What are the key changes/themes in the guideline that lawyers need to be aware of?
On 31 January 2014, the Sentencing Council published its definitive guideline on the sentencing of corporate offenders found guilty of offences for fraud, bribery and money laundering (the 'Corporate Guidelines') which apply to any organisation or body, including companies, local authorities, partnerships and charities, but not to individuals, sentenced on or after 1 October 2014 (regardless of the date of offence).
The Sentencing Council brought forward its already planned work on fraud, bribery and money laundering due to the introduction into the UK of deferred prosecution agreements (DPAs) which became available to UK prosecutors on 24 February 2014. The level of a fine imposed as part of a DPA will be equivalent to a fine on a guilty plea. At the consultation stage, the Sentencing Council noted that it intends the Corporate Guidelines to 'be of assistance as a point of reference when fine levels within DPAs are being considered and negotiated'. In any event, they will operate as a definitive guideline in cases where organisations are prosecuted for, and convicted of, offences covered by the Corporate Guidelines.
The Corporate Guidelines set out a matrix of factors which a court will use to determine the level of fines, including:
- consideration of confiscation and compensation orders
- analysis of culpability and harm, and
- the application of a multiplier subject to aggravating or mitigating features
The Corporate Guidelines allow for the application of a broad range of factors in arriving at a fine which must be substantial enough to have a 'real economic impact which will bring home to both management and shareholders the need to operate within the law'.
In short, the intention is plainly to build a regime which will exact retribution on corporates found guilty of financial crime and to reinforce the deterrent effect. The Corporate Guidelines provide the courts with significant opportunity and flexibility to impose much more significant fines than levied in the UK in the past.
The Corporate Guidelines were republished without change on 23 May 2014 alongside guidelines for the sentencing of individual offenders in relation to offences of fraud, possessing, making or supplying articles for use in fraud, revenue fraud, benefit fraud, money laundering, and bribery (the 'Individual Guidelines') which apply to those sentenced on or after 1 October 2014 (regardless of the date of offence).
What are the concerns around the current sentencing for this type of offences?
At consultation stage, the Sentencing Council noted:
'There have been very few criminal prosecutions of organisations for the offences covered by this guideline and consequently no established sentencing practice for organisations. The only punishment available for an organisation convicted of these offences is a fine. There is currently no guideline for sentencing organisations convicted of financial crimes.'
Against a backdrop of a lack of formal sentencing guidance, greater post-credit crunch emphasis on bringing corporates to account, and some criticism of the UK's record in bringing effective prosecutions against corporates for financial crime (from the Organisation for Economic Co-operation and Development, among others) the Sentencing Council sought to introduce guidelines to remove profit gained by corporates from criminal conduct and to impose a penalty of real economic impact on the offender and its shareholders.
That said, the publication of the Corporate Guidelines does not change the historic difficulties UK prosecutors have had in successfully prosecuting corporates alleged to have engaged in criminal conduct. The problem lies in founding corporate criminal liability which, in the absence of legislation which expressly creates criminal liability (such as the corporate offence under the Bribery Act 2010 (BA 2010)), requires the UK prosecutors to identify the 'directing mind and will' of the corporate.
The Serious Fraud Office (SFO), in particular, faces some challenges. The UK prosecutor's record in bringing successful criminal proceedings against corporates for economic crime remains limited. To date, we await the first conviction of a corporate under BA 2010. The UK press recently reported that the SFO had asked the government for more funding for large-scale enquiries. The SFO's budget is reported to have fallen from £52m in 2008 to £32m in 2013/14. While the SFO has reiterated its primary role as a prosecutor, it remains to be seen whether the SFO can bring effective prosecutions against large, multi-national businesses in which the court might apply the broad discretion afforded by the Corporate Guidelines, and whether the fines imposed in the UK, as calculated under the guidelines, will reach the levels seen in the US where fines of hundreds of millions (if not billions) of dollars are becoming the norm.
The Corporate Guidelines also do nothing to assist the resolution of global settlements with multiple prosecution agencies.
The Individual Guidelines place victim impact at the centre of considerations of what sentence the offender should get (rather than simply as an aggravating factor). Harm is described more broadly to reflect the varied physical, psychological and emotional impact which varied types of fraud may have on victims.
What are the implications for lawyers and their clients?
The Corporate Guidelines indicate a determination on the part of the UK authorities to implement credible deterrents to illegal conduct by businesses. Economic crime, even at relatively low levels, may now result in, potentially crippling, fines on large, multi-national businesses.
Significantly, the Corporate Guidelines provide that where the actual or intended gain cannot be established, 'the appropriate measure [of gain] will be the amount the court considers was likely to be achieved in all the circumstances'. For example, where there is insufficient evidence of the amount that was likely to be obtained, '10-20% of the relevant revenue (for instance, by reference to the worldwide revenue derived from the product or business area to which the offence relates for the period of the offending) may be an appropriate measure'. This potential pegging of fines to a percentage of worldwide business revenues, for example, provides the courts with significant opportunity and flexibility to impose much more significant fines than levied in the UK in the past.
What should lawyers be aware of when advising in this area?
Lawyers and their clients should carefully consider the deterrent effect of the Corporate Guidelines which reinforce the importance of:
- proactive compliance, including decisions to make admissions or self-report where appropriate
- co-operation with regulators, and
- the compensation of victims
Companies and their advisers will also be encouraged to examine the extent to which management change within the organisation might mitigate risk to the business. Endemic illegal activity, attempts at concealing conduct, and a wider culture of wilful disregard of the commission of offences, will aggravate the financial penalty that might be imposed.
The change of focus of the Individual Guidelines may lead to higher sentences for some offenders compared to the current guideline, particularly where the financial loss is relatively small but the impact on the victim is high.
How does this fit in with other developments in this area?
The Corporate Guidelines come into effect at a crucial time in the expansion of the UK prosecutors' prosecutorial armoury against corporate crime.
There is no doubt that the fines imposed by the UK courts against corporates will be more substantial. In R v Innospec Ltd  Crim LR 665, Thomas LJ commented:
'[that] there is every reason for states to adopt a uniform approach to financial penalties for corruption of for-eign government officials...I approach sentencing on the basis that a fine comparable to that imposed in the US would have been the starting point.'
It remains to be seen whether the fines imposed in the UK will reach the levels seen in the US--the guidelines are less mathematical than the US Federal Sentencing guidelines, but provide for sufficient discretion to guard against corporates seeking to take advantage of the system. Corporates and their advisers now have greater clarity and transparency in relation to UK sentencing, but will only get a proper feel for the likely approach of the courts when the Corporate Guidelines are applied in practice (directly or by reference as part of a DPA).
The Corporate Guidelines will provide an important reference in the context of negotiating DPAs which are likely to include a term for a financial penalty, the sum of which must be broadly comparable to the fine that would have been imposed if the party had entered a guilty plea. Having been given the tools, the test is now for the UK prosecutors to bring effective prosecution proceedings. The first DPA is awaited eagerly.
The director of the SFO has called for the corporate offence under BA 2010 to be extended to 'all acts of financial crime', which might give greater scope for the application of the Corporate Guidelines, but legislation is not going to be forthcoming in the present parliamentary session.
The Individual Guidelines increase the emphasis on the effects on victims of fraud in the sentencing process and mark the first time that there has been a guideline for the sentencing of money laundering. The UK National Fraud Authority's Annual Fraud Indicator 2013 estimates that the loss to the UK from fraud now amounts to £52bn. The impact of this new approach to on the increasing sophistication of fraudulent conduct, including insider fraud and cyber-crime, remains to be seen.
This article was first published by LexisPSL Corporate Crime on 6 June 2014