Sentencing Guidelines for Corporate Offenders of Economic Crime Published

With the introduction of deferred prosecution agreements (DPAs) in the UK looming, the Sentencing Council has today published its definitive guidelines for sentencing fraud, bribery and money-laundering offences for corporate offenders (the “Guidelines”).

DPAs are due to become available to UK prosecutors in relation to economic offences committed by corporates from 24 February 2014, when schedule 17 of the Crime and Courts Act 2013 is expected to come into force. As part of the Ministry of Justice’s consultation on DPAs, it was agreed that the Sentencing Council would prepare guidelines for the offences that may be the subject of DPAs. The Sentencing Council opened a consultation on its draft guideline on 27 June 2013, which closed on 4 October 2013. The response to that consultation was published today, alongside the Guidelines. Whilst the Guidelines have been published, they will only apply to organisations convicted of an offence and sentenced on or after 1 October 2014. The consultation response, however, explains that the Guidelines have been published ahead of time to act as a reference for prosecutors when considering inviting corporate offenders to enter into DPAs. Judges asked to approve DPAs will no doubt also find them useful.

But why is there such urgency to release the Guidelines now? First, although the Bribery Act 2010 introduced a new, strict liability offence for corporates, there was no existing sentencing guidance as to what level of penalty should be imposed on a corporate defendant. Unlike the other offences under the Bribery Act 2010 that had comparable (albeit not identical) offences under the previous anti-bribery regime, the previous sentencing jurisprudence would not offer much assistance to a judge when sentencing a corporate for failing to prevent bribery. Secondly, specifically in relation to DPAs, schedule 17, paragraph 5(4) of the Crime and Courts Act 2013 requires that: “The amount of any financial penalty agreed between the prosecutor and P must be broadly comparable to the fine that a court would have imposed on P [the defendant] on conviction for the alleged offence following a guilty plea.” Accordingly, if DPAs are to be used consistently, it is necessary for there to be some guidance for the courts as to what level of penalty would be appropriate for each offence.

The Guidelines set out the following process for determining the appropriate sanction for corporate offenders:

• Step 1 – determine whether compensation should be ordered. If appropriate, this should be ordered ahead of any fine where the offender’s means may be limited. The judge is required to give reasons if a compensation order is not made.

• Step 2 – determine whether confiscation should be ordered (under proceeds of crime legislation to take away any financial benefit earned from the wrongdoing).

• Step 3 – determine the offence category and harm factor.

The offence category is determined by reference to culpability factors. The judge will consider whether there is a high, medium of lesser level of culpability, having considered the corporate’s role and motivation in the offence. The factors listed in the Guidelines are non-exhaustive but factors that could point towards high culpability would include involving others through pressure or coercion; corrupting local or national government officials, ministers or those involved in law enforcement; or abusing a dominant market position or a position of trust or responsibility. Conversely, lesser culpability factors would include making some effort to put bribery prevention measures in place (albeit not enough to be “adequate procedures” for the purpose of the defence to the s. 7 offence).

The harm factor is determined by reference to the financial amount the corporate offender gained (or intended to gain) from the offence. In relation to bribery offences, this will normally be determined as the gross profit from the contract obtained, retained or sought as a result of the bribe. Alternatively, for the section 7 corporate offence, it could be the likely cost avoided by failing to put in place appropriate measures to prevent bribery.

• Step 4 – use the above to identify the starting point and category range for penalty.

Once the starting point is identified, the court will then consider any aggravating or mitigating factors not considered as part of the steps above. Aggravating factors may include; attempts to conceal the misconduct, substantial harm caused to the integrity or confidence of markets; and/or the offence being committed across borders or jurisdictions. Mitigating factors may include: victims being voluntarily reimbursed/compensated; there being no actual loss to victims; and/or early active co-operation (particularly in complex cases). Again, the lists of factors are not exhaustive. At the end of this step, the judge should have determined the fine level.

• Step 5 – the court may make a final adjustment to the fine (up or down) to ensure it is proportionate, having regard to the size and financial position of the offender and the seriousness of the offence. In particular, the judge should consider whether the combination of orders made (i.e. compensation, confiscation and/or fine) achieve the removal of all gain, appropriate additional punishment and deterrence. In respect of determining the final level of fine, the Guidelines note that the intention is that any fine: “must be substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law. Whether the fine would have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence.”

The level of fine may then be reduced for providing assistance under the Serious Organised Crime and Police Act 2005 and/or for a guilty plea (in accordance with s. 14 of the Criminal Justice Act 2003).

Comment and conclusion

While the Guidelines do provide much needed guidance as to how the court will sentence corporate offenders for economic crime, the Guidelines are deliberately designed to afford a high degree of flexibility to the process. This must be the correct approach so as to avoid potentially arbitrary decisions based on the application of inflexible criteria to what may be very complex and unique facts. However, until some cases have been determined pursuant to these Guidelines, they may not offer a great deal of comfort or certainty to those corporate offenders entering into and negotiating DPAs in relation to their wrongdoing, as they will have no examples of how these Guidelines will be implemented in practice (or know if, in fact, they will be followed by the courts at all).

This is further compounded by the ambiguous wording in paragraph 5(4) of schedule 17 of the Crime and Courts Act 2013, which permits a reduction to any financial penalty to be “broadly comparable” with a fine that would have been imposed following a guilty plea. Curiously, during the consultation phase for DPAs, the Ministry of Justice suggested the financial penalty imposed would only be reduced by a maximum of one third, which is the maximum reduction available for a guilty plea. However, schedule 17 suggests a subtle departure from that position. This departure may give further scope for flexibility when negotiating and approving the terms of a DPA.

A full copy of the Guidelines can be found here.