Serious Fraud Office (SFO) Chief Investigator Michael Gallagher believes accountants have a vital role to play alongside other stakeholders in using ethics to fight economic crime.

In his keynote address at a 23 October conference at Chartered Accountants’ Hall to celebrate Global Ethics Day, Gallagher told attendees that forensic accountants form a key team in the SFO’s staff base. Their work involves collaborating with digital forensic experts, lawyers and investigators, including a team dedicated to probing crypto-related matters. The SFO also runs an accountancy apprenticeship scheme.

Gallagher stressed that ethics are vital for tackling a current “febrile environment” for economic crime, driven by factors such as geopolitical tensions, accelerating climate change and the use of cutting-edge technologies for illicit purposes. “We can use ethics to guide personal decisions, mitigate harmful outcomes, create a more respectful environment and deploy new technologies responsibly,” he said.

Increased vulnerability

Over the past four years, the SFO has recovered around £160m of criminal proceeds on behalf of fraud victims, and has worked with international partners to return significant sums to countries including Brazil, Chad and Tanzania. SFO Deferred Prosecution Agreements have brought in more than £1bn for HM Treasury. At present, around 20 individuals across a broad range of businesses and other organisations are facing SFO charges on fraud activities valued at more than £100m. But the scale of the SFO’s task is only growing.

Fraud, Gallagher said, comprises around 40% of all UK crime. Investment fraud remains an ongoing threat to the economy, and is likely to rise. However, rises are already underway in false accounting, false invoicing and recovery fraud. Cases of greenwashing and fraudulent schemes based around green investment opportunities trended high last year, and are continuing to emerge.

In parallel, he said, the exploitation, manipulation and obfuscation of data enabled by developing technology is increasing victim vulnerability. Meanwhile, the challenge around crypto and decentralised currency, enabling multiple, rapid movements of funds internationally, is creating a particular challenge for money laundering investigations.

Opportunity and intent

One legislative tool that Gallagher cited as particularly beneficial to the SFO’s work is the 2023 Economic Crime and Corporate Transparency Act (ECCTA). For example, he welcomed the ECCTA’s introduction of a Failure to Prevent Fraud offence, noting that the SFO is developing a new fraud-prevention platform in collaboration with businesses.

“We were seen for a long time as merely a prosecution agency,” he said. “We’re trying to change that image a little bit to be more proactive in working with corporates, so we can get their input on what they need from us.”

The subsequent panel discussion ‘Beyond Compliance: Ethics in Economic Crime Prevention’ examined the ECCTA’s impact. Chaired by Evelyn Partners Associate Director of Forensic Services Brendan Weekes, the panel featured ICAEW Economic Crime Manager Mike Miller and University College London Professor of Accounting Susan Smith, former Chair of ICAEW’s Ethics Standards Committee.

Weekes noted that by introducing two major changes, the ECCTA represents a significant shift in corporate liability: “First, It reforms how senior managers’ actions can be attributed to companies. Second, it creates a new obligation for large companies to prevent fraud, when committed by someone acting on the company’s behalf and for its benefit.” 

Under that new Failure to Prevent regime, he warned, companies must take proactive steps to prevent fraud or face potential criminal liability.

Reflecting on Gallagher’s keynote, Weekes observed that the Failure to Prevent Fraud offence changes the entire dynamic of how companies approach fraud. “Rather than simply protecting your own organisation, you’re now protecting outside people from those within your organisation,” he said.

Miller said that while it is relatively easy to legislate, gathering resources that will deliver changes on the ground takes time. He was sympathetic to the challenge that the SFO is facing to keep pace with fraud’s rapid evolution, noting the ease with which non-technical individuals can access sophisticated software required to mount cyber scams.

Building on that theme, Smith said: “We need to realise that fraud requires both opportunity and intent. New technologies are creating the opportunity for those who have the intent to undertake fraud against people or companies.”

Boosting awareness

Turning to the likely effects of the ECCTA, Smith said that she would expect audit risk committees to spend much more time on internal controls to reduce opportunities to offend. “You can’t reduce every opportunity to zero,” she said, “because by nature, fraud is unexpected. But some risks are more foreseeable than others.”

Smith highlighted a need for corporates and accounting firms alike to put continuous effort into developing speak-up frameworks, providing staff – especially juniors – with the comfort to raise concerns and challenge people in power. “It’s an ongoing journey,” she said. “There’s never an end point.”

Miller reminded attendees that it had taken the crisis over Russia’s war in Ukraine to force through legislative ideas that had been brewing for quite some time. For many years, Baroness Hodge had been a particularly vocal proponent of a Failure to Prevent offence. To secure Parliamentary backing from the previous governing party, the ECCTA’s wording for that offence had been watered down twice.

“On the plus side, if the ECCTA does generally boost companies’ awareness of how they may be vulnerable to fraud and the measures they need to put in place – for example, improved training – that’s probably a positive outcome,” Miller said.

Asked what accountants should do if they have seen something that looks suspicious, Smith said: “First, check with your manager that you’ve understood the situation correctly, rather than assume it’s fraud. In most cases, it won’t be. If concerns persist, raise them with senior managers and through appropriate channels in your organisation, which should be defined in policy. If you’re in practice, you should be able to talk to an ethics partner. Alternatively, contact ICAEW’s Ethics Advisory Service or report anything you think merits external scrutiny to a regulator.”