I recently attended a Fraud Conference in Miami where I heard a French lawyer insisting that since he was a defence advocate, his job was to defend his clients against fraud allegations, not to prosecute them. Instead of cosying up to the authorities, and self-reporting, he regarded it as his duty to challenge the prosecutor and make his or her life as difficult as possible. France does not have a system of deferred or non-prosecution agreements, so if the magistrate decides to run a case, there will be a trial. The reminder that there is still such a thing as a duty to defend your client, and that this will lead in the end to a trial, came as a pleasant surprise.
If you are a legal conference junkie, with a penchant for economic crime, you will, like me, have spent a good deal of time recently listening to ‘key-note speeches’ by law enforcement authorities about ‘enforcement trends’, and in particular the virtues, and the many and various ways, of assisting them with their enquiries. In what clearly appears to my French friend to be a reversal of roles, the Serious Fraud Office, the Department of Justice and others seem to expect corporate offenders to fall on their swords, investigate their own wrong-doing, produce a mea culpa report, and negotiate an outcome.
Equally vociferous have been the white collar crime lawyers, like me, selling their investigatory and negotiating wares, and discussing the finer points of LPP in the context of internal investigations, the real meaning of the ‘Yates Memorandum’, the advantages of a negotiated settlement, including the newly introduced UK version of the Deferred Prosecution Agreement, and what to do when faced with a section 7 Bribery Act 2010 rap.
The US has, of course, been running a DPA practice for the last decade, prompted at least in part by the Enron/Arthur Andersen debacle, and there have been numerous DPA outcomes. The UK only caught up with this idea early last year, and we are still awaiting the first concluded DPA, although we have been assured that there will be a couple by the year end. Much speculation surrounds which corporate will be first past the post - and even more about how a UK DPA will work out in practice.
The US version has come under criticism from various quarters recently, the complaint generally being that the approach adopted by prosecutors has been far too casual, and the outcomes of too many cases have meant that law enforcement has been able to chalk up a ‘victory’, and a big fine, while the corporate has escaped with little real damage to either purse or reputation. Recent reports suggest that the authorities have lost the files recording the agreements, and cannot even remember some of the actions that have been taken.
It is claimed that the UK DPA process will have more teeth, because it will be overseen by a senior judge, who will importantly have to declare at the outset that the agreement is in the public interest; as well as ultimately approving the terms of the settlement.
UK fraud lawyers eagerly await the first fruits of the laborious process of reaching this point. Of course they will want to study the legal implications, and to pore over the terms of the agreement, and the extent of judicial interference. But a major benefit for conference organisers, speakers and attendees alike will be that it will give much needed new talking points to fill the programmes of fraud and corruption conferences. What level of co-operation is needed to secure a DPA? How will LPP be dealt with? What impact will a failure to waive privilege have on the question co-operation? Will expensive ‘Monitors’ be appointed to check up on compliance procedures? Will senior executives, and others, be ‘thrown under the bus’ in the wake of the DPA, and end up facing trial? Importantly, what will be the reaction of the Great British Public to the fact that a corrupt or dishonest company has paid a form of fine, and been told to mend its ways, but has not been criminally convicted of any offence? Will it be seen as a cost of doing business, or a slap on the wrist? What reputational damage will a DPA cause? How will it impact on the share price? In short, will it create any kind of a stir, save amongst those who are desperate for something new to say at the next fraud conference?
Another Big Issue is how section 7 of the Bribery Act 2010 will work in practice? Section 7, as is well known to anyone likely to read this blog, introduced a strict liability offence of failing to prevent bribery: if an associate of the company bribes a third party, the company is guilty of an offence under the section, unless it can show that it had adequate procedures in place to prevent bribery. Under section 9 of the Act the Secretary of State was required to publish guidance ‘about procedures that relevant corporations can put in place’ to prevent bribery. The Guidance that was published by the Ministry of Justice in March 2011 runs to 30 pages.
This has given rise to a bonanza for lawyers and accountants, providing advice and compliance packages to corporations to seek to prevent bribery taking place, and to assist them to claim that they have adequate procedures. This could present an interesting crux: on the one hand, if any act of bribery has taken place, in spite of whatever procedures are in place, it might be said that, ipso facto, the procedures were not adequate. On the other hand, a corporation might well argue that, having spent large sums on advice from top lawyers and accountants, they were entitled to believe that their procedures were adequate.
Much of the advice given, and the procedures put in place, will be risk driven. Will there be room for argument that the problem that gave rise to bribery was not a recognised, or foreseeable, risk? That the corporation had adequate procedures, judged by common standards, but nevertheless committed an offence by failing to cater for an unusual risk?
No charges under section 7 have yet been preferred, in spite of the fact that the provision has been in force since April 2011, so once again the world of fraud and bribery conferencing is eagerly awaiting an outcome, so that programmes can be refreshed. At that point the SFO will be able to explain how it considers the adequacy of procedures. Defending lawyers will be able to put a spin on that explanation. But it may be anticipated that most corporations facing a section 7 charge will seek a DPA. If this is the case, it may be some time before a section 7 is case being fought out in front of a jury, and, if the prosecution succeeds, appealed, and therefore real answers to the question of what adequate procedures look like will have to wait. In this context, it may be noted that there is a similar offence, albeit applying to individuals rather than corporates, now in regulation 45 of the Money Laundering Regulations 2007, but originally introduced in 1993. This offence has never, in more than 20 years, been prosecuted. Given that the focus on money laundering has, over the years, been every bit as ferocious as that on bribery, it may be worth considering why the offence has not been deployed.
There is a curious coda to the section 7 debate: for the last two or three years there has been pressure from prosecutors, and supported in the UK Anti-Corruption Plan published in 2014, to introduce a new offence, modelled on section 7: failing to prevent economic crime. The genesis of this proposal may well have been the perceived need to be able to punish, in future, those banks whose employees are alleged to have behaved unethically, as in the Libor and Forex cases. However, the Ministry of Justice has now rejected the proposal, stating on 28 September 2015: ‘there is little evidence of corporate wrongdoing going unpunished in the UK’.
There will, inevitably, be some unexpected complications and unintended consequences of both DPAs and section 7. Take privilege: the right to assert privilege is a cornerstone of UK European and US law. A realistic concern for a corporate defendant is that any privilege waiver will open the gates to assertions in later civil claims that privilege has been waived for all purposes. But how far can a prosecutor go towards insisting that privilege should be waived if a corporation is to get the full benefit of the co-operation discount? The messages on this have been subtly conflicting: of course an accused is entitled to maintain a claim of litigation and/or legal advice privilege, and will not be judged uncooperative if he does so. However, if the claim of privilege is based on spurious grounds, any assertion that the corporate has fully co-operated will be seriously undermined. Even if privilege is rightly asserted, there will be some residual sense that co-operation has not been full and frank. It might weigh in the balance, however many arguments and precedents are paraded in support of the position.
This leads on to a second unintended consequence: the ground will be trampled by the internal investigation, and this will make the task of law enforcement much more difficult when it comes to their turn to examine the evidence. David Green QC has expressed concerns about this, for understandable reasons. A witness who changes his evidence between his first account in the internal investigation and the evidence he gives in court is a hostage to fortune. If a prosecutor does not know about the change of account, he is at a serious disadvantage. Therefore, the investigator is not significantly assisted by the enquiries carried out by, or on behalf of, the corporate, which he must treat with a good deal of circumspection, and he must almost always carry out a full investigation in any event, which will have to include a review of the internal investigation. While the corporate must, of course, carry out work to satisfy itself that there is a problem that needs to be shared with law enforcement, it needs to consider carefully the point at which to down tools and hand over to the police. Arguably, this should be sooner rather than later.
One final point: what will criminal courts make of allegations of bribery made against individuals based on an internal report that has as its predominant purpose the obtaining of leniency for the corporate offender, but where law enforcement has demanded the provision of evidence against individuals as a pre-requisite for obtaining such leniency? How will judges and juries deal with questions of fairness and integrity when faced with the proposition that such defendants have been sacrificed by the company in order to buy leniency for itself? One answer to this is that it is no different from the position where a participating informant buys his liberty by giving evidence against his co-accused under the provisions in section 71 of the Serious Organised Crime and Police Act. That evidence will be attacked as being self-serving, and sometimes it will not work for the prosecution, but the process is seen by law enforcement as a proper means of securing convictions where other means have failed. The leniency provisions in the Enterprise Act 2002 may also be compared, although I am only aware of them being used in the British Airways/Virgin case in 2010. The case against four BA executives was humiliatingly dismissed when Virgin, which had received immunity by reporting its participation with BA in price fixing agreements, failed to disclose relevant evidence.
Therefore, is it just possible that my French colleague is right: the introduction of alternative dispute resolution to criminal fraud cases risks leading to an artificial process where the established norms of the adversarial trial of criminal allegations, with all its checks and balances, will disappear, to be replaced by a mess that will satisfy no one. Put another way, would it not be simpler just to cut out the middle man, and for law enforcement to investigate and bring to trial those cases where criminal offences are made out? Sure, in some cases corporates might bring to their attention matters which otherwise would not come to light, and the emphasis on better compliance has arguably reduced levels of bribery, but only time will tell whether this has really shown the kind of dividends that justify a significant subversion of due process.