The Sentencing Council last month published a Guideline for sentencing in fraud, bribery and money laundering offences committed by corporate offenders. It is said to be effective from 1 October 2014, but will no doubt be referred to in the mean time if any large corporates are successfully prosecuted because, as Lord Justice Treacy has pointed out, there have been very few prosecutions of corporations, and certainly not enough to form the basis of a recognisable tariff system. Treacy LJ also makes the point that the guideline was created ‘as part of a package to support the introduction of Deferred Prosecution Agreements’, while curiously at the same time not being part of the DPA Guidelines. Make of that what you will, but one can be fairly sure that the guideline will be used by both sides in submissions about sentence during the course of DPA negotiations.
Fixing the level of financial penalties for trading corporations in criminal cases is not rocket science. It is easy enough to compile a list of ‘aggravating factors’ – previous bad conduct, long-running fraud, failure to take proper steps to prevent misconduct, serious detriment to third parties – and of mitigating factors – the opposite of those just mentioned – and to set out a means of calculating levels of fine by reference to profit or gain resulting from the illegal conduct. The Judge must take account of the impact a large financial penalty, which may include compensation and confiscation as well as a fine, may have on a business. This impact may be so great as to put the firm into liquidation, and the Guideline states that in some cases this might be appropriate. However, the more likely scenario is that a large corporate, being prosecuted for bribery or money laundering, will receive a fine which will seek to punish, deter and remove gain, by (a) being proportionate, (b) being substantial enough to have a real economic impact which ‘will bring home to both management and shareholders the need to operate within the law’, and (c) avoiding any unacceptable harm that may be caused to third parties.
The process, however, carries with it a number of practical difficulties, and problems may arise in two main ways.
First, while punishing trading corporates whose profits have been swollen by illegal activity is unlikely to cause serious argument, problems may arise in dealing with public bodies, health trusts and charities, which are specifically mentioned in the guideline. Any financial penalties imposed on these types of organisations will inevitably have adverse consequences on innocent and sometimes vulnerable third parties. What is the point of fining a public service and thereby simply removing tax payers’ money, or funds given by generous donors, and putting at risk those who are protected by public services, or treated by health authorities, or in receipt of charitable assistance? A judge faced with imposing a fine on a public health trust which has mismanaged its funding and failed to provide proper services is unlikely to think that matters will be improved by removing a substantial part of the funding that should be used to cure the sick. It is very difficult to see how any level of fine against a public or charitable body is sensible or proportionate.
Second, there is a vital public perception issue. A fine against a major corporation that has, for example, gained a profitable contract by bribery over a number of years, or miss-sold a product to its customers, is likely to be viewed by both the corporation and the public as a cost of doing business. It will cause reputational damage for a short time, and may temporarily hit the share price. But the fine will not put the company into liquidation (and if it did, it would cause the collateral damage of putting people out of work, losing shareholder funds and damaging the interests of creditors), and it will not be greeted by any sense that a wrong-doer has been punished, or that business in general will be deterred from such activity. That is only achieved by prosecuting individuals, and the growing trend towards taking action against corporates arguably only serves to swell government coffers. The risk created by setting out sentencing guidelines on fining corporates is that it will encourage prosecutors to believe that taking what is usually the much easier line of prosecuting a corporate is an honourable course of action.
With DPAs being introduced in the UK this week there is clearly every prospect that the trend towards bringing corporate offenders to book will continue, as it has done in the United States. It remains to be seen whether this will improve the ethical conduct of major UK businesses.