By Gareth Vaughan
Moves by the Serious Fraud Office (SFO) and other regulators to detect crime earlier through intelligence gathering and co-operation would see a finance company sector style meltdown acted on much earlier if it was to happen again, says the SFO's acting CEO Simon McArley.
In a Double Shot interview with interest.co.nz McArley noted there had been plenty of rumours of problems within finance companies around before they started collapsing.
"If we'd applied an intelligence led approach at that point, and if that had worked across all the regulatory agencies, we may well have been able to intervene at a much earlier point," McArley said.
Asked how much earlier McArley noted that when he was working as a lawyer in 2001-02 there was already talk that all was not right with some finance companies.
"What we want to do is to be at that position, not necessarily conclusively drawing any conclusions, but being able to get together with our sector partners - the FMA (Financial Markets Authority) and other organisations and say 'look we need to have a close look at this. We need to keep an eye on what's happening'," said McArley.
"I think we're well placed to do that. Both the FMA and ourselves have invested quite heavily in that intelligence part of the equation, so we're well on the way to it. But it's something we can keep working on."
However, he said this didn't necessarily mean the authorities, if they were operating as they are today back in 2001-02, would have acted that early against finance companies.
"We can't with any certainty say what might have been in a different world. But we definitely think if that situation was to reoccur, or a similar situation was to occur, we'd be much better equipped to address it now and we'd be much earlier into the process of intervention," said McArley.
Dozens of finance companies collapsed, between National Finance 2000 in May 2006 and NZF Money in July 2011, losing an estimated $3.1 billion of their investors' money. See full details in our Deep Freeze list here. And see details of punishments dished out to convicted finance company bosses in our Porridge List here.
McArley said the crucial lesson was that the key to minimising the impact of financial crime on the economy, and on the New Zealand public, was early intervention, or to catch the crime before it becomes a major issue.
"And that was echoed by Harry Markopolos, the whistle blower from the Madoff Ponzi scheme in the US when he was out here in February speaking at our financial crime conference," McArley added. "He (Markopolos) made the clear indication that it's much better to catch a $4 million Ponzi scheme than a $40 billion Ponzi scheme."
"It's about the timing and it's about the way you use intelligence to identify those schemes. So we've adopted that approach in our overall strategy moving to look more at intelligence led detection, moving to look more at encouraging whistle blowers to come forwards, and moving to try and do some work around business ethics," said McArley.
This includes the SFO working with other government agencies and people in the private sector to analyse data, look at patterns, and try to identify where offending may occur.
Although the SFO would always be "the last resort of serious criminal prosecution," it could also help out elsewhere to try and prevent situations developing to the point that the SFO's intervention was required.
"What we're looking at is what we call a centre of excellence model where we have our people devoted to our core detection, investigation and prosecution function, but also make them available to other agencies to use upstream of that so that we can enhance their regulatory effectiveness as well as maintaining that backstop, that end response which is serious criminal prosecution," McArley said.
McArley, previously the SFO's head of financial markets and corporate fraud where he led the investigations into and prosecutions of failed finance companies, has been the SFO's acting CEO since Adam Feeley's departure last October. However, he missed out on getting the CEO's job on a permanent basis with Julie Read, an Australian litigator currently working for the Australian Securities and Investment Commission, set to take the reins on October 21.
McArley said he'd be leaving the SFO once the transition to the new CEO was complete.
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