The Sentencing Council have just published their definitive guideline on Corporate Criminal offending, just before the long awaited Code for Prosecutors on Deferred Prosecution Agreements (DPAs) is due at the end of this month.
The Guideline not only reflects the usual high standard of the Council's research and care when dealing with this subject, but also promises a much tougher regime for those corporates convicted of criminal behaviour e.g. fraud, money laundering, and bribery and corruption.
The Lord Chief Justice gave some indication of which way the wind is blowing when giving short shrift to appeals against fines handed down to Sellafield Ltd and Network Rail Infrastructure, in a very comprehensive judgement concerning fine levels for health and safety and environmental offences.
What will be of particular interest for GCs and corporate boards is the guidance for the fine levels stated within the document will have for the forthcoming DPAs. This follows the US example, where DPA fines are based upon US Federal Sentencing Guidelines.
I will deal with DPAs later in this article, but will now focus on the approach that the Courts will follow when applying the Guideline.
When dealing with a corporate offender the sentencing Court will follow this process:
- Determine any compensation to victims;
- Determine any confiscation order;
- Consider financial penalty (fine);
- Determine culpability;
- Determine levels of harm (using band multipliers in terms of percentage; there is no multiplier for low culpability levels but for medium levels x200% and higher culpability x300%);
- Consider any mitigating or aggravating factors;
- The sentencing Judge should then step back and consider the impact of the fine on the corporate; but note, these fines are designed to hurt, and if that means that the business fails then the Sentencing Council's view is 'so be it'.
This guideline will take effect on 1 October 2014 and will apply to those corporate offenders sentenced on or after that date.
The Council was at pains to emphasise that their guideline "is not for deferred prosecution agreements (DPAs) but may be used to inform the level of financial penalty that forms part of the DPA".
To be honest, there are many problems which the authorities face when attempting to prosecute corporates for criminal offences such as money laundering, fraud, and bribery and corruption. The government complains about the cost of these prosecutions and the time involved bringing them to court. The issues are actually more fundamental than that. In short, within the criminal justice system it is virtually impossible in England and Wales to bring a successful fraud or money laundering allegation against a corporate, because the system simply does not allow it. The Crown would have to determine the 'controlling mind' of the corporate and adduce an (invariably elusive) admissible evidential trail that leads straight to the board; hence the pleas from the SFO Director, David Green QC, to extend the s.7 Bribery Act 2010 to other offences (see my blog of 16/06/2013).
The SFO have used civil recovery procedures rarely against corporates in the past, but that has attracted disapproval from the OECD who complained about the lack of transparency involved.
The FCA have recently brought regulatory proceedings and levied huge fines against companies for failures concerning money laundering and bribery and corruption failings.
The Americans, on the other hand, do have the legal machinery to prosecute corporates, but seemingly prefer to resort to civil settlements in the form of non-prosecution agreements (NPAs) or deferred prosecution agreements (DPAs) and levy huge fines.
These agreements have been in the armoury of US prosecutors and regulators since the 1990s but have been used with real gusto since the beginning of the financial crisis under the Obama regime. The Ministry of Justice and UK Government have looked wistfully across the Atlantic at the apparent success of these agreements (and the eye popping fines that go with them).
However I would argue that the US approach with these types of agreements is only useful in that it adds to the cash strapped coffers of the various regulators there. There is simply no consistency or transparency to any of these agreements.
Many of them are affected by political considerations; compare the treatment of foreign corporates when compared with those of the US. There is little or no judicial scrutiny of these highly secretive agreements (despite the very vocal efforts of Judge Rakoff, his colleagues, and a cross party congressional committee).
Most corporates will fight tooth and nail and resist any admission of guilt within these agreements (because it will invariably raise the spectre of third party liability i.e. shareholders law suits, which would put most of the regulators' fines 'in the shade'), so invariably these agreements mean little in real terms. Some of the other conditions that can be put in place by the regulators can be stringent, i.e. the length of the agreement (effectively probation), and the number of compliance audits that need to be completed within a specified period.
Some insist on the appointment of an independent compliance monitor to be paid for by the offending corporate, others do not. Again, it is difficult to understand why.
The SEC (the Securities and Exchange Commission) recently signed a DPA with a named individual, whilst emphasising the degree of co-operation that they had received from him.
The whole process has spawned a massive global compliance industry and, I would submit, has engineered a parallel system of corporate problem disposal which only serves to undermine the prosecution of corporate crime.
The current complaint in the US is that not enough individuals have been brought to account by prosecutors and that the focus has been on the corporates and those huge fines. As a result the SEC declared 2014 to be the year in which they will insist on more admissions of guilt from the corporates and when they will 'go after' individuals.
The inconsistency and the political aspects of the US approach have not gone unnoticed in the UK. The judiciary loathe them and have insisted on playing a positive role within the DPA process, and have the right to scrutinise these agreements, keeping a close eye on proceedings. The Sentencing Council guidelines will assist them in this respect.
We wait to see what the SFO and CPS come up with in their definitive Code for Prosecutors, but presumably they will want to see determined efforts to quickly remedy any deficiencies within the corporates' compliance systems and early self-reporting as part of the corporates' mitigation.
But, will GCs and Compliance Officers self-report? The truth is that the cash strapped UK authorities are only going to be interested in the major, headline-grabbing situations, which are few and far between. Internal business investigations, unless handled very carefully, can be costly and unwieldy. Some GCs have recently indicated that they will only self-report on a very limited basis (if at all), because they know that the authorities do not have the funds to investigate them and are losing their quality staff to corporate compliance teams and City litigators.
Frankly, there is more to fear from a US-led investigation than from either the SFO or the CPS at present.
