Although the perceived slow pace of investigations and prosecutions by the Serious Fraud Office ("SFO") has come in for a great deal of commentary and criticism, it does appear that the SFO is slowly but surely ramping up its efforts and has now developed an even greater arsenal of weaponry to deploy. Currently, the SFO may opt to use Civil Recovery Orders ("CROs") in place of prosecution, and has done so recently in a number of cases involving corporate crime. To that arsenal can now be added Deferred Prosecution Agreements ("DPAs"). The UK government introduced DPAs through the Crime and Courts Act 2012 and they are expected to be available for use by the SFO and the Crown Prosecution Service ("CPS") in February 2014.
Currently, CROs allow a UK enforcement agency such as the SFO to recover and confiscate the proceeds of a crime. They do not involve a criminal conviction and are intended to encourage corporations to self-report corruption and to co-operate with investigators. The use of CROs, however, has come under scrutiny by many, including a Working Group of the Organisation for Economic Co-operation and Development (OECD), who believe that the use of less transparent options such as CROs gives the impression that the SFO is not serious about the criminal prosecution of financial crimes and that corporate wrongdoers are somehow getting away with their crimes. With the availability of DPAs early next year, the SFO may turn away from CROs, although they will remain an option in the SFO enforcement arsenal.
DPAs are agreements reached between prosecutors and defendants where a corporation is accused of an economic crime like bribery, fraud or money laundering. The corporation will be formally charged with the offence but the prosecution is then suspended, conditioned upon the defendant agreeing to a number of specified conditions, such as payment of a fine, disgorgement of profits, cooperation with future prosecutions of individuals, external monitoring, and establishment or improvement of internal anti-corruption policies and procedures along with enhanced training.
On 27 June 2013, the Director of the SFO and the Director of Public Prosecutions published a draft Code of Practice for prosecutors setting out their approach to the use of DPAs as part of a consultation process due to end on 20 September 2013. The final content of the Code has not been confirmed but the draft clearly addresses the SFO’s and DPP's anticipated attitude on the use of DPAs, how they will work in practice, and what will happen in cases of breach of conditions.
What appears clear is that not all cases of corporate economic crime will be deemed suitable for a DPA. Prosecutors will likely have to consider a number of factors both for and against prosecution. For example, the factors that may be seen as in favour of prosecution would include: whether the conduct is part of the established business practices of the company, whether there has been severe economic harm to victims of the wrongdoing, evidence of a history of similar conduct, the company’s failure to report the wrongdoing within a reasonable time after it came to management’s attention, and any failure to properly and fully report the true extent of wrongdoing. Conversely, factors against prosecution might include: a proactive approach when the offending conduct is brought to the attention of management, self-reporting and remedial actions, such as the compensation of victims, the pre-existence of a meaningful corporate compliance programme, and whether the offending conduct appears to arise from isolated actions by rogue individuals.
In addition, any DPA will have to be approved by a judge before it is finalised. The judge will be required to determine, among other things, whether or not the DPA is in the interests of justice and whether its terms are fair, reasonable and proportionate to the wrong committed. Details of approved DPAs will become part of the public court record and will also be published on the prosecutor's website.
Where a defendant company breaches the terms of its DPA and the breach is deemed to be minor, it may simply be asked by the prosecuting authority to remedy the breach promptly in return for no further action. If the company fails to remedy the breach satisfactorily or if the breach is serious, the matter may be referred to the court. The court may either propose a suitable remedy, including a possible variation of the DPA, or it may order the DPA to be terminated and the corporation to face prosecution for the original offence. DPAs will also have an expiry date and once a DPA expires, if the company has complied with its terms and conditions, the prosecutor will give notice to the court that the suspended criminal proceedings should be discontinued. The company will only then no longer be at risk of prosecution.
In addition to the adoption of DPAs, on 27 June 2013 the Sentencing Council for England and Wales published draft sentencing guidelines for financial crimes such as bribery, fraud and money laundering, as well as conspiracy offences, which included specific guidelines for sentencing corporate offenders. The guidelines not only will make sentencing clearer and more consistent, but will also enable prosecutors and defence counsel to consider specific and appropriate levels of financial penalties that might be included when negotiating a DPA. The consultation period for the proposed sentencing guidelines is due to expire on 4 October 2013. The guidelines are still in draft, but their intent is clearly to provide a strong deterrent to illegal behavior. Under the draft, any fine imposed must be substantial enough to have a real economic impact on the corporate defendant and to make it clear to the corporation's management and shareholders that the business must operate within the law. If the proposed guidelines are adopted in more or less their present form, corporate sentencing thereafter will likely result in higher fines for larger companies and for more serious offences.
It is likely that both the UK government and the prosecuting authorities remain determined, regardless of perceptions and complaints to the contrary, to take ever stronger measures against bribery and corruption. This has been acknowledged as a necessary step in complying with the UK's obligations under the OECD Anti-Bribery Convention, as well as in demonstrating the country's commitment to assuring that its corporate citizens are both protected and operate with integrity under the rule of law at home and abroad.
The message to corporations conducting any business in or touching the UK remains that they must have adequate procedures and due diligence measures in place to prevent potential breaches of the Bribery Act. Regular review of those procedures is also recommended to ensure that they remain adequate for the nature and scope of a company's business, the number of employees, the number and type of third-party agents it uses and the jurisdictions in which it is active.
In addition to the UK Bribery Act, the United States is vigorously enforcing its long standing Foreign Corrupt Practices Act with corporate fines running into the billions of dollars and individuals facing both substantial fines and lengthy imprisonment. The bribery laws in China deal with both commercial bribery, conduct amounting to unfair competition that is committed by individuals or companies, and official bribery of PRC public officials. They now also deal with bribery of foreign officials and high profile show trials are increasing. In June 2013, Canada amended its anti-bribery laws to expand the grounds for corporate liability. On 1 August 2013, Brazil enacted a new anti-corruption law to establish corporate and individual liability for corrupt acts involving Brazilian and foreign public officials or government bodies.
The handwriting is clearly on the wall. Multinational corporations and indeed any business operating internationally must be alert to the fact that they are likely subject to a web of multiple anti-corruption regulations in conducting business that are not always consistent. They also must recognize the growing trend around the world towards ever more vigorous enforcement. In addition, this legal landscape is continually changing, so policies and procedures must be continually kept up to date, employees trained and compliance regularly audited.