CORPORATE CRIME AND INVESTIGATIONS BRIEFING CORPORATE CRIME AND INVESTIGATIONS SECOND ANNUAL CONFERENCE: ENFORCEMENT PERSPECTIVES Following the success of last year's inaugural event, Herbert Smith Freehills again hosted its flagship Corporate Crime and Investigations conference in London on 9 June 2015. Under the overall theme of "Enforcement Perspectives", there were keynote speeches from major enforcement bodies: David Green QC of the Serious Fraud Office, Jamie Symington of the Financial Conduct Authority, Peter McNaught of the Health and Safety Executive and Stephen Blake of the Competition and Markets Authority. Following thoughts from the agencies, discussion opened up during panel sessions featuring prominent barristers and other corporate crime specialists, including Herbert Smith Freehills partners from across Asia, Europe and the US. Attendees also enjoyed thoughts over lunch from Edward Garnier QC, Member of Parliament and architect of the UK Deferred Prosecution Agreement legislation. As Rod Fletcher noted in his opening remarks, scarcely a day goes by without new issues relevant to corporate crime dominating the press. Bringing different agencies together in this forum enabled a fascinating debate into such issues as: the increasingly global nature of many of the high profile investigations being conducted; the expectations held by the different enforcement agencies of the scope of internal investigation prior to disclosure to the authorities; and the extent and manner of expected cooperation by companies, in particular as it relates to waiver of legal professional privilege. In this e-bulletin we summarise the key themes emanating from the conference. JUNE 2015 London Table of Contents 1. The SFO Landscape - with Reflections from Asia and the US 2 2. Health and Safety Enforcement in 2015 and Beyond 3 3. FCA 2015: The Direction of Travel in Regulatory Investigations 4 4. UK Cartel Enforcement 5 RELATED LINKS > Herbert Smith Freehills > Financial Services Regulatory homepage > FSR and Corporate Crime Notes blog > Financial Services Regulatory Insights > Herbert Smith Freehills Litigation Notes > Herbert Smith Freehills Insights 1. The SFO Landscape - with Reflections from Asia and the US David Green QC, Director of the Serious Fraud Office ("SFO"), gave a keynote speech entitled "The View from Cockspur Street". He addressed four issues: corporate investigations and issues of legal professional privilege ("LPP") arising; Deferred Prosecution Agreements ("DPAs"); the extension of corporate criminal liability in the UK; and the argument for an independent SFO. A panel, comprising Herbert Smith Freehills partners Susannah Cogman (London), Kyle Wombolt (Hong Kong) and John O'Donnell (New York) and moderated by Rod Fletcher (London), discussed some of the broader themes raised by Mr Green. Mr Green dismissed any public "misconception" that the SFO did not support companies undertaking their own internal investigations into suspected wrongdoing, noting that the SFO appreciated that companies where appropriate will want to conduct their own investigation with external counsel. However, he reaffirmed the SFO's willingness to challenge companies who wrongly assert LPP over the product of such investigations, including by means of seeking a high court declaration, an inter partes application or a prosecution for failure to comply with a notice under section 2 of the Criminal Justice Act 1987. Mr Green made clear that whilst the SFO could not and should not require a company to waive properly claimed LPP, a waiver of LPP over first witness accounts would be seen as a "badge of cooperation", although this is not the only such badge. Each panellist shared experiences of dealing with the investigatory agencies in their practice regions. A common theme arising was the increased cooperation and detailed information-sharing between investigatory bodies at an international level. In that context, the panel agreed that a company cooperating with one body will generally be prepared to share the same information with other investigatory agencies in different countries. There was a lively debate about the risks of privilege waivers in respect of one agency leading to collateral waivers in respect of others, and a discussion of the availability of privilege protection under local law in some jurisdictions, particularly in Asia. Mr Green revealed that the first DPAs are expected to be completed in 2015. From the SFO's perspective, companies should approach DPA negotiations cooperatively, and not in the adversarial manner traditional in commercial litigation. Such behaviour risks the revocation of the DPA offer. Mr Green cautioned that it may not be appreciated just how high the bar is to have a DPA approved, particularly as this is a judicial decision. It is for the SFO and a company to be able to convince a judge that it is in the interests of justice for a company to escape prosecution and instead enter a DPA. Clearing that hurdle would be difficult without evidence of real cooperation. John O'Donnell noted that the US DPA model is also moving towards greater judicial oversight. Nick Purnell QC, panellist at the Conference, asked Mr Green to comment on possible future use by the SFO of civil settlement agreements (under Part V of the Proceeds of Crime Act 2002) both as a means of speeding the progress of the SFO's caseload, and of addressing the reality of presenting a case in front of a judge and jury. Amongst other points in response, Mr Green defended the success of the Roskill model and noted the utility of appointing trial counsel early on in a case in order to ensure that issues relating to trial are considered from the start. He also highlighted the appointment of Geoffrey Rivlin QC as a Special Advisor, who provides the SFO with the benefit of his extensive experience on how a case could play out at trial. Mr Green considered that the DPA would be the appropriate tool for companies who are willing to admit wrongdoing, and looked forward to building precedents in that area. Mr Green sounded a note of caution that where issues are raised to a company by a whistleblower, companies should not assume that the whistleblower has not also spoken to the SFO. Further questions were debated in that regard, as participants asked whether a self-report by a company, following preliminary investigation to establish the facts, would be "too late" to count as cooperation if a whistleblower had already spoken to the SFO. Mr Green's position was that it is not possible to give a hard and fast rule as to when to make a report in this situation. The question stimulated further discussion amongst the panellists as to the risks and timing considerations of disclosure – agreed to be a key consideration for companies facing allegations of potential wrongdoing. Rod Fletcher, Partner, London T +44 20 7466 2411 M +44 780 2216842 firstname.lastname@example.org Susannah Cogman, Partner, London T +44 20 7466 2580 M +44 780 9200135 email@example.com Kyle Wombolt, Partner, Hong Kong T +852 21014005 M +852 60380711 firstname.lastname@example.org John O'Donnell, Partner, New York T +1 917 542 7809 M +1 917 699 9036 email@example.com 2. Health and Safety Enforcement in 2015 and Beyond Peter McNaught, Chief Legal Adviser to the Health and Safety Executive ("HSE"), provided an overview of the role and function of the HSE and drew comparisons between it and other regulators in the UK. The HSE is unusual in acting as a policymaker, whilst also having powers as inspector and prosecutor. This is viewed as advantageous as the policy work of the HSE directly influences its approach to enforcement and vice versa. Looking ahead, Mr McNaught outlined some suggestions on how the HSE enforcement process might be expedited. These included bringing forward basis-of-plea discussions to an earlier stage in the enforcement process and the possibility of introducing civil penalties and DPAs. The presentation can be accessed here. Herbert Smith Freehills partner, Howard Watson (London) moderated a panel discussion comprising Mark Ellison QC of QEB Hollis Whiteman, and Herbert Smith Freehills partner, Jonathan Mattout (Paris), on the draft sentencing guidelines for health and safety offences recently published by the Sentencing Council. Even though levels of fines are outlined in the draft guidelines, these guidelines are likely to be interpreted more vigorously when sentencing very large companies and could lead to much more severe financial penalties than those typically imposed to date. Mark Ellison QC highlighted the fact that the guidelines do not stipulate levels of fines for very large companies (those whose turnover "very greatly exceeds" £50 million). However, an insight as to the judicial approach to the imposition of fines on such companies may be provided by the recent decision of the Court of Appeal in R v Thames Water Utilities 1 . A Herbert Smith Freehills note on this decision can be accessed here. Although this was an environmental case, the approach in the sentencing guidelines for environmental offences is very similar to those currently in draft for health and safety offences. The Court of Appeal had expressly drawn a comparison in the Thames Water case with fines in the financial services market and said that a sentencing court may well be justified (in the worst cases) of imposing a fine up to 100% of the defendant company's pre-tax net profit for the year in question, even if this results in fines in excess of £100 million for very large companies. Jonathan Mattout provided insight based on his experience in France on the traditional reluctance of the French judiciary to follow sentencing guidelines. He also spoke about the ongoing heated debate in France on levels of fines to be imposed on corporate defendants for regulatory breaches, including for health and safety offences. Mark Ellison QC gave his views on prosecutions under the Corporate Manslaughter Act to date. Even though no 1 R v Thames Water Utilities  EWCA 9601 prosecutions have yet been brought against large companies, his view was that that any such prosecution would raise difficult tactical considerations for the Crown Prosecution Service ("CPS") in whether to also bring gross negligence manslaughter charges against individual senior managers of the company concerned. In this regard, he discussed the difficulties of trying individuals and corporates together, including the standard for gross negligence that would be applied to each and the evidence a judge would allow in respect of an individual as opposed to a corporate. There is now a possibility that it may prove even more difficult to maintain charges of gross negligence manslaughter against individual senior managers at the same time as prosecuting large companies for corporate manslaughter, since the actions of senior managers in these company may be harder to attribute to the company as a whole. Howard Watson, Partner, London T +44 20 7466 2088 M +44 777 1917921 firstname.lastname@example.org Jonathan Mattout , Partner, Paris T +33 1 53 57 65 41 M +33 6 30 52 55 74 email@example.com 3. FCA 2015: The Direction of Travel in Regulatory Investigations A live vote by attendees set the context for a key note speech by Jamie Symington, Director of Investigations at the Financial Conduct Authority ("FCA"). The majority of attendees felt that it was too early to tell whether the FCA's agenda of "credible deterrence" was effective and similarly, a majority said they were waiting to see the proof of the Senior Managers' Regime leading to more successful enforcement of cases. Against that backdrop, and in the presence of a "sceptical and sophisticated audience", Mr Symington explained that credible deterrence is at the heart of what the FCA is seeking to achieve, with "timely and robust outcomes" designed to change behaviour within companies. He also highlighted the regulator's increased focus on individual accountability. Whilst there are encouraging signs that the "tone from the top" is changing, he said that it remained unclear whether this change has permeated through to middle management. He concluded his opening remarks by reminding companies of the importance of conducting root cause analysis, noting that the poor practices found in the LIBOR-setting scandal were found again in the more recent FX matters. A number of other topics were discussed, including how companies could facilitate the investigation procedure. In the FX context, Mr Symington noted that firms that provided information without delay moved to a faster resolution and were more likely to receive a settlement discount. However, firms did not receive a significant discount simply by acting swiftly, unless they went "above and beyond". It was noted that one of the companies fined for FX failings received a substantial penalty discount because the way it had conducted and recorded its internal interviews and investigation maximised the product shared with the FCA. Returning to the theme of privilege, Mr Symington commented that whilst companies are entitled to withhold documents created during internal investigations on the basis of LPP, that approach is not always helpful from the FCA's perspective, particularly in respect of interview memos. If a company is carrying out its own interviews, the product of those interviews should be prepared so the information can be shared, otherwise it would not be useful. Companies should therefore think carefully about not mixing legal advice with factual testimony so that interview notes can be shared with the regulator. In terms of civil litigation with third parties, the FCA is reluctant to be drawn into debates over waiver of privilege. In this regard, the FCA will not be fettered as to the onward disclosure of privileged materials provided to it by way of partial waiver. In relation to cross-border investigations, the FCA accepts that foreign regulators may impose confidentiality constraints, but it is for the company to decide when the existence of an overseas investigation should be disclosed to the FCA. Finally, it is difficult to say whether the FCA is more likely to use its new competition powers instead of relying on the Financial Services and Markets Act 2000. However, the FCA is likely to consider doing so where a breach has sector-wide implications or in a case involving an abuse of dominant position. A panel consisting of Herbert Smith Freehills partners Scott Balber (New York), Rob Hunt (Hong Kong) and Jenny Stainsby (London), gave an international perspective to this discussion, which was moderated by Andrew Procter (London). Regulators in the US and Hong Kong, like the FCA, expect companies to be open and transparent. In relation to internal investigations, Rob Hunt noted the Securities and Futures Commission's concern of evidence being inadvertently destroyed whereas the Hong Kong Monetary Authority's preferred approach is for companies to conduct their own investigations. Scott Balber highlighted that in the US, companies would not need reminding about "trampling on the crime scene", as the consequences of improperly conducting an internal investigation were well recognised. Jenny Stainsby stated that there was not enough clarity or consistency in the UK in relation to what companies are permitted to do when conducting their own investigation, or as to what other companies are doing. Mr Symington highlighted that there is no "one size fits all" solution and that decisions are made on a case-by-case basis. The view was expressed that the Senior Managers' Regime, and in particular the reverse burden of proof, would inevitably lead to conflicts between companies and individuals in cases where there had been a potential regulatory failing, which could make settlement discussions more difficult. Mr Symington concluded by saying that the purpose of the regime was "not to produce scalps". Rather, its design is to introduce more clarity around how companies are structured and where individual responsibilities lie. Andrew Procter, Partner, London T +44 20 7466 7560 M +44 780 9200645 firstname.lastname@example.org Jenny Stainsby, Partner, London T +44 20 7466 2995 M +44 776 6775129 email@example.com Scott Balber, Partner, New York T +1 917 542 7810 M +1 917 837 9866 firstname.lastname@example.org Robert Hunt, Partner, Hong Kong T +852 21014128 M +852 90350135 email@example.com 4. UK Cartel Enforcement Stephen Blake, Senior Director of Cartels and Criminal Enforcement at the Competition and Markets Authority ("CMA") discussed the cartel offences in the UK and provided an insightful overview of the CMA's enforcement powers. A panel comprising Mr Blake and Nick Purnell QC of Cloth Fair Chambers, and moderated by Herbert Smith Freehills partner, Kim Dietzel (London), debated cartel and criminal enforcement issues in the UK. The presentation can be accessed here. Mr Blake explained that the risk of being found to have been involved in a cartel is greater now than ever before as a result of the extensive enforcement powers that the CMA possesses. However, for companies or individuals that do "blow the whistle" and take advantage of the CMA's leniency regime, Mr Blake commented that the potential rewards on offer are more generous than under other whistleblower regimes – particularly in terms of possible immunity for individuals from criminal penalties. The panellists discussed a number of practical points that a party should consider before making an application for leniency to the CMA in the UK. Nick Purnell QC pointed out, in particular, the burden of giving full cooperation to the CMA throughout what can be a very lengthy investigation and document disclosure. Kim Dietzel also noted the tensions between CMA guidance on conducting internal investigations prior to a leniency application and the need for companies to have a clear understanding of the factual circumstances surrounding the cartel's activity in order to decide whether to approach the CMA for leniency. These challenges are particularly difficult when there is time pressure to come to a view quickly in case another cartellist blew the whistle first. A key issue in previous cartel enforcement cases has been whether a leniency applicant could be required to waive LPP in order to retain its immunity. The CMA has recently confirmed that the waiver of LPP is not a requirement in this regard. The panellists concluded the session by discussing the recent removal of the dishonesty element of the criminal cartel offence. The attendees were asked to consider whether price fixing arrangements should always amount to criminal conduct. The live vote response to this question was fairly polarised, with an almost-even split amongst the attendees' responses that price-fixing should always be deemed criminal or that it should only be deemed criminal if the relevant persons acted "dishonestly". Kim Dietzel, Partner, London T +44 20 7466 2387 M +44 780 9200168 firstname.lastname@example.org Dan Hudson, Partner, London T +44 20 7466 2470 M +44 780 9200312 email@example.com 11/29495791_4 6 If you would like to receive more copies of this briefing, or would like to receive Herbert Smith Freehills briefings from other practice areas, or would like to be taken off the distribution lists for such briefings, please email firstname.lastname@example.org The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on the information provided herein.