On 1 October 2014, new guidelines issued by the Sentencing Council (the “Guidelines”) came into force for the sentencing of fraud, bribery and money laundering offences in the UK. The Guidelines apply to all individual offenders aged 18 and older and to organisations who are sentenced on or after 1 October 2014, regardless of the date of the offence. This article examines the likely impact of these Guidelines and compares the position to that in the US. The Guidelines apply in respect of the following offences:
- Bribery offences contrary to ss 1, 2, 6 and 7 of the Bribery Act (they do not apply to bribery offences under the old laws).
- Money laundering under ss 327, 328 and 329 POCA (they do not apply to the s330 offence of failure to report).
- Conspiracy to defraud
- Fraud offences contrary to ss1, 6 and 7 of the Fraud Act 2006
- False accounting
- Cheating the public revenue
- Fraudulent evasion of VAT
The key change in the Guidelines is a new process for the calculation of fines for corporates guilty of the above offences. This process is intended to provide greater certainty regarding the level of fines corporates will face and a more mathematical process for calculating them. This in turn is intended to encourage self-reporting by corporates and individuals, who will have greater certainty of outcome when they approach regulators and prosecutors. However the court retains significant discretion in the process of setting the fine, which means corporates cannot guarantee their assessment of the likely fine/penalty will not be altered.
The Guidelines and Deferred Prosecution Agreements
Deferred Prosecution Agreements (“DPA’s”) are an alternative to prosecution introduced earlier in 2014. They allow a prosecutor to enter negotiations with a corporate offender and to agree a fine and other penalties. If agreement is reached between the parties, there will be no prosecution. The Guidelines are not officially guidelines for DPA’s. DPA’s can only be made where there is no conviction and are therefore beyond the remit of the Sentencing Council. However, the Guidelines are intended to be used as a point of reference when financial penalties within DPA’s are being considered and negotiated. The legislation underpinning the financial penalty should be broadly comparable to the fine that a court would have imposed on conviction following a guilty plea. This is the first time that there have been guidelines in the UK for the level of sentence and fine that corporates can expect. The intention is that this greater clarity and certainty of outcome will encourage corporates to self-report and enter into DPA’s or to plead guilty if a DPA is not offered by the prosecutor.
New process for the calculation of fines
The Guidelines provide a ten stage process for the criminal court to follow to calculate the fine that will be imposed on a company for the relevant offences. The ten stages are as follows: 1. Court considers whether a compensation order is appropriate (where money is remitted to victims of the crime) The court is required to consider this, and if the resources of the convicted company are limited, to give compensation orders priority over other penalties. 2. Court considers whether a confiscation order is appropriate (where money is remitted to the State and depends on the value of the benefit from the crime) As with compensation orders the court is required to consider this, and if the resources of the convicted company are limited, to give compensation orders priority over other penalties, except for compensation orders. 3. Court determines the offence category with reference to the (a) offender’s culpability (high, medium or lesser) and (b) the harm caused The Court will start by assessing whether the corporate has high, medium or lesser culpability (which depends on a number of factors such as its level of involvement, the length of time of the wrongdoing, the sophistication of its policies etc). The Court will then look to the harm, which is represented by a financial sum calculated by reference to the amount obtained or intended to be obtained (or loss avoided or intended to be avoided). 4. Court determines the starting point and category range Having determined the level of culpability and harm, the court should determine the starting point within the category range below.
Culpability level
| A | B | C | |
|---|---|---|---|
| Harm figure multiplier | Starting point 300% | Starting point 200% | Starting point 100% |
| Category range 250% – 400% | Category range 100% – 300% | Category range 20% – 150% |
Once the starting point has been determined, the court will assess the adjustment for aggravating and mitigating factors. This assessment will adjust the culpability percentage within the category range. 5. Court considers the overall effect of its orders and whether the fine should be adjusted The Guidelines require the court to consider the order as a whole and has broad discretion regarding the categories to consider and whether to adjust the fine. 6. Court considers any factors which would indicate a reduction in the fine, such as assistance to the prosecution 7. Court applies any reduction for a guilty plea This will be calculated on the basis of the existing guidelines for a guilty plea. If an offender pleads guilty at the earliest possible point, there will be a reduction in sentence of 33%. If the offender pleads guilty once charges have been brought, there will be a reduction in sentence of 25%. If the offender pleads guilty once a trial has started, there will be a reduction in sentence of 10%. These percentages may be adjusted downwards if the prosecution has a sufficiently strong case. 8. Courts considers whether to make any ancillary orders (such as a deprivation order or a serious crime prevention order, or a monitoring order) 9. If sentencing for more than one offence, courts considers whether the total sentence is just and proportionate 10. Court gives its reasons for, and explains the effect of, the sentence
Certainty and the court’s discretion
The purpose of the Guidelines is to provide greater certainty regarding the fines to be levelled against corporates. However the court has retained significant discretion at all stages of the process. The discretion is found in the decision of the setting category of offence and where the offence falls within that category. The broader discretion at stage 5 of the Guidelines also allows the court to alter the mathematical calculation of the fine to any extent it feels is necessary. However, while this discretion does detract from the mathematical certainty provided by the Guidelines, it should also provide corporates with confidence in the operation of the system. Any system for the calculation of fines will contain an element of discretion. Corporates are likely to be more comforted by the greater part of this discretion remaining in the hands of the court, as opposed to being a power of prosecutors.
Closer to the U.S.?
Even with the introduction of the Guidelines, the UK sentencing scheme is still far from the U.S. model and will not, in and of itself, produce the kind of high profile corporate prosecutions that we have seen in the U.S. Under the U.S. system, each offense is assigned a numerical “base offense level”. The base offense level is then adjusted up or down based on certain aggravating or mitigating factors each of which is also assigned a numerical value. For example, in a robbery case, the use of a gun and physical harm to the victim are considered aggravating factors, resulting in additions of points to the base offense level. In a fraud case, the amount of loss, or intended loss to the victim, or gain to the defendant (whichever is largest) are also considered aggravating factors which add to the base offense level. If the defendant, however, played a minor or minimal role in the offense, this will be considered a mitigating factor, resulting in the subtraction of points. This process yields an “adjusted offense level” which translates into a recommended sentencing range. In the case of individuals, this is usually a range of months in prison. A judge who wishes to sentence above or below the recommended sentencing range must justify the basis for the departure. In the case of corporates, the process is slightly more complicated. The adjusted offense level translates into a recommended base fine, which is then multiplied by a “culpability score” in order to arrive at the recommended fine range. In calculating the “culpability score,” the judge first assigns the corporate defendant a base culpability level of 5 points. As in the case of individuals, points are then added or subtracted based on certain aggravating and mitigating factors including whether there was high-level involvement in/tolerance for the misconduct, the corporation’s previous history of misconduct, whether it had an effective compliance program, whether it timely disclosed the offense to authorities, whether it obstructed justice, and whether it accepted responsibility. The resulting culpability score then generates a maximum and minimum multiplier, which are applied to the base fine to generate a recommended fine range. In determining where within the fine range, the sentence should fall, the court is advised to consider the following 11 factors:
- the need for the sentence to reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford adequate deterrence, and protect the public from further crimes of the organization;
- the organization’s role in the offense;
- any collateral consequences of conviction, including civil obligations arising from the organization’s conduct;
- any nonpecuniary loss caused or threatened by the offense;
- whether the offense involved a vulnerable victim;
- any prior criminal record of an individual within high-level personnel of the organization or high-level personnel of a unit of the organization who participated in, condoned, or was willfully ignorant of the criminal conduct;
- any prior civil or criminal misconduct by the organization other than that counted in calculating the culpability score;
- any culpability score higher than 10 or lower than 0;
- partial but incomplete satisfaction of the conditions for one or more of the mitigating or aggravating factors set forth in the culpability score calculation;
- any factor listed in 18 U.S.C. § 3572(a) [general considerations in imposing sentence]; and
- whether the organization failed to have, at the time of the instant offense, an effective compliance and ethics program as defined by the Guidelines.
Thus, the U.S. system purports to provide both individual and corporate defendants with a reasonable degree of certainty and to ensure that all defendants are sentenced according to the same objective criteria. Critics contend, however, that, the reality is far different. They point out that in the case of guilty pleas, which account for the vast majority of convictions in the U.S., the guidelines are subject to substantial negotiation and horse-trading between prosecution and defence and are often manipulated to arrive at a recommended sentencing range that is acceptable to both prosecution and defence. This problem, they claim, is especially acute in the case of corporate prosecutions which often take the form of Deferred Prosecution Agreements (DPAs) or Non-Prosecution Agreements (NPAs) which typically involve no judicial oversight, review or approval. Although the guidelines do provide a greater degree of objectivity than the predecessor discretionary system, there is undoubtedly some truth to what the critics say. The prevalence of NPAs and DPAs and the negotiated nature of guidelines sentences suggests that something other than the mathematical formula for calculating corporate fines is behind corporate self-reporting and aggressive corporate enforcement in the U.S.. One factor may be the guidelines scheme for individuals. When the guidelines were introduced in the late 1980’s, they generally provided for very long prison sentences with little opportunity for the judge to sentence below the prescribed range unless the defendant provided “substantial assistance” to prosecutors. This resulted in a substantial increase in the number of defendants wishing to cooperate and the development of a prosecutorial system based largely on “cooperating witnesses” who are crucial to almost every major federal prosecution in the United States [1]. The effective use of cooperating witnesses, together with other proactive investigative techniques, such as wiretaps and undercover operations, creates a credible threat of prosecution in the U.S.. It is likely that it this threat, more than the mere existence of the guidelines or DPAs, that induces corporate to self-disclose in the U.S.
An encouragement to self report?
It is clear that there is a greater focus in England on judicial scrutiny of the terms of a DPA and greater discretion afforded to Judges in sentencing individuals and organisations than in the US, with the result that there is less certainty on the outcome for those who choose to self report, plead guilty or otherwise enter into a DPA. This is clearly a policy decision on the part of the UK legislature, seeking to strike a balance between encouraging self reporting while giving the judiciary sufficient flexibility to ensure that offenders are appropriately punished. It remains to be seen the extent to which the combination of the Guidelines and DPAs will positively encourage organisations to report their wrongdoing. There will be many cases where they will be legally obliged to report their wrongdoing due to their anti-money laundering reporting obligations; there will be cases where it will clearly be in the best interests of the organisation to self report, and there will be those where the position will be more finely balanced. Despite the incentives that the Guidelines and the DPAs provide to self report, they are only part of a wider process. As discussed above, the growth in corporate self reporting in the U.S. was the result of a range of measures, in particular the combination of long sentences for individuals with significant reductions for cooperation. While this is also true of the new Guidelines, the greater flexibility afforded to Judges in the sentencing process may provide less certainty for individuals with the result that full cooperation from individuals (and thus the need to self report by organisations) may not be as pronounced in England as it has been in the US.
[1] In 2004, the U.S. Supreme Court ruled that the mandatory nature of the guidelines was unconstitutional and held that the guidelines could only be advisory. The guidelines continue, however, to play an important role in plea negotiations and sentencing, defendants still receive substantial benefits for cooperation and the system of “cooperating witnesses” remains a crucial part of DOJ enforcement By Charles Thomson*, Tom Firestone* and Matthew Foster*
* Charles Thomson is a partner, Tom Firestone is a senior counsel and Matthew Foster an associate in Baker & McKenzie’s London office.
