ANY BOARD of directors that plans to commit a crime must be in charge of an organisation that is rotten to the core. So it is rare indeed that a finance director will need to budget for criminal penalties. However, the landscape is changing. Legislation is ever more complex and heavy fines are now more commonplace, and not only for banks – a glance at the Financial Conduct Authority website shows that, so far in 2013, 34 organisations have paid fines totalling £337m.
More financial penalties are on their way. In October 2012 the government announced it would legislate to help prosecutors combat corporate offending including fraud, money laundering and bribery, which cost the UK billions of pounds each year.
This new tool, the Deferred Prosecution Agreement (DPA), has been introduced in the Crime and Courts Act 2013 – similar to a process successfully used in the US.
A DPA involves a company reaching an agreement with a prosecutor where the company is charged with a criminal offence but proceedings are automatically suspended. The company agrees to a number of conditions which may include payment of a financial penalty. If the conditions are not honoured, the prosecution may resume.
DPAs apply to organisations, not individuals, and may be appropriate where the public interest is not best served by mounting a prosecution. Entering into a DPA will be a transparent public event and the process will be supervised by a judge.
It is currently expected that DPAs are going to be available for use by prosecutors from February 2014. How DPAs will work in practice is now the subject of an ongoing consultation.
The Serious Fraud Office, the Sentencing Council and the Criminal Procedures Rules Committee all issued consultation papers in June 2013 with the period for comment under the consultations, now closed. The consultations provided a guide as to how this new power will be wielded. However, at the start of the consultations the attorney general announced how DPAs might work.
DPAs represent a discretionary power which may be employed where the prosecutor has reasonable suspicion that an offence has been committed. The prosecutor’s awareness of a possible crime might come from a self-report by an organisation, a whistle-blower or the prosecutor’s own investigation.
If the prosecutor decides to offer the opportunity to negotiate a DPA, an investigation will ensue during which the particulars of the alleged offence will need to be established and appropriate terms of the DPA discussed, for example:
• payment of a financial penalty
• compensation to victims of offence
• donation of money to charity
• disgorgement of profits from the offence
• implementation of compliance programme to ensure that the offence is not repeated
• co-operation in any investigation
• payment of the reasonable costs of the prosecutor
Finally, a Crown Court process will commence to hear an application by the prosecutor to approve the DPA. After this, the DPA is in the public domain.
It is impossible to predict the cost of financial penalties. However, the Sentencing Council consultation has set out its ideas. There are two figures that must be determined:
The first is harm – which is the value of the crime, being the gross amount obtained as a result of the offence. As examples, the gross profit from a contract obtained through bribery or the value of money laundered or tax evaded.
The second is culpability, demonstrated by the organisation’s role and motivation. The starting point for this part of the penalty will be between 100% and 300% of the harm figure, depending on how culpable the organisation has been. However, the full range can be between 20% and 400%.
Details of the Sentencing Council’s current proposals in the consultation can be found at www.sentencingcouncil.judiciary.gov.uk.
Penalties are designed to hurt – the message is to install all the measures necessary to comply with today’s myriad legislation and avoid the pain.
Peter Luscombe is a director in the forensic and investigation department at Carter Backer Winter
The number of prosecutions for white collar crime increased to 9,401 over the last year, law firm Pinsent Masons finds
Significant change to laws governing corruption and money laundering in corporates to follow anti-corruption summit
ICAEW highlights the importance of avoiding unnecessary confusion and duplication of work
Not to invest appropriately to minimise the risk of data breaches is to ignore the almost inevitability of a breach and the legal obligations imposed upon businesses, writes Farrer & Co’s Julian Pike