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Is the removal of the privilege, and its replacement with a partial use
immunity for oral disclosures, justified in the detection of serious fraud?
Should the Serious Fraud Office Act 1990 be amended and to what effect?
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315 THIS CHAPTER LOOKS IN DETAIL at an example of legislation which removes the privilege in a particular context – namely, the investigation of serious fraud. The aims of this chapter are two-fold. The first aim is to demonstrate the effect on existing legislation of implementing the Commission’s proposals in chapter 12. The second is to consider the implications for the privilege if ss 27 and 28 of the Serious Fraud Office Act 1990 continue in their current form.
316 In preparation for this chapter, the Commission has consulted with the Director and staff of the Serious Fraud Office. The views of the Office are referred to throughout the following discussion.
317 The Serious Fraud Office Act 1990 gave statutory recognition to a specialist office to investigate fraud and was passed in the wake of the economic crash of 1987. The Act was generally well received by the public and by politicians on both sides of the House. The Act was based on the Criminal Justice Act 1987 (UK), although the English Serious Fraud Office has no investigative powers in relation to people who are not themselves suspects: see s 2(1) of the Criminal Justice Act and compare with s 5 of the Serious Fraud Office Act which empowers the Director to require any person to answer questions or produce information when the Director suspects the person has information relevant to an investigation under the Act.
318 The Justice and Law Reform Select Committee received only seven submissions on the Serious Fraud Office Bill, and only one of these (the submission from the National Council of Women) opposed the establishment of a separate agency to deal with one type of crime.[61]
319 In relation to cls 31 and 32 (now ss 27 and 28, set out below), which remove the privilege and provide a use immunity in its stead, the National Council of Women said that the clauses infringed a basic human right – the right of silence. The New Zealand Law Society’s submission suggested that clses 31 and 32 should be deferred until a comprehensive study of the right of silence could be conducted across the range of investigative and criminal legislation. The Legislation Advisory Committee did not comment on the issue of self-incrimination, other than to note that there were wider policy issues which the Law Commission would be considering in the course of its review of the law relating to criminal procedure.
320 In the Second Reading Speeches on the bill, Mr Paul East, MP called for a total review of the right of silence. He said:
The right to silence should be considered in its entirety. My major criticism of the Bill is that the House is dealing with the right to silence in isolation. (508 Hansard 2352)
321 The Commission will soon be publishing its final report on the right of silence. We now undertake the consideration of wider policy issues concerning the privilege against self-incrimination. The Commission’s review is impaired by the fact that it is a review after the event and the privilege has already been removed by s 27. Nevertheless, the existence of ss 27 and 28 continues to raise questions about the privilege’s application in other contexts.
322 Section 27 removes the privilege:
No person shall be excused from answering any question, supplying any information, producing any document, or providing any explanation pursuant to section 5 or section 9 of this Act on the ground that to do so would or might incriminate or tend to incriminate that person.
323 Section 28(1) provides:
A self-incriminating statement made orally by a person (whether or not the statement is recorded in writing) in the course of answering any question, or supplying any information, or producing any document, or providing any explanation, as required pursuant to section 5 or section 9 of this Act, may be used in evidence against that person only in a prosecution for an offence where the person gives evidence inconsistent with the statement.
324 The Director has both investigating and prosecuting powers and responsibilities under the Act.
325 The Director has powers under Part I of the Act when he or she has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud (s 4). Section 5 of Part I authorises the Director to require (by written notice) that any person must produce information or documents or answer questions about documents that may be relevant to the investigation. In s 6, the Director is authorised to apply to a judge for a search warrant if a response to the written notice has been unsatisfactory, or because it is impractical to serve a notice.
326 The Director’s investigative powers under Part II of the Act apply once he or she has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed. Section 9 gives the Director power, by written notice, to require a person whose affairs are being investigated, or any other person whom the Director has reason to believe may have information or documents relevant to the investigation,
327 Section 10 contains search warrant powers equivalent to those in s 6. Section 34 authorises any person appointed by the Director to investigate to exercise the powers in ss 5 and 9, provided he or she is accompanied by a designated member of the Serious Fraud Office. According to s 33, the Director has power to delegate any of his or her functions or powers in Parts I and II, provided the delegation is in writing to a designated member of the Serious Fraud Office, including people seconded to the Office. Section 50 authorises the Director to exercise the powers conferred under ss 5 and 9, regardless of whether proceedings have commenced in respect of any matter under investigation.
328 Section 28(1) is modelled on s 2(8) of the Criminal Justice Act. Its wording is unclear. Unlike other immunities in New Zealand legislation (see chapter 12), the provision does not say when evidence cannot be used in evidence, but rather when it can. In addition, the words “only in a prosecution for an offence where” could be interpreted in two conflicting ways:
According to the Department of Justice’s report to the Justice and Law Reform Select Committee on the Serious Fraud Office Bill, dated 6 April 1990, the latter approach appears to have been the intention:
Before a self-incriminating statement may be admitted, the following prerequisites must be met:(a) the statement must have been made pursuant to sections 9 or 13 [now ss 5 and 9];
(b) there must be a prosecution for a criminal offence; and
(c) evidence given subsequently by the maker of the statement must be inconsistent with the original statement. (20)
329 The use immunity in s 28 does not guarantee protection from use of all oral disclosures made prior to trial but is limited to consistent oral statements, excluding both inadvertently and deliberately false oral statements.
330 Therefore, if a defendant elects to give evidence in a prosecution for fraud by the Office, any oral information he or she has been compelled to disclose at the investigative stage will be admissible if the defendant’s testimony is inconsistent with it. The use immunity in s 28 does not extend to documents or non-verbal assertions, nor is a use fruits immunity provided for information derived from disclosures made at the investigative stage. Therefore, these types of evidence can be admitted in evidence, whether or not the defendant elects to testify.
331 The secrecy obligations imposed on the Director and members of the Office under s 36 give some limited protection to witnesses. Section 36 requires the members of the Office to observe the “strictest secrecy” in relation to information supplied to the Director under ss 5 and 9 or in the exercise of powers under Part II, or information derived from either of these sources.
332 The Serious Fraud Office Act was passed in the same parliamentary session as, but before, the New Zealand Bill of Rights Act 1990. Section 27 is in conflict with ss 23(4) of the Bill of Rights Act (ie, right of person arrested or detained for an offence or suspected offence to refrain from making a statement etc) because it removes the privilege and the right of silence for people investigated by the Director under s 5 or s 9, when the person questioned is detained.
333 In chapter 8, we proposed that the privilege or a statutory immunity should remain for oral statements and newly created documents (ie, documents created in response to a specific demand by the investigator that they be created). Section 27 currently removes the privilege for oral statements and newly created documents compelled under ss 5 and 9. As already noted, although s 28 contains a use immunity for oral statements, this is limited to consistent oral statements, and there is no use immunity for newly created documents in the nature of a written account or admission.
334 In chapter 12, it was suggested that the privilege should apply unless explicitly removed and that the privilege should be included in the Commission’s Evidence Code. The other option, discussed and rejected in chapter 3, would be to remove the privilege across the board and replace it with immunities. In determining whether the latter course is justified in a particular context (as distinct from across the board), drafters and policy makers should consider
We now discuss each of these in the context of investigations under the Serious Fraud Office Act.
335 Apart from further criminal liability for fraud offences, a risk of liability to a civil penalty might arise when a person is compelled to give self-incriminating information to the Director under the Act. However, the Commission has been advised that the risk of a civil penalty is not a matter that arises with any frequency; moreover,
[t]he secrecy provisions prohibit the members of the SFO from disclosing any such information in any way to any person who is not a member of the SFO. The Director, alone, is given a statutory discretion by the Act to disclose such protected information in any of the circumstances provided for by section 36(2)(a)–(e). It is unlikely that I would exercise my discretion to release protected information, comprising information given to this Office by a suspect, in circumstances where that release would expose the person to the risk of a civil penalty. In fact, I have recently refused a request to disclose information that would fall into this category.[62]
336 The secrecy obligations imposed on the Director and members of the Serious Fraud Office by s 36 provide limited protection from derivative use of information obtained in the exercise of the information-gathering powers in ss 5 and 9. Section 36(1) states that every member of the Office shall observe the strictest secrecy in relation to information obtained under those provisions. However, subs (2) contains a number of broad exceptions, including the disclosure of the information for the purposes of any prosecution anywhere or disclosure to any person who the Director is satisfied has a proper interest in receiving such information.
337 The complex nature of fraud has been suggested as a reason why special powers are needed. The Hon WP Jeffries (then Minister of Justice) said in the introductory speech on the Bill:
fraud can lurk behind apparently normal complex commercial transactions. It is committed and carefully hidden with stealth and deceit. Traditional investigatory powers are insufficient. Investigators need special powers to be able to unravel the complex transactions and documentation that accompany such offences. (503 Hansard 14022)
338 Throughout this paper we have advanced several general proposals which, if implemented, would enhance the investigative powers of the Director and members of the Serious Fraud Office considerably. These are
339 In the Department of Justice’s report, the specific case for removing the privilege for all statements, oral or documentary, is summarised at page 19:
[T]he Director strongly supports clauses 31 and 32 and considers their inclusion to be absolutely necessary for the SFO to achieve its objectives. He questions the relevance of a suspect’s right to remain silent in modern society and states that such a right originated for the protection of the simple and illiterate at a time when they could not give evidence in their own defence. He indicates that such considerations have no relevance to serious and complex fraud offences given the sophistication of the persons involved with such offences and the legal and financial advice available to those persons.
340 The Director’s view is that the protection afforded by silence is no longer necessary because the threat of torture has receded and because of the use of video recording to protect the interests of both sides.[63] Furthermore, the reason why the power in s 9 to compel suspects to answer questions is said to be useful is:
The use of powers under section 9 of the SFO Act to compel any person to answer questions relevant to an investigation has the advantage of committing the person questioned to a particular “story”.[64]
341 An ability to compel suspects to answer questions about complicated documentation and paper trails, particularly when the suspected offence is one of non-disclosure (eg, under-reporting, disappearing documents, documents created), or creating documents to avoid detection, is no doubt useful. Access to pre-existing documents will not always give the investigator a clear picture of what has occurred. In addition, the investigation of fraud can be carried out more expeditiously if those being investigated are required to answer questions. However, the Commission questions some of the justification for the removal of the privilege for oral statements and the production of newly created documents in the serious fraud context.[65]
342 The Commission does not consider the right of silence and the privilege to be outdated or irrelevant in the serious fraud context. Innocent people who are fearful and unsure of why they are being questioned, or of the precise nature of the questioner’s suspicions, as well as those who are vulnerable and those who manufacture stories, benefit from claiming the privilege. In response to such a claim, the questioner may need to provide more information, reassess his or her interrogative approach, and ultimately seek evidence from independent sources, rather than rely on the person being questioned as the source of evidence.
343 We have also acknowledged that the privilege does not by itself prevent inhumane treatment and abuses, unreliable admissions etc. The privilege is one of several means of providing protection to people being questioned. The practice of videotaping interviews is to be encouraged, but is not a replacement for the right of silence or the privilege against self-incrimination. Incriminating information may be compelled from a person away from video-tape equipment or before the video-tape is turned on. Although people investigated under s 9 of the Serious Fraud Office Act have recourse to counsel, that right will not always be sufficient (eg, when a solicitor is unavailable or inexperienced). The right to counsel only applies when the person is required to attend before the Director (s 9(5)). There is no such right when a person supplies information to other members of the Office, unless the person is arrested or detained within the meaning of s 23 of the Bill of Rights Act. Furthermore, people asked for information under s 5 have no right to counsel, because they are not immediately the focus of suspicion. However, they could conceivably become the focus during an interview.
344 There is no evidence that large numbers of guilty people are escaping detection by claiming the privilege in the serious fraud context. In chapter 2, we said that the results of the surveys conducted by the Commission on the right of silence do not substantiate the argument that the privilege should be removed because it is the refuge of sophisticated or hardened criminals. It appears from those surveys (described further in Appendix C) that most suspects do not remain silent in the face of questioning by the police, and the majority of those who do are found guilty. Suspects with criminal records appear more likely to speak than remain silent.
345 In the United Kingdom, there is a minimum monetary limit on the cases which can be investigated by the Serious Fraud Office (of one million pounds). A protocol developed between the New Zealand Serious Fraud Office and the police, referred to in the Office’s 1994/95 annual report at page 6, provides for the police to notify the Office of cases in the following situations:
346 The Office’s annual reports for the years 1990–95 (inclusive) reveal that the Office sometimes investigates fraud involving quite small amounts.[66] In the annual report for the 1994/95 year, for example, out of 34 prosecutions completed, at least 10 of these were for amounts of less than $300,000; the lowest being for $2,000. It is questionable whether offences at this lower end of the range necessarily involve the sophisticated criminals alluded to by the proponents of wide powers for the Office.[67]
347 Finally, it should also be noted that the reasons given for removing the privilege for the compelled production of documents focus on documents already in existence at the time when the Director requires a person to supply self-incriminating information. For example, in its report to the Select Committee, the Department of Justice said:
It is essential then in New Zealand for the Director to have the power to require production of documents. Until the documents have been obtained it will often not be possible to ascertain whether an offence has been committed. (6)
348 It has already been suggested in chapter 8 that the privilege should be removed for pre-existing documents, but that documents newly created in an interrogation situation are equivalent to oral statements, and should be treated in the same way as oral statements.
349 While acknowledging the usefulness of the power to compel people to answer questions and explain complex documents, we note that the Office appears to rely far more heavily on its powers to compel individuals to supply pre-existing documents than it does on its powers to require answers to questions. The following tables illustrate this and have been compiled from the Office’s reports for the years 1990–95 (inclusive). The tables should be interpreted bearing in mind that one witness may be asked to supply a number of documents on different occasions and that there are many more witnesses than suspects.
350 Another means of obtaining information from people about suspected fraud is information voluntarily supplied by people. As the discussion of the right of silence surveys in chapter 2 reveals, more people speak to the police than exercise their right to remain silent. There is no evidence to suggest that the position would be any different, in relation to offences investigated by the Serious Fraud Office, if the Director no longer had the power to compel self-incriminating information from people.
351 As the summary in chapter 12 on legislative provisions expressly removing the privilege for oral statements and documents reveals, there are precedents for the approach adopted in s 27. For example, s 49(3) of the Gas Act 1992 and s 15 of the Secret Commissions Act 1910 are examples of provisions removing the privilege for oral statements and documents. However, the information-gathering powers contained in those sections are not for the purpose of criminal investigations.[68] Section 27 of the Serious Fraud Act is unprecedented in removing the privilege for oral and documentary statements in the investigation of Crimes Act offences.
352 It has been suggested that the powers to compel people to answer questions (etc) amount to “an investigative tool, not a stratagem to acquire confessions for direct use in court as evidence”.[69] However, this distinction does not take account of the crucial fact that investigation leads to evidence, and without evidence there will be no prosecution.
353 In chapter 2, the Commission said that the privilege is most valuable in protecting the interests lying behind it in criminal investigation contexts: see, in particular, the discussion on the privilege’s role in maintaining a fair State-individual balance and in preventing the conviction of the innocent, inhumane treatment and abuses, and unreliable coerced admissions of guilt. Herman summarises the specially strong case for the privilege’s application in the criminal investigative, as distinct from other, contexts:
[T]he risk of criminal prosecution, conviction, punishment, and abusive interrogation is much greater in the police interrogation setting than in any other interrogational setting. It has long been held that the privilege may be claimed in civil proceedings and legislative inquiries, even though neither is itself a “criminal case” within the meaning of the Fifth Amendment and even though the risk of prosecution may be remote. That those proceedings are open to the public (indeed, that they may be televised), that the witness may be represented by counsel, and that the interrogator is therefore not likely to be abusive do not defeat the privilege. By contrast, police interrogation is “criminal” and its very purpose is to obtain evidence for use in a criminal prosecution; the fruits of police interrogation lead to criminal charges far more frequently than do the fruits of civil or legislative questioning; and, as noted earlier, abusive practices are more likely to occur in the interrogation room than in any other governmental setting. To apply the privilege in these former settings while denying application to police interrogation stands the privilege on its head.[70]
354 Certain features of the Serious Fraud Office Act suggest that the privilege could be useful as a protection against over-zealous investigation techniques. The Office’s investigation powers under s 5, in relation to non-suspects, have already been referred to. In addition, despite the protocol between the police and the Office, the Director has considerable leeway in deciding whether and which cases to investigate. The term “serious or complex fraud” is inclusively defined in s 2 as follows:
“Serious or complex fraud” includes a series of connected incidents of fraud which, if taken together, amount to serious or complex fraud.
355 Under s 8, the Director has a discretion whether to take account of the following guidelines in determining whether any suspected offence involves serious or complex fraud:
356 Section 50 authorises the Director to exercise powers conferred under the Act, even when the police or another agency are also investigating the suspected offence, or proceedings have already commenced, or the suspected offence occurred before the Office was established.
357 Neither the Director’s decisions and exercise of his or her powers, nor employees of the Serious Fraud Office, come within the Police Complaints Authority’s jurisdiction. The Director’s decisions regarding investigations or mounting proceedings in cases of suspected fraud cannot be challenged, reviewed, quashed or called into question in any court (s 20); although the Ombudsmen can review the Office under the Ombudsmen Act 1975.
358 Section 30 states that:
[I]n any matter relating to any decision to investigate any suspected case of serious or complex fraud, or to take proceedings relating to any such case or any offence against this Act, the Director shall not be responsible to the Attorney-General, but shall act independently.
359 The approach adopted in s 27 of the Serious Fraud Office Act not only undermines the interests the privilege protects in the investigation of serious fraud, but also undermines the privilege in other contexts. As Herman’s comments above in para 353 imply, if the privilege is inapplicable in the criminal context where it can be most useful, why should it be retained in non-criminal contexts? Similarly, if the privilege is disposable in the investigation of fraud offences, why does it still apply to the investigation of serious drug, violent and sexual offending?
360 In relation to the second question, although in some instances there will be body sample and real evidence on the scene (unlike in most fraud investigations), this will not invariably be the case. Furthermore, although information about fraudulent offending may reside with the suspected fraudster alone, this is similar to some sexual offending, where there is no independent evidence corroborating the complainant’s report of offending, and where the privilege and right of silence still apply. So, a power to compel individuals to make disclosures and produce documents would be useful in the investigation of all criminal offences, but at a cost.
361 There is also an issue about equality of treatment, between people investigated by the Serious Fraud Office and those investigated by the police. When the police investigate fraud, unless they come within the secondment and delegation authority in s 33 of the Serious Fraud Office Act, they are not governed by provisions such as ss 27 and 28. The police must comply with the rights of suspects recognised in the Judges’ Rules and with the right of silence and privilege against self-incrimination embodied in ss 23(4), 25(d) and 27(1) of the Bill of Rights Act: see chapter 5 for a discussion of what those provisions entail.[71] In other words, the privilege is available if the police investigate serious or complex fraud offences, but is not available if the investigation is under the auspices of the Director of the Serious Fraud Office. In Ernest Saunders v United Kingdom (Report of the Commission No 19187/91, discussed in chapter 2), the European Commission said:
It cannot be compatible with the spirit of the Convention that varying degrees of fairness apply to different categories of accused in criminal trials. The right to silence, to the extent that it may be contained in the guarantees of Article 6, must apply as equally to alleged company fraudsters as to those accused of other types of fraud, rape, murder or terrorist offences. Further there can be no legitimate aim in depriving someone of the guarantees necessary in securing a fair trial.
362 The same considerations apply to s 27 of the Serious Fraud Office Act, and the Commission concludes that although a power to ask questions without the obstacles of the privilege and the right of silence is no doubt a useful investigative tool, it pushes the balance of power too far in favour of the investigator. As a result, there is potential for questioning abuses to go undetected; the right of innocent people to be free from unwarranted intrusions by the State may be compromised; and prosecutions may be brought on the basis of unreliable admissions of guilt made by suggestible but innocent people.
363 Accordingly, the Commission proposes that s 27 should be repealed and that the right of silence and privilege against self-incrimination should be restored for people investigated by the Serious Fraud Office. This would not extend to documents already in existence at the time when specific demands for them are made. Section 28 would no longer be necessary and we propose that it should likewise be repealed. As a result, it is unnecessary to consider whether the immunity contained in s 28 should be extended. However, we now turn to the scope of immunities which should be provided if our proposal that the privilege be restored for oral disclosures and newly created documents is not implemented.
364 As already noted, s 28 contains a use immunity which does not include inadvertently inconsistent oral statements, newly created documents, nor any non-verbal assertion intended. The Department of Justice report to the Justice and Law Reform Select Committee on the Bill explains the thinking behind the first two limitations.
365 In relation to the exclusion of documents from the immunity, the Department said:
On reflection we consider that the inadmissibility provision should apply to oral statements only in New Zealand as well. Otherwise the intention of clauses 9 and 13 in requiring documents to be produced could be defeated. These documents should be available as evidential exhibits as well as to ascertain whether an offence may have been committed. (20)
366 The concern to use the documents produced as exhibit evidence focuses on pre-existing documents which reveal that a serious fraud offence has been committed, rather than on newly created documents, in the nature of oral admissions recorded in writing. The reason given by the Department for excluding documents from the use immunity in s 28 does not apply to newly created documents. We therefore propose that, if the privilege is not restored for this category of documents, s 28 should be amended to extend the use immunity to them.
367 In relation to the exclusion of inconsistent oral statements from the immunity, the Department said:
The extent of the limitation of the admissibility of incriminating statements does not appear to have been fully understood. The reason for allowing the admission of incriminating statements is to preclude a defendant from recanting with impunity from the statements made earlier to the Director under clauses 9 or 13. (20)
368 If the Director’s power in s 27 to compel people to make self-incriminating oral statements is retained, the Commission proposes that the use immunity in s 28 should extend to all oral statements. This is subject to the rider that the statements may be used in a prosecution for perjury, when there is evidence of deliberate lying: see chapters 12 and 15, for other examples of this approach.
369 In relation to deliberate lying on the part of a person being investigated by the Serious Fraud Office, s 45(e) of the Act already contemplates that a person who supplies misleading information commits an offence. Section 45(e) says:
[Every person commits an offence . . . who . . . ]
In the course of complying with any requirement imposed pursuant to section 5 or section 9 of this Act, gives an answer to any question, or supplies any information, or produces any document, or provides any explanation, knowing that it is false or misleading in a material particular or being reckless as to whether it is false or misleading.
370 In chapter 12, we noted that there are no examples of use fruits immunities in New Zealand legislation and proposed that when the privilege is removed by legislation in a particular context, a use and use fruits immunity should usually be provided in its place. In the serious fraud context, this means that evidence discovered as a result of compelled disclosures made at an investigative stage (ie, derivative evidence) would not be admitted at trial. Such evidence could be derived from either an oral statement, a newly created document, or a non-verbal intentional assertion: information which would otherwise be subject to a claim to the privilege.
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