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Table of Contents
1. Background 2. The process for sentencing corporate offenders 2 2
3. Key Points from the Sentencing Council's Response to the Consultation 3 4. Director of the SFO on DPAs and the Future of Corporate Criminal Liability 4
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In this briefing, we summarise the Guideline, outline some of the key issues raised in the Consultation responses, and look forward to possible future changes in corporate criminal liability.
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Key Points
The basic structure of the Guideline remains unchanged from the Consultation draft; The most important steps in determining a fine remain that the Court will assess the actual or intended 'gain' (or loss avoided) by the company in the commission of the offence then adjust it according to the 'culpability level' taking into account a range of aggravating and mitigating factors corresponding to the behaviour of the offenderfrom its corporate culture and the circumstances of the commission of the crime, to its response to the offence both internally and in its dealings with investigators/prosecutors; There have been some relatively minor, but helpful, adjustments to the aggravating and mitigating factors as compared to the Consultation draft. However, the culpability level % multipliers remain the same; The 'backstop' measurement of gain (used where the court cannot establish the actual or intended gain the corporate has made from the offence) has increased from 10% to between 10-20% of the worldwide revenue derived from the product or business area to which the offence relates, for the period of the offending. However, the Consultation response confirms that this is intended to incentivise companies to provide information to assist in sentencing, rather than to be used in the normal course; The Director of the Serious Fraud Office and Director of Public Prosecutions published their joint Code of Practice for the use of DPAs on 14 February 2014. We will issue a full briefing on the Code of Practice in the coming weeks.
1. Background
The Guideline is the first of its kind to set out a process for dealing with corporate offenders (a term intended to cover any organisation or body, including partnerships and charities) convicted of fraud, bribery or money laundering. The Guideline identifies ranges of appropriate financial penalties and the aggravating and mitigating factors which determine where in the range a particular case should fall. The Council noted that there have been very few criminal prosecutions of organisations for economic offences, and consequently no well-established sentencing practice exists. Therefore, the Council has drawn inspiration from guidance on criminal and civil penalties imposed on corporates in other contexts, including in the US, as well as test cases provided by the SFO in its response to the consultation on the draft guideline. There is no upper limit on the amount that can be imposed by the Crown Court by way of a fine for fraud, bribery and money laundering offences. Corporate penalties can be substantial particularly as the amount of a fine will be determined, in part, by the intended and not just the actual gain made or loss avoided. The Guideline seeks to replicate rather than alter existing sentencing practice and is not intended to result in an increase in the fine levels for corporate offenders, but the relative absence of examples to date means that there is a "heightened" risk that the Guideline could have "unanticipated effects" on sentence levels, according to the Resource Assessment accompanying the consultation on the draft Guideline. The wide range of circumstances in which corporate economic offences can be committed, and the wide range of corporations, makes it likely that there will continue to be a considerable range in the amount of any fines imposed.
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4.
The fourth step is to identify the appropriate starting point and sentencing range, by multiplying the harm figure derived from the calculations conducted at step three by a percentage figure reflecting culpability: Culpability Level High Harm figure multiplier Starting point Category Range 300% 250 to 400% Medium 200% 100% to 300% Lesser 100% 20% to 150%
This is a technique imported from US practice. In determining where within the category range the offence falls, and indeed whether it falls outside the normal range, the court will consider whether there are any aggravating or mitigating factors, by reference to non-exhaustive lists of factors reflecting the "seriousness" of the offence and "personal" mitigation. 5. At the fifth step, the court can then adjust the penalty upwards or downwards in order to ensure that it is proportionate to the corporation's size and financial position, the seriousness of the offence and any "unacceptable" harm the payment of a fine might cause to third parties. The overriding consideration should, however, be to "bring home" to management and shareholders alike the need to operate within the law if necessary, in "some bad cases", by a fine which would put the organisation out of business. This consideration may not translate easily for any financial penalty to be imposed as part of a DPA given that one of the stated rationales for introducing DPAs was to avoid unintended detrimental consequences for past and present employees, customers, investors and suppliers if the effect of a prosecution would be to put the company out of business. However, the Guideline does suggest that the court should be mindful of any impact a fine would have on staff employment, service users, customers and the local economy as well as the corporate's ability to implement effective compliance programmes (but not, as noted above, the interests of shareholders). 6. Credit for any assistance provided by the corporation (over and above merely complying with any coercive measures) is factored in at step six, to reduce the amount of the fine. The court may also consider any other rule of law by which an offender may receive a discounted sentence in consequence of assistance given (or offered) to the prosecutor or investigator. Further credit for any early guilty plea (traditionally up to a third), is factored in at step seven. Notably the amount of credit given for assistance (at step six) and for guilty pleas is the subject of a separate sentencing guideline, as well as statutory and judicial guidance. The court will then consider whether to impose any further orders on the corporation, such as a deprivation order, a financial reporting order and/or a serious crime prevention order. If the corporation is being sentenced for multiple offences, step nine requires the court to consider whether the total sentence is just and proportionate to the offences taken as whole (the "totality principle").
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8. 9.
10. Finally, the Guideline restates the court's obligation to give reasons for and to explain the effect of its sentence.
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Corporate culture: The Council has added the category of 'Wilful obstruction of detection (for example destruction of evidence, misleading investigators, suborning employees)' to the non-exhaustive list of characteristics indicating high culpability. In addition to this, offenders who are being prosecuted for offences under the Bribery Act demonstrate high culpability where there is a culture of wilful disregard of the commission of offences by employees or agents and no effort has been made to put effective systems in place, as opposed to lesser culpability where some effort has been made, but was inadequate to a degree. In this way the guideline encourages the courts identify and punish bad corporate culture. Aggravating/mitigating factors: A few other amendments have been made to the culpability and aggravating/mitigating factors. Generally, these are helpful. For example, a suggestion by the GC100 that "involvement through coercion, intimidation or exploitation" be added as a lesser culpability factor has been taken up. The reference to "early active cooperation" has been removed, given the overlap with the "Corporation cooperated with the investigation" factor. Rejection of SFO's proposal: The Sentencing Council rejected an alternative proposal by the SFO, which sought to set the sentence by reference to turnover in all cases. The Sentencing Council, rightly in our view, rejected this proposal as it would result in the level of fine being determined more by corporate structure that the merits of the case.
4. Director of the SFO on DPAs and the Future of Corporate Criminal Liability
The Director of the Serious Fraud Office and Director of Public Prosecutions published their joint Code of Practice for the use of DPAs on 14 February 2014. Director of the SFO, David Green QC, continues to reiterate his position that the principle contained within s. 7 of the Bribery Act, which creates the corporate offence of a company failing to prevent bribery by its employees (with the statutory defence of adequate procedures) should be extended to cover other criminal acts of corporate personnel (including the other economic crimes which are the subject of the Sentencing Council Guideline). The Director argues that the prosecution of a corporate would be appropriate in circumstances where: the company profited from the offence of its employees; a particular illegal practice was common and tolerated in a particular sector; deterrence was needed in a sector; or the senior management of a company have failed to enforce its own compliance regime.
In relation to DPAs Green stated that "[s]uch a change would also cure a problem inherent in the DPA regime. If prosecution of a corporate is currently difficult, why should a corporate agree to enter a DPA at all? DPA's represent a very useful addition to the prosecutors' toolbox for use in appropriate circumstances. They avoid the collateral damage caused by a full blown prosecution of a corporate. They are not a panacea." Any such changes would have far-reaching implications for companies from the perspective of both legal risk and compliance programs. Reform of the rules on corporate liability has now been called for by a number of stakeholders and development of the law seems inevitable at some stage. However, the scope and timing of any change is very unclear and it will be critical to ensure that any proposals are subject to rigorous scrutiny and debate. In the interim, DPAs and the new Sentencing Council Guideline represent a real change to the corporate crime landscape but their true utility and significance will only become apparent with time and when complemented by further reform.
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5. Contacts
Rod Fletcher (partner) T +44 20 7466 2411 M + 44 780 2216842 rod.fletcher@hsf.com
Susannah Cogman (partner) T +44 20 7466 2580 M +44 780 9200135 susannah.cogman@hsf.com
Daniel Hudson (partner) T +44 20 7466 2470 M +44 780 9200312 daniel.hudson@hsf.com
Graham More (consultant) T +44 20 7466 2002 M +44 7912 394316 graham.more@hsf.com
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