United States: Coming Clean - The Argument For Cooperating With The SFO On Corporate Crime*

Last Updated: August 28 2014
Article by Adam Greaves

*This title is taken from an article published in Legal Week last week which we quote in full below.

Following the recent sentencing of four individual defendants in the Innospec corruption investigation by the SFO, Ben Morgan, the joint head of bribery and corruption at the SFO wrote the following in Legal Week last week, as follows:

"4 August was the day that four men were sentenced for their part in the Innospec leaded fuel corruption case.

There was a real spread of sentences - four years' imprisonment, two years' imprisonment, 18 months' imprisonment and 16 months' imprisonment, suspended. Two had pleaded guilty to corruption, and two had been found guilty by unanimous jury verdict after a three-month trial. In his sentencing remarks, His Honour Judge Goymer made very clear the seriousness of offending of that nature, and the sentences reflect that.

After the years of investigation, legal challenge and the trial, the moment had finally come for those given custodial sentences to be taken from the dock. So what can we take from this?

1. 'White collar' crime will be treated no differently to any other crime

In his remarks, the judge said: "None of [these defendants], I expect, would consider themselves in the same category as common criminals who commit crimes that involve dishonesty or violence" - a sentiment widely shared across the senior ranks of the City. But it is obvious that that is a dangerous belief to hold if the temptation arises to commit, go along with or turn a blind eye to corruption.

The truth is that those who breach the criminal law in any forum will be treated equally, and I would be surprised if anyone seriously argued that should not be the case. The comfort, distance and apparent safety of the boardroom is indistinguishable from any other environment in which crime is committed, and is just as capable of resulting in a custodial sentence. Corporate crime is not a special category of crime-lite, to be treated less seriously than real crime. Surely the opposite is true when one takes into account the potential harm a senior individual can cause through the misuse of their privileged position.

As His Honour Judge Goymer said when dealing with the issue of human accountability for corporate crime: "[i]t follows that those who have a high level role in the organisation or management and by their own pleas or by the jury's verdict are shown to have been knowingly involved in corruption must bear a heavy responsibility in the criminal law". That is a view that I suspect resonates more comfortably with the public perception of those who commit highly impactful institutional crime.

2. In overseas corruption cases, the defence of 'it's just the way things are done' is no defence at all

This is a short point, probably uncontroversial but worth revisiting. Few would put the positive case that just because people in a particular jurisdiction are known to tolerate corruption, it is acceptable to participate in that behaviour, particularly if they see less scrupulous competitors achieving an advantage.

A linked concern from the perspective of an individual is where they join or are promoted into the senior echelons of a company and find that questionable conduct is taking place or expected; it's just the way things are done in that company. It can, I imagine, be immensely hard to stand up to that as the new person, but the risks of failing to do so are clear.

The trial judge commented during sentencing: "[t]he corruption in this company was ingrained, it was endemic and it was institutionalised. It is no excuse to say that things had always been done in what the jury and I came to know during the trial as "the Indonesian way", and he went on to describe another economic argument said to mitigate the conduct in question as "a convenient and cynical excuse for the corruption".

The lesson here is that whatever the prevailing context, the courts in England and Wales will view corrupt conduct with clarity and precision, uncluttered by whatever concession an individual may have made to themselves to justify their act or omission.

3. There is a clear incentive to co-operate with the SFO, both as an individual and as a company

The key point here is the suspended sentence one of the defendants received. It is entirely a matter for the court what sentence it imposes, and the SFO can make no guarantee about that, nor should it. But we know that in this case the two suspects who pleaded not guilty received a four-year and an 18-month sentence respectively, and a suspect who pleaded guilty immediately received two years' imprisonment, but the suspect who pleaded guilty immediately and cooperated with the SFO's investigation - including giving evidence for the Crown at trial - did not go to prison.

There is an overwhelming imperative on executives who suspect corruption in their organisation to speak up. There has always been a moral driver for that, but now there is a tangible, practical one too. If you know of something and you are not implicated yourself, then covering it up or passively going along with it can create its own legal risk. And if it is too late for that and you are already implicated, it seems your options are quite clear: fight and risk prison, or come clean and cooperate and, hopefully, don't.

For now there is one final significant point to all of this. I have spoken publically about the decision a company itself has to make when it suspects it has a corruption issue, which is to choose its fork in the road. Does it want to keep the matter from the SFO, and run all the risks that entails, or does it choose to cooperate with the SFO in the hope of, effectively, a more lenient outcome if it turns out there has been criminal conduct?

I have given my reasons before about why I say the latter position is the obvious legal, commercial and moral choice, and since deferred prosecution agreements became available, numerous companies have come to talk to us. Notwithstanding that, I continue to encounter forceful opposition in the legal community, if not the business community, to the suggestion that a company would choose to speak to us, one of the reasons for which being, apparently, the difficulty the board members might have if they themselves are potentially exposed.

In light of the sentencing guidance this case offers, I wonder how credible that argument is. Is it now more or less likely that a conflicted board member would seek to cooperate with the SFO? If they do, is it more or less likely that the SFO will learn about and have evidence to demonstrate corporate offending? And what then for the company and the remaining directors who tried to bury it?"

First, credit where credit is due, the Innospec case is one of the SFO's success stories, although the mass media is generally more inclined to knock the SFO when things go wrong than praise it when things go well. The SFO has had more than its fair share of failures over the years including in recent times but it has also had its successes which usually go unsung.

In relation to the points made by Mr Morgan about the risks of not self-reporting to the SFO when corruption has been discovered and cooperating with it from the outset, as opposed to the alternative of sweeping the discovery under the carpet, we are in substantial agreement with him, although we feel that there should be more public acknowledgment by the SFO of the difficulties practitioners and their corporate clients are facing with regard to other issues including:

  • If a corporation decides to self-report to the SFO, to which other investigating/prosecuting agencies around the world will the SFO send this information, in consequence of its international intelligence sharing agreements, thereby potentially multiplying the risks of several sets of legal costs and fines around the world. It is not just a question about reporting to the SFO but its like making a report to many foreign prosecutors, without knowing who they might be. The biggest fear for most defendants is that US prosecutors will crawl all over them and that the level of potential fines can be catastrophic to a company's balance sheet. There are some current corruption investigations, well reported, where many jurisidictions are now involved and carrying out their own investigations.  Of course, that risk is still there whether or not a company self-reports, or is reported by a whistleblower, or comes to the attention of the SFO by other means, but what we do know from  our own experience and from discussioons with other law firms that this is a factor which really worries corporations when considering whether or not to self-report: that the investigation will run out of control, become extremely expensive, and could cause immense damage globally to the company.
  • An additional factor is the age-old question of legal privilege. The SFO's position seems to be that when a company self-reports, it expects it to be as open as possible about its internal investigations and, for example, to disclose all witness statements prepared by the corporation's external lawyers, effectively meaning that legal work that the client and the lawyers undertook, prior to entertaining any discussions with the SFO, and which was undertaken in the expectation that the work product was fully confidential/privileged, should be passed to the SFO and confidentiality/privilege waived. Apart from anything else, these statements may have been taken from employees who felt obliged to cooperate with the company because of their employment contracts, but who were not explicitly made aware that they could be implicating themselves in any criminal conduct. They may not have considered protecting their own interests at the time of giving the statement and may not have had their own counsel.
  • The current trend of corporate defendants coming to settlement arrangements with the SFO (approved by the court), whether in the form of "civil settlements" or whether through the newly enacted deferred prosecution agreements, places individual defendants in a much more difficult position to defend themselves in any subsequent prosecution, by reason of the corporate defendant having implicated the individual defendants when being forced to make its written plea as part of any "deal" to be approved by the court. As Ben Morgan acknowledges in his article, some of those people may have board positions and may have a personal conflict of interest (which may not be known to other board members, at least at the outset of the investigation).

These issues, and others, we dare say, are currently being considered by lawyers all over the UK (and abroad) in their dealings with the SFO, when considering whether or not to make a self-report, and are giving rise to considerable consternation in corporations at the highest level which are considering the SFO's recommendation to self-report at the earliest opportunity. These are not easy issues to grapple with, and will differ from case to case, but we feel that there could be considerable benefits resulting from a more public debate with the SFO about how to confront and reconcile them. It is clear that even where there is no current US investigation, the fear of future prosecution by US prosecutors may be the driving force in corporate defendant's decision-making processes whether to cooperate with UK prosecutors in a current investigation, and that these fears are a direct result of international cooperation agreements for the sharing of criminal intelligence (for example between the SFO and the US DOJ and SEC).

Funnily enough, these issues when considered in depth, may reinforce the SFO's arguments for self-reporting, rather than undermine them, so a public debate should be beneficial all round.

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.

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