New rules for sentencing corporates for Fraud, Bribery and Money Laundering are billed as being the ‘Definitive Guide’ and lay out a five step process.  Yet closer examination of the guidelines may make cynics wonder if they are any guide at all when it comes to the final number.

Five steps to sticking a finger in the air?

Step one

The court must consider compensation.

Step two

The court must consider confiscation under the English money laundering laws.  Confiscation must be dealt with before, and taken into account, any other fine or financial order (excluding compensation).

Step three

The court must consider first, culpability and second, harm.

Culpability is split into three levels, high, medium and lesser.

Each of these mostly follow the pattern you would expect.  Wilful obstruction of detection – for example destroying evidence, misleading investigators and encouraging employees to give false accounts all place corporates into the high culpability camp.

Corruption of local or national government officials or ministers are a factor in assessing high culpability.  Given facilitation payments fall into this category it is hoped that a sensible approach will be taken.

Conversely a corporate will have lesser culpability if some effort is made to put bribery prevention measures in place which are insufficient to amount to the defence of ‘Adequate Procedures’.

In assessing harm it is said that the appropriate figure will normally be the gross profit from the contract obtained, retained or sought or in the case of the failure to prevent bribery offence possibly the likely cost avoided by failing to put in place appropriate measures to prevent bribery.

If actual or intended gain cannot be established the court through insufficient evidence the court may take the view that 10-20% of ‘relevant revenue’ may be an appropriate measure.

The guidance then drives a coach and horses through all of this: “There may be large cases of…bribery in which the true harm is to commerce and markets generally.  That may justify adopting a harm figure beyond the normal measures set out above.”

Step Four

Multiplier percentages are used based on the level of culpability or harm as a starting point producing a number…which can then be adjusted up or down.  Depending…

Step Five

Just in case you still don’t like the number, it can then be subject to adjustment again. Depending…

Opinion

The new rules were designed to give courts a framework to order fines in line with the levels now seen in the United States.  They have succeeded.

In spite of being billed the definitive guide with a fair amount of detail on the formula for calculating fines in the final analysis the new rules are broadly drawn and give courts massive latitude in determining the level of fines. Depending…

Corporates facing a sentence under the new sentencing guidelines or attempting to do a deal under the new Deferred Prosecution Agreement regime  will need to strongly advocate (and in the case of DPA’s negotiate) their position on what should be an appropriate level of sanction using the guidelines as a framework.

Put another way, it will be essential for lawyers and accountants to work closely together in setting out the corporate’s position when it comes to making sure fines and penalties are ‘fair’.

Unless of course, the corporate prefers to cross its fingers and rely on the number ‘produced’ by the definitive guidance ‘formula’.  We’d strongly counsel against that.