FIFA, the Cayman Islands and the SFO

See City AM for more on my call last week for the Government to fund the Serious Fraud Office properly so that it can investigate complex cases which affect the national interest (eg the FIFA scandal). http://www.cityam.com/216742/serious-fraud-office-examine-fifa-allegations-after-being-accused-failing-its-duty

The SFO has responded that it is now “standing by”, a posture it seems to have held for some time.

Meanwhile, the Observer (Sun 31st May) quotes British MP John Mann as saying that the SFO “can’t investigate these tax havens”. This is interesting but in my view unlikely to be true. The Criminal Justice Act 1987 charges the Director of the SFO with investigating “any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud”. And where the Foreign Secretary receives a request from an overseas court, tribunal or authority the Criminal Justice (International Co-operation) Act 1990 lets him ask the Director to use this power.

So would the Cayman Islands, a British Overseas Territory, ever make such a request? The Cayman Islands Constitution Order 2009 makes internal security, including the police, a responsibility of the Governor, who in turn is appointed by the Queen, and acts on her instructions. In this case, of course, the Queen’s instructions will come via the Foreign and Commonwealth Office. So if there is a problem with the SFO investigating in the Cayman Islands its not the absence of power, it’s the absence of political will at the FCO.

On 1 May 2008 the Public Accounts Committee published a report stating
“. . . .regulatory standards in most Territories are not yet up to those in the Crown Dependencies. Limited capacity also reduces the ability of Territories to investigate and prosecute money laundering. The Department has written to UK agencies, such as the Financial Services Authority, the Treasury and the Serious Organised Crime Agency, to emphasise the need for their involvement”.

Its not clear whether the SFO received one of these letters. Looking at its record in the Caymans Islands, maybe not.

For example, in February 2009 the $639m Weavering Macro Fixed Income fund, which was registered in the Cayman Islands, was liquidated after failing to meet investors’ demands for withdrawals. The SFO was called in shortly afterwards but in 2011 it announced that it had abandoned the investigation. It had second thoughts after the appointment of new Director David Green, and Weavering’s former head Ulf Petersen faced prosecution, starting a 13 years sentence in January this year.

However, the SFO never revisited the case of the lucky Albert Micalizzi. Micalizzi was in the frame for a $390 million fraud involving a Cayman Islands hedge fund. The FSA fined him £3 million and referred him to the SFO, which started its investigation in November 2009 but discontinued it in July 2010, surprisingly quickly for a fraud on that scale, stating that it could find no evidence. Nonetheless, in May 2014 Micalizzi was arrested for the very same fraud by Italian police and remains in jail there to this day.

Its not only the SFO which shares the lack of political will. Last year the Financial Conduct Authority, the U.K.’s financial regulator, published a list of countries that it considers high risk for money laundering and financial crime, following an FOI application. After howls of protest from the business community on the Cayman Islands the FCA pulled that list and replaced it with one that made no mention of the Cayman Islands.

So its clearly a matter of choice at the FCO. No-one ever explains why the Cayman Islands enjoys such a light touch given the risks involved. It looks like no-one wants to rock this particular boat.

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