LONDON A shrinking budget may be hampering the work of the Serious Fraud Office after it dropped a string of intricate fraud probes, in moves that cast doubts on London's ability to uncover and punish white collar crime.
Like many government departments the SFO -- set up in 1988 with the power to investigate and prosecute the UK's biggest and most complex fraud cases -- is tightening its belt to cope with depleted resources as the UK tries to slash its debts.
Since 2008-2009, for instance, the SFO's budget has been cut by 34 percent to 34.1 million pounds, although its director Richard Alderman says the agency is doing more now than it did a few years ago when operating with a higher budget.
Even so, eyebrows were raised in London legal circles last month after it dropped a two-and-a-half year probe into failed hedge fund Weavering Capital just days after a Cayman Islands civil court awarded damages of $111 million (69.5 million pounds) against two fund directors and said the manager had committed "fraud".
While the SFO said there wasn't "a reasonable prospect of conviction", the decision to drop the probe was the latest in a slew of credit crisis probes it dropped without prosecution.
Many lawyers say the agency -- again in the headlines as it grapples with its role in the global investigation into suspicious advisory payments made by Japan's Olympus -- is battling to cope with dwindling resources.
"It's not the world's best-resourced organisation," Jonathan Pickworth, partner at law firm Dechert, told Reuters.
"The SFO looks jealously across at the (U.S) DoJ Fraud Section which has had better funding and a more streamlined system for achieving a good throughput of cases. The SFO has to carefully decide how to spend a limited resource."
Last year the SFO dropped probes into AIG Financial Products' UK Operations, U.S. fraudster Bernard Madoff's UK firm and hedge fund manager Dynamic Decisions, while earlier this year it ended its investigation into Keydata Investment Services. Such decisions mean the subjects of its probe remain innocent.
The SFO has scored a handful of big successes, such as BAE Systems' 30 million pound penalty last year and the 6.6 million pounds in fines and penalties levied against engineering firm Mabey & Johnson in 2009.
But it has long come in for criticism, notably for the high-profile acquittals of former boxer George Walker and of the sons of the late publishing tycoon Robert Maxwell, leading to it being dubbed the "Serious Farce Office" by satirical magazine Private Eye.
The SFO's Alderman told Reuters the SFO had become more efficient by focusing on the key elements of a case, while it makes "tough decisions" early on about which cases to pursue.
"The budget has been cut quite considerably," he said. "We have to be really astute as to how we use the money.
"We focus ruthlessly on what we want to get out of (a case), on the key areas of criminality, and we're really leaving other stuff to one side."
While lawyers think budget constraints alone are unlikely to make the SFO drop a case it thought it could win, money is nevertheless seen as putting a squeeze on the agency.
"The director says publicly that the SFO is getting more efficient even as the budget falls and effectiveness is not being reduced. That may be true, but it can only be true up to a point," said Robert Hadley, partner at K&L Gates's Securities Enforcement and Commercial Litigation units.
Driven by the cuts, the SFO may be subtly shifting its focus onto cases where it can take a share of a fine based on its role as both investigator and prosecutor.
Dechert's Pickworth said: "If there's not much money to recover, then I think they'd still go for a conviction ... (But) it's not unreasonable to suggest they'd be driven by the ones where they thought they could make a more substantial recovery as this might satisfy the public interest as well."
The SFO's Alderman denied the agency is focusing on cases where it can recover money for itself.
"Our priority is to get money back to victims," he said, although he also cites a case in Lincoln where the asset forfeiture awarded was 1 pound but says it was "still right" to prosecute.
That may be of little comfort to those still asking how far the SFO got in its probes into Weavering and Dynamic Decisions, neither of which seem to have much money left over.
While the SFO emphasized last month that the proof required in a criminal case is higher than that in a civil case, the Cayman case nevertheless found that Weavering fund manager Magnus Peterson "dishonestly dressed up the balance sheet of the Macro fund to inflate its NAV (net asset value)" and gave "the impression that it was making a steady return, when it fact it was suffering substantial losses".
Meanwhile, in an ongoing civil case in the High Court, Peterson is alleged to have backdated his fund's performance and lied to investors -- allegations he denies.
A source familiar with the matter told Reuters the SFO conducted a number of interviews with people connected with Weavering shortly after opening its case in early 2009. In May that year it made two arrests, including Peterson, but there then followed a long hiatus before further interviews took place in June and July 2010.
Jones Day, representing the liquidators in a civil action currently taking place against Peterson, has asked the SFO for meetings to discuss the decision to drop the case, although "as yet none has taken place".
The SFO's Alderman said the Weavering case had been dropped due to a lack of evidence. "It was nothing to do with costs. We'd have found the money (to prosecute)."
The decision to drop a probe into Dynamic Decisions due to a lack of evidence also raises a number of questions.
A Reuters investigation revealed in August the bonds at the centre of the probe had been issued by a company in a trailer-park suburb of Phoenix. It also found they were backed by a global network of shell companies that included a Spanish-based charity whose head was allegedly convicted for fraud.
"What we have to do is establish evidence to a much higher standard (than in a civil case)... You only have to go down to the crown court ... to realise you're in a totally different environment to a civil court," Alderman said.
(Additional reporting by Huw Jones; Editing by Sinead Cruise and Jon Loades-Carter)
Our top photos from the last 24 hours.