Over the past two years, the UK regulatory and the US criminal and regulatory authorities have issued enormous fines against a number of global investment banks in relation to a number of scandals that have hit the financial market, LIBOR and Forex being the two most high profile examples. The combined fines are in the billions, yet, until very recently, very little had been done to hold any individuals to account for their roles in the wrongdoing.
For the UK, the criticism aimed at the criminal authorities has been two-fold. It has been slow to pursue corporates and concern has also been expressed that the option for a company to defer prosecution is merely a mechanism for a company to buy itself out of trouble.
In a speech at the Cambridge Economic Crime Symposium on 7 September 2015, David Green, Director of the UK’s Serious Fraud Office (“SFO”), discussed the SFO’s take on live issues affecting the SFO.
He noted that "if the public interest, in terms of public confidence, demands more prosecution of corporates, then such change is surely necessary". Accordingly, whilst we have seen the recent conviction of Tom Hayes, and 11 other individuals are currently being investigated in relation to LIBOR charges, new investigations have been announced in relation to Global Forestry Investments, manipulation of the FX benchmark, Tesco accounting irregularities, and the Bank of England's conduct in relation to liquidity auctions.
In the context of making deferred prosecution by a corporate "main stream", David Green clarified that the intention is for such deferrals to avoid causing damage to innocent parties. The bar for awarding a deferral is high. He also called for a move away from the UK's identification principle which says that the SFO cannot prosecute a company unless they can successfully prosecute the directing mind of that company (i.e. individual senior executives), towards the US system of vicarious liability whereby an employer will be liable for the acts and emissions of its employees (provided it can be shown that they took place in the course of employment).
In the US, the Department of Justice (“DOJ”) issued new policies in relation to individual accountability for corporate wrongdoing on 9 September 2015.
The policies were announced by Deputy Attorney General Sally Yates in a memorandum (“the Yates Memorandum”) and are intended to be adopted as steps taken in any investigation of corporate misconduct. There are six key policies which, through a collaborative and strengthened pursuit of individual wrongdoing, aim to deter future illegal activity, incentivise changes in corporate behaviour, ensure the proper parties are held responsible for their actions, and to promote public confidence in justice.
Whilst these policies arise out of a working group convened by the DOJ, it is widely accepted that DOJ leaders have been making similar statements over the past year and that this is an attempt to address the public perception and criticism of the DOJ’s failure to prosecute individuals in the aftermath of the financial crisis.
The six policies set out in the Yates Memorandum are as follows:
- To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in corporate misconduct – the extent of the cooperation credit will depend on the timeliness of the cooperation, and the diligence, thoroughness, speed and proactive nature of the cooperation;
- Both criminal and civil corporate investigations should focus on individuals from the start of the investigation;
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another – consultations between departments will promote the most thorough and appropriate resolution in every case;
- Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals – lawyers must not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees;
- Corporate cases should not be resolved without a clear plan to resolve related individual cases and should the DOJ decide not to pursue an individual, they must obtain necessary approvals from the relevant Assistant Attorney General or U.S. Attorney in writing; and
- Civil attorneys should evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay – factors such as whether the person’s misconduct was serious, whether it is actionable, whether the evidence will be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest should be considered.
Reaping huge fines from global financial institutions has put individual accountability in the spot light. However, the pursuit of individuals is a much tougher affair. The Banks took their punishment no doubt partly because they needed to be able to continue to do business in the major jurisdictions in which they operate. However, individuals will not so easily accept responsibility. Procedurally and substantively, criminal prosecutors have a much tougher time pursuing individuals as they have to overcome substantial evidential hurdles, legal technicalities and a higher burden of proof, namely 'beyond all reasonable doubt'.
The Tom Hayes case was exceptional and it is unlikely that prosecutors will have such favourable circumstances in any other cases going forward. The result is that whilst a lot is being said about individual accountability, it is likely to remain the case that holding the corporate to account is always going to be a much easier affair.