Serious Fraud Office Supplementary Estimate 2013-14 - Justice Committee Contents


Written evidence


Memorandum from the Serious Fraud Office

Serious Fraud Office Supplementary Estimate 2013-14

Introduction

This memorandum is intended to provide the departmental select committee with an explanation of all changes in resource relative to plans set out in the SFO Main Estimate 2013-14

Supplementary Estimate Changes

Changes reflected in the Supplementary Estimate relate to:

·  The deposit of £19.000m of Resource DEL via Reserve Claim resulting in an increase in Resource DEL in 2013-14

·  An increase in Net Cash Requirement £19.000m

·  The £19.000m Reserve funding is in addition to £5m Reserve funding provided at Main Estimates, so that the SFO's total Reserve funding for 13-14 is £24.000m.

The increase in RDEL from the Reserve is in respect of the Tchenguiz litigation,to meet other legal liabilities, to provide additional funding for the LIBOR investigation, and to provide additional funding for two further significant investigations.

Change in control totals

The Supplementary Estimate will result in the following changes to control totals
Control Total Main Estimate Supplementary Change
£m
£m
£m
Resource

Admin DEL

Programme DEL

AME

Capital DEL

Net Cash

36.607

7.900

26.707

2.000

1.440

35.553

55.607

7.900

45.707

2.000

1.440

54.553

19.000

-

19.000

-

-

19.000

The table below compares final estimates and outturn for the previous three years.
Voted
Outturn
Variance
Variance
Resource
£m
£m
£m
%
2010-11

2011-12

2012-13

36.93

33.189

40.776

35.87

31.58

38.050

1.06

1.61

2.726

3

5

7

Capital
£m
£m
£m
%
2010-11

2011-12

2012-13

3.10

1.58

1.60

2.69

0.71

1.107

0.41

0.87

0.49

13

55

31

Approval of Memorandum

This memorandum has been prepared with reference to guidance in the Estimates Manual provided by HM Treasury. The information in this memorandum has been approved on behalf of the Accounting Officer byBarny Todd, Chief Financial Officer.

Letter from the Clerk of the Committee to Anne Smart, Financial Controller, Serious Fraud Office, dated 12 February 2014

SFO Supplementary Estimate 2013-14

Thank you for sending a copy of the SFO's memorandum on its Supplementary Estimate 2013-14 under cover of your letter of 11 February.

The Justice Committee considers that it requires further information on your Supplementary Estimate in order to discharge its responsibility to scrutinise the expenditure involved, and would be grateful if you would provide a further memorandum responding to the following questions. If there are any answers which you would like the Committee to treat in confidence please indicate the fact.

1.  What are the two "further significant investigations" referred to in the Memorandum?

2.  How much of the £19 million will be apportioned -

·  to the Tchenguiz litigation

·  to meet other legal liabilities

·  to provide additional funding for the LIBOR investigation

·  to provide additional funding for each of the two further significant investigations.

3.  How much of the £19 million has been (a) incurred and (b) disbursed?

4.  Has the SFO's £11million claim on the Contingencies Fund been effected?

5.  Was the expenditure covered by the Supplementary Estimate expected at the time of the Main Estimate? If so, why were funds not able to be requested in relation to these investigations at the time of the Main Estimate?

6.  What has changed in terms of the litigations and investigations since the Main Estimate to require so much additional expenditure?

7.  Have provisions been set up against these litigations and investigations? If so, what provisions have been made against each?

8.  Are there likely to be additional financial obligations to be met in relation to these litigations and investigations in the future, and if so, how much in each case?

9.  What uncertainties remain as to expected expenditure on these litigations and investigations in the future?

Please could your further memorandum be with me no later than Friday 21 February to enable the Committee to take it into account at its meeting on 25 February.

Letter from the Director of the Serious Fraud Office, David Green CB QC, to the Clerk of the Committee, dated 21 February 2014

Thank you for your letter of 12 February to Anne Smart. I wanted to reply personally as the Committee raises a number of very important questions.

I have answered each of the Committee's questions below. I request that all financial information is kept confidential. Knowledge of the resources that the SFO is devoting to a particular case is operational material that would be of assistance to suspects, and to the claimants in the Tchenguis litigation.

The SFO has received a total of £24m additional funding for this financial year through the main and supplementary estimates process.

This funding reflects the arrangement through which 'Blockbuster' cases are supported. It is in the nature of the SFO's work that significant additional funding can be required at short notice. In a very short space of time, it can become clear that an investigation, as wide as that into Libor, is required. At the same time, I consider it would be unacceptable to have expert investigators, lawyers and accountants as permanent employees waiting around in case such an investigation is required.

Therefore, the current agreement with HM Treasury is that the SFO submits claims for Reserve funding where it is estimated the costs of new investigations are a certain proportion or more of the budget.

For this financial year, the £24m has been allocated by HM Treasury as follows:
Nature
Amount £m
Tchenguis litigation
[redacted]
LIBOR investigation
[redacted]
Rolls Royce investigation
[redacted]
Barclays Qatar investigation
[redacted]
Other legal liabilities
[redacted]
ARIS shortfall
[redacted]

As you will see from the table, the two further significant investigations referred to in the memorandum are related to Barclays Qatar and Rolls Royce. The first of these investigations began in 2012-13, [redacted]. The second investigation was opened this financial year.

Of the £24m, £13.3m had been incurred up to the end of December 2013. This is a mixture of internal and external costs. The £11m advance from the Contingencies Fund has now been received.

At the time of the Main Estimate, the SFO was forecasting expenditure of £19m on blockbuster cases and the Tchenguislitigation.  Following discussions with the Treasury, it was agreed that the funding need would have to be finalised through the Supplementary Estimate process.  The additional £5m received through the Main estimates process was agreed to meet some in-year needs.

As you might expect some needs have also changed. [redacted]. More seriously, we have uncovered [redacted]historic legal liabilities relating to the payment of VAT which date back to Richard Alderman's time as Director.

We have made budgetary provisions for next year. However, there will be additional financial obligations in respect of blockbuster investigations and the Tchenguislitigation during 2014-15. We currently expect these to be subject to a Supplementary Estimate submission in December 2014 / January 2015 in the same manner.  [redacted]

For an organisation like the SFO, there are a many uncertainties about expenditure. As independent investigators and prosecutors it is not possible to give the kind of commentary needed to answer the Committee's final question. As explained above, the need for a new and large-scale investigation can become clear in very little time.

I hope the Committee will find this further information helpful. I would be happy to provide further information, if required. I am very grateful that additional funding has been agreed this year, and keen that an appropriate and more certain funding model can be agreed by all those with an interest.



[redacted]. Signifies redaction.


 
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Prepared 28 February 2014