosecute financial fraud.

Sitting on its laurels because the country is perceived to have little corruption is not enough. New Zealand needs to take these sorts of crimes seriously – not only as a deterrent to potential fraudsters, but also for their victims.