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
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.