UK: Self-reporting to the SFO: Is The Confiscation Regime A Major Stumbling Block?

Last Updated: 26 November 2009

Article by Neil Gerrard, Head of Litigation & Regulatory Group

Companies entering uncharted waters

In a well publicised shift of emphasis in the investigation and prosecution of serious fraud and corruption the Director of the UK's Serious Fraud Office ("SFO"), Richard Alderman, is trying to encourage companies to engage with his organisation and self-report past wrongdoings. This is new territory for the SFO, the judiciary, companies and their advisers

The SFO recently issued guidelines on self-reporting confirming that the SFO is moving more towards a US-style system of self-reporting and plea negotiation. However, this is not about plea bargaining in the US sense and the scope for incentives is narrow. The SFO says that when companies self-report it will use civil penalties "wherever possible" instead of criminal sanctions but gives no guarantees or further guidance. In this uncertain environment, companies should not rush headlong into self-reporting before carefully considering what is to be gained or lost by either self-reporting or waiting for the SFO to come knocking.

Self-reporting is all well and good for those companies who manage to negotiate a Civil Recovery Order, as in the recent Balfour Beatty and AMEC cases. With this type of outcome the advantage is more transparent: the settlement is largely in the hands of the SFO, the corporate defendant and its advisers, with no conviction and no complex confiscation proceedings to contend with.

But it is the cases where the SFO decides that a civil settlement is not a suitable outcome and wants a company to plead guilty to criminal offences where the most serious consequences arise. The corruption case involving Mabey & Johnson has hit the headlines recently following its guilty pleas and sentencing at Southwark Crown Court. The SFO very much sees this case as the shape of things to come with Alderman, stating that:

"This is a landmark outcome. The first conviction in this country of a company for overseas corruption and for breaking the UN Iraq sanctions and, satisfyingly, achieved quickly. The offences are serious ones but the company has played its part positively by recognising the unacceptability of those past business practices and by coming forward to report them and engage constructively with the SFO. I urge other companies who might see some parallels for them, to come and talk to us and have the matter dealt with quickly and fairly".

In this case the judge approved the plea agreement in both quantum and terms and the penalties imposed on the company totalled £6.6 million, a figure which included £1.1 million in confiscation.

However, the Mabey & Johnson case does not set a precedent for future cases, especially in relation to confiscation, which is the issue giving most cause for concern to those who are advising companies on self-reporting issues. Confiscation proceedings against individuals are now commonplace and the issues have been thoroughly debated in numerous appeal cases but with corporate defendants we are entering uncharted waters.

Mabey & Johnson was perhaps fortunate that because of the date of the earliest offence charged (1993), its confiscation was determined under the Criminal Justice Act 1988 (CJA). This is significant because the CJA regime allows a more favourable outcome in respect of confiscation than subsequent confiscation regimes. Under the CJA regime a Crown Court judge can only make a confiscation order if the prosecution lodges a formal request. But once the formal request has been made the judge has discretion to a) decide whether or not to make the order and b) decide the amount payable - "as he sees fit".

In the Mabey & Johnson case this made a difference to the outcome in two respects. Firstly, knowing that the judge could not proceed to confiscation on his own account, the prosecution was able to ask him to agree the sum available for the fine and confiscation (£4.6 million as per the plea agreement) before it formally asked for the confiscation order. Secondly, having decided that the sum available was adequate, the judge was able to decide what sum was reasonable in all the circumstances and how much to allocate to the fine (£3.5 million) and the confiscation order (£1.1 million).

However, there is a dark cloud looming for future cases - namely the confiscation regimes under the Proceeds of Crime Acts 1995 and 2002. For offences committed after November 1995 the confiscation regime is far more draconian:

  • There is a mandatory obligation on the court to conduct a confiscation enquiry if the prosecutor asks for a confiscation order.
  • But even if the prosecutor decides not to ask for a confiscation order, the court has a discretion to conduct an enquiry in any event.
  • The court has no discretion in determining the amount to be confiscated, the calculation of "benefit" from "criminal conduct" being determined by statute.
  • There are so-called "lifestyle provisions" which may put any property held or obtained in the six years prior to proceedings at risk of confiscation.

Given these restrictions, a judge could not simply ratify the plea agreement and the agreed sums as was done in the Mabey & Johnson case. To put this in perspective, under the CJA regime Mabey & Johnson paid £1.1 million in confiscation but under the Proceeds of Crime Acts, the sum at risk of confiscation would have been as high as £60 million. This sum represents the "benefit" or value of the contracts, rather than any profit obtained from the offences committed. Clearly this is a very different proposition and potentially a huge threat to the ongoing viability of any company caught by the later regimes.

There has been much discussion about the merits of self-reporting, plea negotiations and the incentives for engaging with the SFO. There has been recognition that companies may be unwilling to come forward because of issues such as the EU procurement rules by both the SFO and the Joint Committee scrutinising the draft Bribery Bill. These rules (given effect in the UK by the Public Contracts Regulations 2006) contain a mandatory exclusion of companies where the company, its current directors or other decision makers have been convicted of participation in a criminal organisation, corruption, bribery and fraud. However, there has been little recognition of the fact that the effect of the confiscation regime may present an even bigger barrier to self-reporting. Whilst the procurement ban is potentially disastrous to those companies which rely on government contracts, they do not affect every company's business, whereas the draconian confiscation regime has the potential to bring financial ruin to every company which is convicted. A reference to the confiscation regime in the Joint Committee's report on the draft Bribery Bill acknowledges that the consequences can be severe but only recommends that the Government should "Ensure that that civil powers of recovery and confiscation will operate in a way that is proportionate and reasonable".

Can a confiscation order be limited by the plea agreement?

The Attorney General, Baroness Scotland's guidance "Plea Discussions in Cases of Serious or Complex Fraud" (the Guidelines), which took effect in May 2009 gives valuable guidance and assistance but is largely silent as to how confiscation is to be handled. However, it is made clear that confiscation cannot be disregarded in plea negotiation cases.

Under the Proceeds of Crime Acts a confiscation enquiry cannot be avoided and will involve a thorough forensic assessment of the benefit obtained from the offences committed by a company and its "realisable assets" - the means at its disposal to pay the order. And once confiscation proceedings are set in motion there is no discretion to make an order according to what is fair and reasonable in all the circumstances. The courts have a clear duty to deprive a convicted defendant of the benefits of his criminal behaviour and the effect can be extremely harsh:

"...the making of an order is mandatory, and its amount is arithmetically determined but cannot be moderated by judicial decision. "

...

It also follows ... that not infrequently, and perhaps even ordinarily, the amount of money confiscated will exceed the profit made by the criminal from his offence".

[R v Shabir [2009] 1 Cr.App.R.(S.) 84]

Would it be possible to enter into a plea agreement with the SFO that limits confiscation proceedings, or agrees a sum which is proportionate and reasonable? There may be some room for manoeuvre on the basis of the charges laid, the agreed facts and any financial statements put before the court. This would give some scope for limiting the benefit obtained from the criminal conduct, the value of the benefit obtained, the proportionate sum which is recoverable and the availability of assets to satisfy any order. However, the mere fact that the quantum of benefit and realisable assets is agreed between the SFO and a potential corporate defendant will not and cannot, in itself, bind a Crown Court judge in confiscation proceedings. The judge is not only permitted but positively obliged to investigate any agreement between the prosecution and defence as to the appropriate quantum of any confiscation order, and to reject it if it is not in accordance with the statutory scheme.

A dilemma for the judiciary and companies

If the practice of self-reporting is to be supported and encouraged the courts face the challenge of finding a pragmatic approach to the issue of confiscation. Under the Proceeds of Crime Acts regimes the matter of confiscation appears to be outside the scope or control of the plea agreement and it is far from clear how judges will deal with this issue in order to achieve an effect which is proportionate and reasonable.

This presents a number of troublesome issues for companies and their advisers to contend with when deciding whether to self-report in the UK including:

  • Whether to report at all. There is no obligation to self-report and little incentive, other than the possibility of mitigating costs and the overall financial penalty by entering into a civil settlement or plea agreement. The SFO has indicated that it is stepping up its actions against corporate defendants but historically has prosecuted very few.
  • Whether the outcome is likely to be a civil settlement or a prosecution. There is currently little guidance or case law on what to expect although in relation to overseas corruption cases the SFO has said, "the benefit to the corporate will be the prospect (in appropriate cases) of a civil rather than a criminal outcome.." But if negotiations fail to achieve a civil settlement, the company could find itself subjected to criminal charges and confiscation in any event.
  • If the company is to plead guilty to criminal charges, how can they negotiate a plea agreement which will not bring the company to its knees financially? The position is fraught with uncertainty given the effect of mandatory EU procurement bans and the issues surrounding the confiscation regime.

While so much uncertainty exists, there is enormous potential for damage to the credibility of the SFO. It wants companies to self-report and cooperate as it simply does not have the resources to investigate every case. The inability of the Proceeds of Crime Acts regimes to permit judicial discretion or sanctioning of an agreement between the parties means that the SFO may well be unable to undertake to control the confiscation process in a manner which will guarantee the survival of a corporate defendant or minimise the risk of serious economic harm. Some degree of control can be exercised by the nature of the charges laid, the pleas tendered and an agreed basis of plea. But the final decision rests with the judge and unless legislation, case law and guideline strictures are effectively ignored, that degree of control may well be inadequate. Companies do not want to spend months analysing company accounts, putting their house in order and negotiating a plea agreement, only to find that the judge does not, or cannot, accept the terms of the agreement and joint submissions on sentence and confiscation.

The effects of the confiscation regime for companies will develop over time but companies need some degree of certainty now, either through guidance or a change in the confiscation legislation. Corporate responsibility and self-cleansing are a very much in the media spotlight and a subject for discussion at board level in many companies. However, the uncertainty surrounding the potential outcome may prove a positive disincentive to self-reporting. In tough economic times, many companies would sink without a trace if they were penalised by the full force of the current regime. It cannot be in the public interest for a company which has not only cooperated, but has been seen to cooperate with the SFO, to be put out of business with the attendant loss of jobs and investor funds.

Yet there is no escaping the fact that Parliament intended the legislation to have a draconian effect and this has been repeatedly approved and implemented by the courts. Individuals have been deprived of sums well in excess of any profit actually received from their criminal enterprise which means that they have lost everything. Some might ague that there is no reason in law or logic why an individual should receive different treatment to a company. But, on the other hand, surely it is in the wider public interest to clean up British business by encouraging companies to wipe the slate clean and pay a fair and equitable financial penalty. If we are to see more corporate self-reporting and effective plea negotiations in the UK, the confiscation regime must be reviewed sooner rather than later, otherwise a window of golden opportunity may be lost.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions