How a political row hit the fight against fraud

The head of the Serious Fraud Office warned yesterday that some criminal prosecutions could prove unsuccessful because of the damage done to his organisation by months of uncertainty over its future.

The Home Secretary, Theresa May, announced last week that the SFO would remain intact, reversing her proposal to break it up. Questions over the organisation's fate caused instability and triggered an exodus of senior staff.

Richard Alderman, the SFO's director, said yesterday: "We have certainly been damaged by events of the last six months or so. It may be that our results for this current year are not as good as we expected and that is attributable to the conditions we have encountered.

"We are bringing cases to court and we will have to see what the results are like. Our cases are going smoothly and we are getting them before a judge and jury, but we will have to see how successful we are with all this."

The uncertainty stemmed from Ms May's desire to move its investigators to her new National Crime Agency (NCA) – an idea that evolved from a Tory plan in opposition – and to shift its lawyers to the Crown Prosecution Service. That idea was laid to rest last week after fierce lobbying by the SFO, lawyers and Dominic Grieve, the Attorney-General. Doubts may linger, however, because the NCA board will oversee the various economic crime agencies, including the SFO, and their relationship will be reviewed when the NCA is up and running.

Mr Alderman said he believed the SFO's future was secure and that he was starting a recruitment drive for almost 50 posts he could not fill with the spectre of break-up looming. The list includes half a dozen top-level posts left vacant after the resignations of senior people such as Kathleen Harris, head of policy; Vivian Robinson, general counsel; and Mick Randall, the case manager in charge of the flagship investigation into the collapse of Kaupthing bank.

Mr Alderman said: "We have got to rebuild the SFO. We have lost really good people, taking with them skills and experience that are really valuable to us.

"We couldn't recruit because nobody who was decent would have come to us in those circumstances. I reckon we have been set back by six to nine months ."

The SFO announced yesterday that it had enlisted Simon Duckworth as a non-executive director to forge closer links with the City. Among other jobs, Mr Duckworth is an investment fund chairman and chairs the City of London Police Authority.

The appointment is the sort of move the SFO needs to begin re-establishing its credentials as a tough enforcer on white-collar crime. A key plank of its operations is getting companies to self-report when they have found problems internally. But this tactic relies on fear of being found out and City lawyers say this reduced in recent months.

Stephen Parkinson, a partner at the law firm Kingsley Napley, says: "You are only going to persuade companies to come forward and self-report if they believe the SFO would get them anyway. While there was so much uncertainty about the SFO, the advice might have been to lie low because if it had disappeared there might not have been an effective successor. I think that advice changes a bit now it is going to be around."

Mr Alderman also wants powers that are comparable with those of the US Department of Justice, which can agree terms with defendants before a trial to speed up cases.

The SFO's attempts to emulate this practice have met hostility from English judges. Last year Lord Justice Thomas said Mr Alderman had "no power" to agree a plea bargain with companies accused of corruption. Mr Alderman says judges may need to get involved earlier in plea negotiations but that it is essential there is co-operation between authorities in the UK and US over big international corruption cases.

The Bribery Act comes in next month but Neill Blundell, a partner at the law firm Eversheds, says the SFO needs to broaden its activities.

"The SFO isn't an anti-bribery agency, it's an anti-fraud agency. They need to make the guidelines clearer and say, 'If you've got a problem and you don't come to us we are going to prosecute you.' If they get that message right then they will open up what the Department of Justice has got in the US, which is self-reporting of all fraud cases."

For now, though, it is a case of rebuilding the SFO after the turmoil of the last six months before Mr Alderman retires next year.

He says: "If I was not the director of the SFO and the job was advertised, would I apply for it? A few weeks ago, no I wouldn't. Now I would because the position is absolutely clear that the SFO will continue to exist."

Who does what to investigate financial crime?

* The Serious Fraud Office opened in 1987 to investigate and prosecute serious or complex fraud worth £1m or more or over multiple jurisdictions. It was set up after several police prosecutions failed. It has had a difficult history and hit a low in 2006 when the Government ordered it to drop a long-running investigation into allegations about BAE's dealings with Saudi Arabia, on grounds of national security.

* The National Crime Agency was devised by the Conservatives as an FBI-style organisation. The NCA was meant to absorb the SFO and prosecutors from the Financial Services Authority and Office of Fair Trading but now the OFT has successfully lobbied against this move. The NCA will oversee the SFO when it is launched by 2013.

* The FSA is due for the chop by the end of next yearwith its enforcement division joining the new Financial Conduct Authority. The FSA faced fierce criticism for taking a soft line on City firms before the crisis but has ramped up its prosecution of market abuse.

* The Serious Organised Crime Agency was set up in 2005 to combat money laundering as well as class-A drugs,people trafficking and other major crimes. It will be absorbed by the NCA.

* The Office of Fair Trading was set up in 1973 to protect consumers and clamp down on rogue traders, scams and cartels. It avoided being broken up in 2006 and kept its dual remit of ensuring competition and consumer protection.