Bribery Act & Proceeds of Crime - Written by on Sunday, September 11, 2011 23:38 - 0 Comments

Why self report if prosecution is likely?

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Above all else business craves certainty.  Back in March the Director of the SFO confirmed to us:

“The SFO understands the importance of certainty for corporates and wants to help with this so far as it is possible within the legal system.  Any settlement reached though has to be subject to the eventual approval of the Courts whether in the UK or in other countries.”

Criminal sentencing

The SFO have said (and we agree) that the UK powers and mechanisms within the current criminal justice system do not allow the flexibility needed to achieve certainty in settling criminal cases against corporations concerning bribery and corruption.

In the UK if a prosecution is brought against a corporate then the sentence is always decided by the judge.  There is no mechanism which guarantees that a negotiated agreement between company and prosecutor will be followed by the judge.

The criminal process is a blunt instrument.

By way of contrast the US has a scalpel in the shape of the Deferred Prosecution Agreement. Broadly this is an agreement in which the corporate defendant agrees to pay fines, penalties and implement corporate reforms. They typically follow full cooperation with an investigation.

At the end of the day, compliance with the conditions of the Deferred Prosecution Agreement – which may include corporate reforms, the appointment of a monitor and close examination of new ethical systems over a pre-determined period, results in the dismissal of the charges.

In the UK whilst there has been a concerted lobby for extension of power to enable the achievement of greater certainty and fexibility following a negotiated agreement where criminal charges have beenbrought, the position, set out at paragraph 26 of the Innospec judgement remains:

“It is clear, therefore, that the SFO cannot enter into an agreement under the laws of England and Wales with an offender as to penalty in respect of the offence charged”.

A civil solution?

Happily this is not the end of the story.

Prosecutors always have to assess whether it is in the public interest to mount a prosecution.

There have been a number of cases which have not required prosecution.

Richard Alderman, the Director of the SFO, has built upon paragraph 5 of the SFO’s published document “Approach to Dealing with Overseas Corruption”.

In the guide the SFO state’s that:

wherever possible following a self-report, full co-operation and meaningful action to address the problems uncovered and to ensure an ethical future, the SFO will proceed via the Civil route”.

Two benefits of the Civil route are:

1. The Corporate is not criminally indicted (which of itself can have serious adverse practical consequences – for example breach of loan covenants etc.);

2. There is a greater degree of certainty as to penalty – the opportunity to negotiate a final position exists in the Civil jurisdiction.

A number of civil agreements along these lines have been reached.  But  the Civil process is not a guaranteed route for those corporates who self report.

Criminal or Civil?

Against this backdrop the question of the likely outcome of a Self Report when a corporate is considering its options is important.

It is clear from the SFO that they would not be prepared to enter into civil arrangements if they are not in the public interest.

One example which the SFO says militate toward criminal investigation and prosecution is where members of the board of a corporate have been complicit in the fraud and corruption – particularly when they have benefited personally.  This is, the SFO say, aggravated further it those Board members remain on the board of the corporate.

Similarly, the SFO say (and no doubt with at least the partial objective of encouraging self reporting), if a Board ignores a problem and decides not to Self Report, upon discovery by the SFO, a criminal prosecution would be in the public interest.

These examples are not exhaustive.

There may still be (and have been) some cases where, notwithstanding a self-report and co-operation, the view will be taken that the public interest demands the criminal route.

Why self report if prosecution is a risk?

Absent any similar procedure in the UK to a US style Deferred Prosecution Agreement  the corporate is potentially faced with the very blunt instrument of a prosecution.

In these cases what is the incentive for a corporate in self reporting and co-operating with a prosecutor?

The corporate needs to know that the regulator will be fair, reasonable and constructive in its attempts to give it and in turn its stakeholders the greatest certainty and finality as to outcome that can be achieved within the current rules of procedure.

Without finality stakeholders (which could include shareholders, employees, customers and suppliers among others) un-aware of any wrongs committed at the time are exposed to risk of loss and further loss.

This would be a deeply unattractive position for any Board to contemplate.

The good news.  To date the SFO has matched its words by its actions.




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