Securing corporate convictions: differences between the US and UK

April 2021 | SPOTLIGHT | FRAUD & CORRUPTION

Financier Worldwide Magazine

April 2021 Issue

This article explores the key differences between prosecuting corporates in the US and the UK.

Theories of liability

Unlike the UK’s ‘identification’ principle, US prosecutors have theories of liability at their disposal that are, at least on their face, satisfied more readily. The key principle that results in corporate criminal liability in the US is that of ‘respondent superior’, which in effect means that a company can be criminally responsible for any and all of its employees’ acts that are carried out for the benefit of the company during the course of the employees’ employment.

In contrast, in England and Wales the ‘identification principle’ requires that the ‘directing mind and will’ of an organisation be responsible for a crime, for the organisation itself to be prosecuted. That ‘directing mind and will’ is often a company officer, such as a director, but could be another senior executive. Individuals who are not involved in day-to-day senior decision making will not meet this criterion.

In small organisations, it is generally easier to demonstrate to a jury who the ‘directing mind and will’ of the company are, and how their actions interplayed with those of the criminal wrongdoer. However, increasingly companies have an international presence and senior executives who are leading the company may be thousands of miles away, both geographically and metaphorically, from those who have committed the crime.

Self-reporting

The US has, comparably, a more mature approach to self-reporting, that in principle make it more attractive an option for a company seeking to limit exposure to potential uncovered criminal wrongdoing. As a general statement, companies self-reporting crime have greater certainty of the potential mitigation credit available to it for self-reporting.

Specifically, in respect of the Foreign Corrupt Practices Act (FCPA), the closest equivalent to the UK’s Bribery Act, the Department of Justice (DOJ) operates a programme that effectively means that a company self-reporting FCPA violations can expect either a rebuttable presumption of a declination of criminal charges, or, where charges are warranted, a 50 percent reduction of the penalty that will be assessed on the low-end range of the applicable sentencing guidelines. Beyond FCPA violations, and while not as formalised as the FCPA programme, the Criminal Division of the DOJ has released non-binding guidance and made statements to the effect that it will seek to apply the principles of this FCPA programme to other types of self-reported criminal wrongdoing. This programme and policy have more nuance to it that does not make it as clear a choice to self-report as it may seem on its face, but it is still far-removed from the comparable uncertain regime which exists in the UK.

In the UK, corporate self-reporting is most commonly encountered in crimes being investigated by the Serious Fraud Office (SFO). Whether or not the SFO will prosecute a corporate body in a given case is governed by applying the ‘full code test’, which sets out evidential standards that have to be met, and public interest factors to be applied, when prosecuting decisions are made.

If, on the evidence, there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration when making charging decisions. For a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. SFO guidance expects that corporates will identify suspected wrongdoing, preserve all evidence and a report will need to be made to the SFO within a reasonable time. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.

The official SFO guidance is somewhat undermined by the fact that companies that have not self-reported have gone on to be offered and have accepted deferred prosecution agreements (DPAs).

The use of plea agreements and cooperators

Another distinction between the US and the UK is the comparable frequent use of plea agreements offered to individuals that, generally speaking, enables a prosecutor to secure the cooperation and testimony of an individual accused of wrongdoing, which can in turn then be used to further an investigation against a corporate and other individuals who are more senior in the company or more at the centre of the alleged misconduct.

In principle, and without commenting on the probity of this practice and the testimony it results in, the fact of the substance of testimony from such a cooperator, truthful or not, can obviously be an effective rod to wield against a business.

Although the SFO has made no secret of its desire to move toward a US-style model of the common use of cooperators, there are several practical issues with this. There is no equivalent US-style plea deal available in the UK.

There is a mechanism under Section 71 of the Serious Organised Crime and Police Act 2005 (SOCPA) which does allow the SFO to offer an individual immunity from prosecution by issuing a written ‘immunity notice’. However, Section 71 of SOCPA is rarely used. The requirements on an informer to obtain an immunity notice are onerous. An individual must fully admit their own involvement in the crime or crimes under investigation, they must provide investigators with all the information available to them regarding the matters under investigation and those involved and they must agree to maintain continuous and complete cooperation throughout the investigation and until the conclusion of any criminal or other proceedings arising from the investigation, which can of course include giving evidence in court. Much of the information must be given before an agreement to immunity can be offered.

There are no official figures, despite a recent Freedom of Information Act 2000 request asking for the figures for agreements reached under this legislation. The SFO refused to respond to the request. Practitioners, however, report that they are very rarely used. There is a linked regime under Section 72 and 73 of SOCPA which enables suspects to plead guilty but in return for cooperation to receive a substantial discount on sentence. There are no official figures released into how often this mechanism is used. Again, anecdotally it seems to be extremely limited with experienced white-collar defence lawyers having never encountered such a deal in careers spanning more than 20 years.

Resolutions

Although the US and UK have a DPA regime, they are very different. As in the UK, in the US, a DPA normally involves charges being filed, and includes an agreed statement of facts that in effect support an indictment on the filed charges, obligations imposed on the company for a stipulation period under pain of prosecution on the admitted statement of facts, and payment of fines, penalties, disgorgement or restitution.

The key difference to the UK, however, is with respect to the level of judicial involvement required. In the US, the terms of the DPA are negotiated strictly between the prosecutor and the company under investigation. An agreed-to DPA is then presented to the court effectively for its rubber-stamp approval. There is therefore, in principle, not the same form of risk as in the UK where the parties to the DPA have to factor in and effectively negotiate a judge’s approval to their agreement-in-principle. There is still a risk that judges can make comments from the bench to communicate their concern with the appropriateness of the DPA, but they have limited ability to invalidate the agreement.

In the UK, DPAs were introduced by the Crime and Courts Act 2013. The section on DPAs came into force in February 2014. Over the seven years that DPAs have been available to corporates in the UK, only nine have been concluded.

Aside from DPAs, US prosecutors can only secure the resolution of an investigation through non-prosecution agreements (NPAs). NPAs allow a prosecutor to secure payment of a penalty from a company, but do not require charges being filed, did not require any accompanying statement of facts, and do not require the parties to have a court sign-off on the agreement. There is no such equivalent available in the UK.

In essence then, a US prosecutor has, at least in principle, more straightforward routes to achieving a favourable resolution to an investigation of a company that sits in the middle ground between a declination, and running the gauntlet of a jury trial.

Andrew Thornton-Dibb is an international attorney and Francesca Titus and Jason Cowley are partners at McGuireWoods LLP. Mr Thornton-Dibb can be contacted on +1 (202) 857 1724 or by email: athornton-dibb@mcguirewoods.com. Ms Titus can be contacted on +44 (0)20 7632 1685 or by email: ftitus@mcguirewoods.com. Mr Cowley can be contacted on +1 (212) 548 2138 or by email: jcowley@mcguirewoods.com.

Andrew Thornton-Dibb, Francesca Titus and Jason Cowley

McGuireWoods LLP