Invisible for decades
The term ‘white-collar crime’ was coined in 1939 in the United States to refer to crimes committed by people in positions of power and high social status in the course of their jobs. Also referred to as ‘commercial crime’, its scope is extensive, including embezzling funds from employers or clients, theft of stock, padded expense accounts, tax evasion, insider trading and misrepresentative advertising.
For most of the 20th century commercial crime or white-collar crime had a low public profile. The first white-collar investigation took place in 1934 and the next in 1958. This did not mean that there was little fraudulent behaviour in New Zealand companies, but rather that it was not reported or detected. The New Zealand Police had little experience in the investigation of business practices and it was not until 1985 that a Corporate Fraud Unit (initially of three staff) was created within the Department of Justice’s Auckland office. This fraud unit was underfunded and insufficiently prepared to respond to the challenges posed by the collapse of a number of high-profile businesses following the 1987 sharemarket crash that exposed previously hidden levels of corporate fraud.
Investigating corporate crimes is an exacting task, as the first head of the Serious Fraud Office, Charles Sturt, recalled when he investigated the collapse of Equiticorp in the early 1990s: ‘It was rather like completing a 100,000-piece jigsaw puzzle from a million pieces. The dilemma was to work out which 900,000 pieces did not form part of the final picture. This is all the more difficult in an investigation where no crime has been established before you start.’1
Establishment of the Serious Fraud Office
Following the 1987 sharemarket crash there were many suspicions of corporate crime. In response the government set up the Serious Fraud Office (SFO) in 1990. Staffed by investigators with backgrounds in law, accountancy and senior police work, its investigative powers are considerable. If the office suspects that a serious fraud may have been committed they can require any person to produce documents or to reveal where they are located. Lawyers, accountants and other professionals cannot refuse on the basis of client confidentiality, and unlike interviewees in other investigations, there is no right to remain silent. The Minister of Police is responsible for the Serious Fraud Office but the government has no influence over its investigations.
The establishment of the office with its very wide-ranging powers and staff of specialists, lifted the lid on white-collar crime. One of its first investigations resulted in Allan Hawkins, executive chair of Equiticorp, being sentenced in 1992 to six years imprisonment for stealing $88 million. Many more prosecutions of company directors, lawyers, politicians, bureaucrats and accountants occurred over the 1990s and in the early 21st century.
In 2018 the SFO had 50 full-time staff, the majority of whom were front line, and received 831 complaints in 2016/17. Between 2014 and 2016 the total value of fraud for cases prosecuted by the SFO exceeded $150 million – an average fraud value per prosecuted case of over $8 million.
Some professions have taken their own action against white-collar crime. The Law Society has a fidelity fund, established in 1984. This gives clients of dishonest lawyers some level of compensation – although the maximum payout to an individual is $100,000.
National Organised Crime Group
The National Organised Crime Group (previously the Organised and Financial Crime Agency New Zealand) was established in 2008 within the New Zealand Police to help fight organised crime, which was increasingly using international financial networks to launder money. It draws on information and resources from across government. The group was originally meant to absorb the SFO, but an incoming National government decided to maintain the SFO as a separate entity.
The group focuses on cases of serious or complex fraud. As perpetrators are often highly intelligent and use complex company structures and transactions to try to cover their tracks, investigations can take years. Standard fraud cases are dealt with by fraud squads within the police.
A 2018 PricewaterhouseCooper survey of New Zealand businesses reported that 51% had been the victim of economic crime in 2016/17 (an increase since the last survey). The most frequently reported form of economic crime was consumer fraud (42%), followed by cybercrime (37%). Eight per cent of businesses reported experience of bribery and corruption and attempts at money laundering (attempts to hide the proceeds of crime by disguising the origins of the money).
Cybercrime was expected to cause the most disruption to New Zealand businesses in the future. The most frequent cyberattacks on businesses took the form of phishing (attempts to access logins, passwords and financial details) and malware (software that affects business networks, servers, or end user computers). Businesses reported increased attempts to improve their cybersecurity. They were also working on anti-money laundering strategies and plans to combat the financing of terrorism in response to the Anti-Money Laundering and Countering Financing of Terrorism Act, which came into full effect in 2013.
Conflict of interest
In 2017 two employees of the Canterbury Earthquake Recovery Commission were investigated by the SFO for setting up a private company to provide sales advice for earthquake-damaged properties in Christchurch. The State Services Commissioner described their actions as a serious conflict of interest. The employees argued that they were recruited to work in the government agency because of their private business networks, but acknowledged their personal business interests should have been declared in writing.
Huge losses by investors in the 1987 sharemarket crash and the collapse of finance companies in the early 21st century have hardened the public’s attitude toward corporate criminals. Penalties have been criticised for their leniency. For example those found guilty in prosecutions taken by the Serious Fraud Office in the 1990s got on average three and a half years in jail but often served only a third of their sentence before being eligible for parole.
There is some argument for more severe sentencing, but no matter how much money has been lost, the severity of the punishment can only reflect crimes that have been proven. For example, convicted Dunedin fraudster Michael Swann stole $16.9 million and was sentenced to nine years and six months imprisonment in 2009. In Auckland Mark Bryers’ property investment company Blue Chip collapsed in 2008 owing investors $80 million. Yet he was convicted only on charges relating to bookkeeping failures and failure to attend creditors’ meetings. In 2010 he was sentenced to 75 hours of community work and had to pay a fine of $37,500, plus court costs. Many of those affected called for a jail term, but under the charges Bryers was found guilty of, the judge could not impose any such penalty.
The anger of investors is attributable to devastating losses – often their whole life savings, which in turn affect their retirement income and their family’s prospects. When David Ross was sentenced to 10 years and 10 months for running a Ponzi scheme that lost $115 million of investors' money, his victims argued that the sentence was not long enough. Ross was ordered to serve a minimum of five years and five months. A spokesperson for victims argued in 2013 that the sentence was not a sufficient disincentive to stop this form of white collar crime.