2018 in Review

2018 in Review

Key investigation results

Forty-three defendants appeared before the Courts last year in prosecutions brought by the SFO, including appeals. The combined total of fraud alleged in the cases was $188 million. Seven cases concluded with guilty pleas and three matters were finalised with convictions following trials. During the year we had a 100 percent conviction rate.

We received the highest ever number of complaints of 1060, a 28 percent increase on the previous year. Of these, 29 became Part 1 enquiries, to determine whether the allegation should progress to a full investigation. A total of 18 enquiries advanced to a full Part 2 investigation, the same as the previous year. Nine prosecutions commenced last year, down from 10 in 2016/2017.

court building and workers

Percentage of custodial sentences achieved for convictions

100%

High-profile case results

Large-scale mortgage fraud

Two long SFO trials commenced at the High Court in Auckland in the second half of the year. In total the cases involved nearly $100 million of fraudulently-obtained lending. After running for 12 and eight weeks respectively, both trials concluded with guilty verdicts for all the defendants.

Key players who were corrupting the banking system from the inside were brought to justice. Such prosecutions of large-scale and complex fraud protect the integrity of New Zealand's financial market place.

The trial of three associates of Kang (Thomas) Huang commenced after Mr Huang, who was the mastermind of the overall offending, pleaded guilty and was sentenced to four years and seven months' imprisonment.

As head of a group of companies that traded as LV Park, Mr Huang worked with his wife, Kang Xu, two bank employees and a lawyer to illegally gain $54 million of residential home loans. Bribes were paid to the bankers and fake documents were used to obtain the loans. The scheme, which involved 110 separate property transactions in Auckland and Hamilton, was designed to secure finance at a significantly lower rate than would otherwise have been available to commercial developers.

Gang (Richard) Chen, who acted as a solicitor in the sale and purchase agreements and facilitated the payment of bribes to bank employees, was sentenced to six years' imprisonment.

Zongliang (Charly) Jiang, a bank employee who facilitated the loans in return for bribes, was sentenced to four years and nine months' imprisonment. Another bank employee was involved in the scheme but left the country in 2015.

Kang Xu was sentenced to 12 months' home detention.

A trial of a property developer and a company director ended in a jury finding both men guilty of defrauding a bank of $41 million to develop an Auckland inner-city apartment block. Leonard John Ross and Michael James Wehipeihana were found guilty for making false statements and using forged documents to obtain a credit facility to allow their company, Emily Projects Limited, to develop the Waldorf Celestion Apartment Hotel. Sentencing was scheduled for later in 2018 after the publication of this report.

Two other men involved in the fraudulent scheme pleaded guilty before the eight week trial and were each sentenced to 10 months of home detention.

Post-Christchurch Earthquake Ponzi schemes

Two prosecutions of Ponzi scheme operators who targeted Christchurch residents concluded with the defendants pleading guilty and the imposition of lengthy jail sentences. In total, the schemes defrauded investors of more than $25 million. The fraudsters cynically manipulated people, many of whom had suffered considerable stress as a result of the earthquakes. Some of the money invested in the schemes was from Earthquake Commission payouts.

Paul Clifford Hibbs who defrauded his clients of at least $17.5 million was sentenced to eight years imprisonment. Mr Hibbs owned and operated Hansa Limited and Cameron Gladstone Investments Limited. Through these entities he provided clients with false investment reports and used their funds for unauthorised activities, which included using the proceeds from sales of clients' investments to pay other investors. Mr Hibbs also dishonestly used client money for business expenses, including paying dividends and for personal purposes.

Lance Jack Ryan used a foreign exchange platform as a façade to encourage more than 900 investors, who were mostly from the Christchurch region, to invest a total of about $8.3 million in a Ponzi scheme. Mr Ryan, also known as Lance Jared Thompson, worked with Jimmie Kevin McNicholl to run the scheme. As the sole shareholder and director of BlackfortFX, Mr McNicholl was the public face of the forex brokerage.

Mr Ryan, who already had a number of dishonesty convictions, was sentenced to seven years and six months' imprisonment. Mr McNicholl was sentenced to 11 months of home detention and ordered to pay $50,000 in reparation for obtaining the registration as a financial services provider by deception.

Public funds / charities theft

A number of our prosecutions over the last year involved charitable trusts that were responsible for looking after vulnerable people or sensitive assets. Most of them were taxpayer funded. When considering whether to take on a case, the SFO considers the scale of the alleged crime and its impact on victims, complexity and public interest. We assess too whether the alleged offending has detrimentally affected disadvantaged or vulnerable people.

The SFO prosecuted a Christchurch couple that defrauded a government-funded disability trust of nearly $500,000. Alpha Support Centre received funding from both the Ministry of Health and the Ministry of Social Development as well as from other sources.

Cecilia Ann Ellenbroek and Alfonsus Jozef Maria Ellenbroek admitted spending trust funds on their personal expenses, including extensive international travel and accommodation, jewellery and household appliances. The Ellenbroeks’ offending took place over a sustained period, was premeditated and the amount of public funds stolen was significant.

Mr and Mrs Ellenbroek had not been sentenced before the publication of this report.

Hemo Kerewai Thompson stole about $175,000 from a Hamilton-based social services provider that received government funding. She was sentenced to two years and five months' imprisonment.

Ms Thompson committed the fraud while she was the finance manager for Raukura Waikato Social Services Trust. Her offending came at a cost to people who received the trust’s support and the entity itself, which was placed into liquidation in March 2016.

Raukura had provided a range of social services to the Waikato community including residential care for children and education programmes for young people. It also assisted prisoners to reconnect with their whanau and helped them gain employment and training, and find accommodation on release.

Saul Brendon Roberts received kickbacks of more than $200,000 in relation to positions he held at two charitable trusts. He pleaded guilty and was sentenced to eight months’ home detention on corruption charges under the Secret Commissions Act. He was also ordered to pay $164,929 in reparation.

Mr Roberts received $45,000 in kickbacks for withdrawing objections he lodged, in opposition to a proposed change to a district plan. The objections were purportedly lodged on behalf of Te Kawerau Iwi Tribal Authority but were in fact lodged and withdrawn without the Authority’s knowledge. Mr Roberts was a trustee and salaried employee of Te Kawerau.

The majority of the kickbacks Mr Roberts received were through his work at Te Roopu Taurima O Manukau Trust - a provider of healthcare for people with intellectual disabilities. As its asset manager, Mr Roberts did not inform the trust that suppliers were handing him cash to obtain its business. Te Roopu received funding from various government organisations including the Ministry of Health and Accident Compensation Corporation.

Saul Robert's co-defendant, Atish Narayan, made undisclosed payments to Mr Roberts, in return for Mr Roberts arranging for vehicles owned by Te Roopu to be serviced or repaired at his businesses. Mr Narayan was sentenced to six months' home detention and ordered to pay $14,000 in reparation in October 2017.

An SFO prosecution of two former trustees who allegedly worked together to defraud a Far North Maori trust of more than $900,000 is progressing. Margaret Janene Dixon has pleaded guilty to theft charges. She was sentenced to 12 months of home detention and ordered to pay $5000 in reparation.

Stephen James Henare has pleaded not guilty to six theft charges. His trial is set down for May 2019. In addition to the charges that were laid against Ms Dixon, Mr Henare is charged with the theft of $149,627 from the trust.

Strategic plan and objectives

What we report against

This annual report summarises how our work this past year has supported the strategic focus outlined in our 2014-2018 Statement of Intent and the outcomes it contains.

2020 Strategic Plan

The SFO has developed a Strategic Plan to 2020 that guides our strategic delivery. It identifies how the agency seeks to position itself to make a strong contribution to improving New Zealand’s wellbeing and to become a stronger, more capable agency, well positioned for the future.

Strategic Plan Summary

Achieving our goals

Strategic goals:

  • Support the creation of a financial crime policy forum
  • Use intelligence to understand the financial crime landscape

Corruption poses a serious threat to the wellbeing of New Zealanders and the country’s reputation as being a place that is safe, prosperous and fair. While New Zealand has a strong culture of integrity and our institutions remain largely free from systemic corruption, the risk of corruption is increasing and may be more pervasive than is generally acknowledged. There have been significant cases recently involving bribes paid to officials, corrupt payments made within the private sector and inappropriate treatment of official information. The number of reported cases remains low overall in New Zealand, but the number of bribery and corruption-related complaints and investigations has risen over the last decade.

To understand and address the conditions that allow corruption to take root across public, private, not-for-profit and international environments, we have established an Anti-Corruption Work Programme (ACWP) in collaboration with our other government agencies. The SFO together with the Ministry of Justice have worked alongside several other key partners, including New Zealand Police, Department of the Prime Minister and Cabinet, Ministry of Business Innovation and Employment, and State Services Commission, to plan and design the programme.

The strategic objectives of the ACWP are:

  • Understand New Zealand’s corruption landscape and vulnerabilities
  • Enhance New Zealand’s capability to prevent corruption
  • Proactively detect, disrupt and enforce corrupt conduct
  • Reform New Zealand’s corruption offence framework

Taking a system-wide approach to build a framework for national anti-corruption efforts will provide a comprehensive view of New Zealand's corruption threats. The initial planning phase of the ACWP involved engaging with public sector stakeholders to understand where risks of corruption are greatest. The programme has been endorsed by Cabinet.

The ACWP will enhance New Zealand's compliance with its international obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the UN Convention Against Corruption, and ensure that New Zealand is ready to respond to emerging threats.

Strategic goals:

  • Invest in the right tools and systems
  • Have a culture of continuous improvement

The SFO has successfully implemented new case and evidence management systems to manage and analyse the increasing volumes and complexity of evidentiary documents and data. After a rigorous selection process, we selected ServiceNow as our case management system and Relativity, an international standard e-discovery platform, for evidence management. An additional $2.28 million for the technology was approved in Budget 2017 for the project. The funding covered the capital and operating costs, including ongoing support and licensing costs. The project was delivered on time in December 2017 and within budget.

The new systems have streamlined and standardised processes, reduced risk by eliminating possible points of failure, and provide greater case and resource visibility to management. Evidentiary documents and data can now be interrogated more effectively using data analytics.

Our evidence management function was restructured during the year. A systems administrator and a second full-time electronic forensic investigator have been recruited to support the new systems and undertake forensic evidence analysis. Additionally a new club-funded electronic forensics position has been established, which is supported by the SFO and New Zealand Customs Service and funded by Immigration New Zealand, the Financial Markets Authority, the Commerce Commission and the SFO. The investigator will be based at the Customs forensic lab in downtown Auckland and will work on projects across the agencies to increase their capacity to investigate computer-facilitated crime.

The SFO developed a new Human Resources Information System (HRIS) in 2018, which will significantly improve our capacity to manage human resources and other business services information. The HRIS and case management modules use the same ServiceNow platform, providing efficiencies in both usability and system administration.

Strategic goals:

  • Achieve more through effective collaboration with our NZ partners
  • Enhance connections with overseas agencies

To provide an all-of-government response to financial crime, we collaborate with other law enforcement and regulatory agencies at both an operational and strategic level.

Our main partners are:

  • New Zealand Police
  • Ministry of Justice
  • Crown Law Office
  • New Zealand Customs Service
  • Department of Internal Affairs
  • Office of the Auditor-General
  • Ministry of Business, Innovation and Employment
  • Inland Revenue
  • Commerce Commission
  • Financial Markets Authority

Operational highlights of inter-agency cooperation include continued support to NZ Police in countering the threat of organised crime in New Zealand and the successful prosecution of Paul Clifford Hibbs, a mattered referred to us by the Financial Markets Authority. We are also leading a joint operation with Customs to investigate an entity that is alleged to have created false invoices to avoid import duties.

The SFO has assisted other agencies with the investigation of cases that we referred to them that they went on to successfully prosecute. For example, we referred a matter to the Commerce Commission that resulted in that agency prosecuting a farmer who allegedly sold millions of caged eggs that he had labelled as free range.

We have run a number of stakeholder events to develop our Anti-Corruption Work Programme, which were well attended by public sector partners, academia and representatives from local government.

We established a Forensic Accounting Combined Law Agency Group in the last year. We also assisted other agencies by sharing our electronic forensic resources with them, and shared our Systems Transformation Project knowledge with other agencies. We had secondments to the Commerce Commission and to the Financial Markets Authority.

We maintained strategic partnerships with private sector stakeholders such as accounting firms and insolvency practitioners, and notably, worked with one of the major consulting firms to organise the Fraud Film Festival in March 2018.

Overseas collaboration is important. It ensures that New Zealand remains productive and prosperous. A number of offenders and matters involve third country infrastructure or nationals. In order to effectively investigate such cases, the SFO maintains a number of key overseas relationships. We provide and receive operational support and international partnerships to maintain the SFO’s awareness of international trends in financial crime. The SFO continues to fund a post at the International Anti-Corruption Coordination Centre in London. This ensures that both the SFO and NZ Police are appropriately engaged on matters relating to international corruption.

Our overseas partners include:

  • International Anti-Corruption Coordination Centre
  • Independent Commission Against Corruption Hong Kong
  • Corrupt Practices Investigation Bureau Singapore
  • UK Serious Fraud Office
  • Australian Federal Police
  • Indonesian Corruption Eradication Commission
  • Federal Bureau of Investigation

The SFO represents New Zealand at a variety of international fora in order to help the country meet its international obligations, these include:

  • APEC’s Anti-Corruption and Transparency Working Group
  • OECD Working Group on Bribery
  • United Nations Convention Against Corruption
  • Economic Crime Agencies Network

The SFO had a staff member seconded to the World Bank to work in Sri Lanka investigating corruption, and participated in a number of international events designed to raise awareness of fraud and corruption threats and identify opportunities to counter these.

We supported the Cook Islands on a complex fraud investigation that required electronic forensic assistance. We helped the Tongan Police on a passport corruption investigation.

The SFO is able to share expertise across government, providing support to other agencies’ investigations and prosecutions, both within New Zealand and the Pacific region. Assistance can include electronic forensic and forensic accounting expertise in response to agency requests.

Strategic goals:

  • Educate and interact with the community

We have continued to engage in prevention activity through the year. The SFO has presented at a number of public events, participated in organised crime workshops and contributed to other government departments’ integrity work. We presented on insider threats to Inland Revenue and assisted the Department of Internal Affairs produce anti-corruption training.

The SFO has held stakeholder events around the country, including in Wellington and Christchurch, and presented to specific sector groups, such as the New Zealand Bankers’ Association. Key messages delivered used recent case examples, including the Joanne Harrison and Auckland Transport cases. We also presented to partners from overseas jurisdictions, including representatives from Australia, Vietnam and Malaysia.

Participation in the UK Public Sector fraud forum and similar events has assisted the development of the Anti-Corruption Work Programme. SFO Director, Julie Read, presented at the International Association of Prosecutors in Beijing during the year, reflecting on the perception of New Zealand’s top rank in the annual Transparency International Corruption Perceptions Index.

Fraud Film Festival

Launched by the Minister of Justice, the Hon Andrew Little, the two-day film festival was held in March 2018 to promote awareness and stimulate debate about fraud and corruption as well as foster cross-sector collaboration in the fight against these crimes. Only by the public and private sector organisations, along with law enforcement agencies, working together can serious financial crime be effectively combatted.

People from all areas of our stakeholder community attended the two-day event which had a technology focus - with films on cybercrime and bitcoin. A resounding message and talking point was that New Zealand’s relative geographic isolation, which has been a barrier to much crime and other insidious influences in the past, offers little protection these days in our highly connected world.

The event was co-hosted by the SFO. Other festival partners included Meredith Connell, Deloitte, NZI, Transparency International, ACC and the Financial Markets Authority.

Corruption-free reputation

Transparency International ranked New Zealand’s public sector again as the least-corrupt country. New Zealand scored 89, edging ahead of Denmark in the Corruption Perceptions Index 2017 after both countries shared the first position the previous year.

The result indicates that people have a high degree of confidence in New Zealand’s public sector, and also supports the country’s reputation as being a safe place to invest and do business. There is still room to increase the score by continuing to be proactive in preventing corruption and using the data behind the index to identify opportunities to raise our standards and ensure that the country’s institutions keep up with international best practice.

The index is compiled by Transparency International, a non-government organisation, and ranks countries annually by their perceived levels of public sector corruption. The Corruption Perceptions Index captures the views of analysts, businesspeople and experts in countries around the world. It is a composite index of different international surveys and assessments of corruption, collected by a variety of institutions.

figure presenting at lecturn with audience