U.K.: Corporate criminal liability: sanctions, sentences and proposals for reform
The liability of corporates for the wrongdoings of their staff has been a topic of much discussion in the UK in 2014 and is one that looks set to become a major issue in 2015.
Under UK law, in order to hold a company liable for the unlawful activities of individuals operating on the company’s behalf, it is necessary to demonstrate that a controlling “mind and will” of the company knew of the wrongful conduct. In practice, this is notoriously difficult to show. The government has therefore been looking at ways in which to make it easier for prosecutors to hold companies to account for financial wrong-doing, for example, by extending the strict liability offence under section 7 of Bribery Act 2010 (the “Act”) of failing to prevent bribery by associated persons (the so-called “corporate offence”) to crimes other than bribery, or by encouraging companies to self-report wrong-doing.
In that regard, the Attorney General for England and Wales, Jeremy Wright, indicated recently that the government is considering introducing a general corporate offence of failing to prevent economic crime, including fraud, modelled on the offence under section 7 of the Act. As with that offence, a statutory defence that adequate procedures were in place to prevent such conduct, would be provided. Such a move would be supported by David Green, director of the Serious Fraud Office (“SFO”), who has long advocated the extension of section 7 of the Act to offences other than bribery. However, proposals to extend the ambit of an as yet untested piece of legislation have been criticised. The introduction of such an offence would also be controversial as conviction of financial crime could result in a company being blacklisted from tendering for public contracts in certain countries or could affect a company’s ability to obtain finance from entities such as the World Bank. In practice, it is unlikely that any headway will be made on these proposals until after May 2015’s general election.
Given the acknowledged difficulties in proving corporate liability, David Green has also been attempting to encourage companies to self report their wrongdoing to the SFO. The promotion of such behaviour was one motive behind the introduction into UK law, in February 2014, of deferred prosecution agreements (“DPAs”). These agreements provide a procedure by which commercial organisations that uncover financial wrongdoing within their enterprise can agree with the SFO to a series of civil penalties (such as a fine, payment of compensation, review and monitoring), in return for which the SFO agrees not to pursue a criminal prosecution. DPAs are specifically aimed at financial wrongdoing, including bribery and corruption. The advantage for would-be defendants is that they escape the cost and damage to their reputation of a criminal trial and penalties are, in theory, reduced. Dealing with the matter civilly also means the company is not faced with potential debarment from bidding for public contracts. However, no DPA has yet been entered into so it is not yet clear how popular or frequent such agreements will be in practice.
The decision of whether or not to accept the SFO's offer of a DPA will require a company to make a careful assessment of its situation. New guidelines for sentencing in fraud, bribery and corruption cases, which came into force on 1 October 2014, set out levels of financial and other penalties for these offences which may well result in tougher sentences for corporates than has hitherto been the norm.
Co-operation with the authorities will be one of the main factors taken into account by the SFO when considering both whether to offer a DPA and what an appropriate penalty for the offence might be. However, it has become clear recently that co-operation is likely to include waiver of legal privilege over documents such as the notes of any interviews with witnesses, (such as employees) that the company may have conducted in the course of any internal investigation before approaching the SFO. Since one thing a company considering self-reporting wrongdoing will have to consider is the likelihood of any prosecution proving successful in any event, it is easy to see how this issue is set to run and run.