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'What effect has the reversal of the self-reporting guidance had on the investigation of criminality by corporate bodies?' by David McCluskey, Lexis Nexis, November 2013

Changing attitudes to self-reporting

LNB News 25/10/2013 111
Published Date: 25 October 2013
Newspaper Name: The Times
Newspaper Date: 25 October 2013
Newspaper Citation: The Times, 25 October 2013, pg 56
Author: James Dean
Jurisdiction: England; Northern Ireland; Scotland; Wales
Related Legislation: Bribery Act 2010


Corporate Crime analysis: What effect has the reversal of the self-reporting guidance had on the investigation of criminality by corporate bodies? David McCluskey and Catherine Fischl of Peters & Peters say that although there are now fewer guarantees available to the self-reporting company, there are still serious advantages in self-reporting.


Original news

SFO advises companies to self-report fraud

The Times, 25 October 2013: Bribery and corruption should not be reported to the Serious Fraud Office (SFO) is the advice corporate lawyers are giving companies according to David Green, director of the SFO. Mr Green has reversed guidance in 2013, put in place by his predecessor Mr Alderman, which allowed companies to self-report irregularities to face civil charges rather than criminal.

How has the guidance changed?

In a speech made on 24 October 2013, the director of the SFO clarified his position in relation to self-reporting by corporate bodies. Whereas under the former director the guidance contained an implied presumption that self-reported conduct would be dealt with by civil settlement, David Green changed the guidance in October 2012. One year on, the position remains the same--whether or not the SFO prosecute a corporate body in a given case will be governed by the Code for Crown Prosecutors, Guidance on Corporate Prosecutions and, where relevant, the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010.

In his recent speech David Green made clear that, in accordance with the Code for Crown Prosecutors, the question the SFO will ask itself is whether there is sufficient evidence to prosecute, and if so, is a prosecution in the public interest?

The position on self-reporting is made clear in the Guidance on Corporate Prosecutions. It will only be taken into account as a factor against the public interest in prosecuting where it is clear that there has been:

'A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims. In applying this factor the prosecutor needs to establish whether sufficient information about the operation of the company in its entirety has been supplied in order to assess whether the company has been proactively compliant. This will include making witnesses available and disclosure of the details of any internal investigation.'

What should companies do when they suspect fraud?

Although there are now fewer guarantees available to the self-reporting company, there are still serious advantages in self-reporting. David Green highlighted these in his speech as follows:

·         a self-report at the very least mitigates the chances of a corporate body being prosecuted--it opens up the possibility of civil recovery or a deferred prosecution agreement (DPA)

·         there is the moral and reputational imperative--it is the right thing to do and it demonstrates that the corporate body is serious about behaving ethically

·         if the corporate body chooses to bury the misconduct rather than self-report, the risk of discovery is unquantifiable--there are so many potential channels leading to exposure:

·         whistle-blowers 

·         disgruntled counterparties

·         cheated competing companies

·         other criminal justice agencies in the UK

·         overseas agencies in communication with SFO, and

·         the SFO's own developing intelligence capability, to name but a few

·         if criminality is buried and then discovered by any of the above routes, the penalty paid by the corporate body in terms of shareholder outrage, counterparty and competitor distrust, reputational damage, regulatory action and possible prosecution, is surely disproportionate

·         last but not least, burying such information is likely to involve criminal offences related to money laundering under the Proceeds of Crime Act 2002, ss 327-329

The message is clear--though self-reporting does not guarantee a civil settlement, criminality is difficult to bury, and the consequences of being discovered to have failed to self-report could be much more serious than if the company had reported its own criminality straight up. Therefore, when companies suspect criminality or have it brought to their attention through whistle-blowing, alerts from their own procedures or otherwise, the decision of whether to self-report or not must be considered at the earliest stage.

David Green made clear that companies should self-report as soon as they suspect that an offence has been committed as waiting for a full investigation to be carried out could leave the company vulnerable to having the criminality alerted to the SFO by other means. The need to quickly make strategic decisions highlights the importance of having specialist lawyers, with experience of dealing with the prosecuting agencies, on board as soon as criminality is suspected to ensure the best possible outcome.

Presenting a cooperative and open face to the SFO increases the chances of being seen to have taken a 'genuinely proactive approach' which may move the SFO to take civil action rather than to prosecute. David Green was at pains to point out that, despite the reduced certainty for self-reporters, the SFO continues to receive self-reports from companies. It is undoubtedly the case, as Mr Green made clear, that the number of self-reports by companies will increase when DPAs become an option in February 2014.

What are your predictions for the future?

Once the relevant section of the Crime and Courts Act 2013 comes into force, the SFO will be able to enter into DPAs which will defer prosecutions against corporate bodies for fraud corruption, bribery and money-laundering in exchange for an agreement that they comply with a range of strict conditions ranging from compensation of victims to monitoring and financial penalties. If the corporate body has complied with all of the terms of the agreement there will be no prosecution at the end of the deferral period. However, if they are found not to have complied, the prosecution may proceed. David Green has labelled DPAs a 'very useful addition to the prosecutor's toolbox for use in appropriate circumstances', and it is likely these will be used in cases which would previously have been dealt with by way of civil settlement.

David Green has also suggested that the obvious way of increasing the number of corporate prosecutions would be to extend to other offences the principle contained in the Bribery Act 2010, s 7 (BA 2010) which creates the corporate offence of a company failing to prevent bribery by its employees. BA 2010, s 7 creates a defence for companies if they can prove they had adequate procedures in place designed to prevent those associated with them from undertaking such conduct. This effectively reverses the usual burden of proof under English law which, for corporate liability, requires proof that the 'controlling mind' of the company (which usually means board level management) was complicit in the criminal behaviour. In the absence of directly incriminating emails or records of other communications this can be extremely difficult to prove. If this proposed extension of BA 2010, s 7 were to be introduced, we would undoubtedly see many more corporate prosecutions.

Should firms make any changes to their anti-bribery and corruptions systems?

As BA 2010 came into force in 2011, firms should already have reviewed their anti-bribery and corruption policies to ensure the 'adequate procedures' defence would be available to them in the event of prosecution. Even before any further change in law, corporate counsel would be well advised to review all procedures for the detection of fraud and money-laundering thoroughly to ensure:

·         offending behaviour is caught early

·         investigations are carried out swiftly

·         self-reporting is considered in a timely manner

The SFO's Guidance for Corporate Prosecutions makes clear that, along with other factors, 'the existence of a genuinely proactive and effective corporate compliance programme' would weigh against the public interest in a prosecution.

Though there has yet to be a corporate prosecution under BA 2010, this should not be cause for complacency. Since BA 2010 came into force, the SFO will be alerted to behaviour conducted from July 2011 which could be prosecuted under BA 2010 and they are clearly hungry to bring their first prosecution.

David McCluskey is a partner specialising in business crime litigation. His expertise covers large scale money laundering, insider dealing, corruption and complex fraud investigations.

Interviewed by Lucy Karsten.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Corporate Crime analysis by David McCluskey 'How far does the NCA's asset recovery power reach?', Lexis Nexis, 25 October 2013


Corporate Crime analysis: David McCluskey, partner at Peters & Peters LLP specialising in business crime litigation, discusses the National Crime Agency's attempt to enforce asset recovery in the case of Israeli tycoon Israel Perry.


Original news

NCA's powers to freeze worldwide assets tested in High Court

Independent, 25 October 2013: The National Crime Agency's (NCA) powers to freeze criminals' global assets are under scrutiny in the High Court, as it attempts to enforce the seizure of Israeli tycoon Israel Perry's worldwide assets.

What does this case tell us about the NCA's enforcement strategy?

The NCA plainly wishes to pursue asset recovery proceedings against the greatest number of defendants and in respect of the widest property that it can lawfully seize or recover.

The case also indicates that the NCA wishes to make greater use of civil recovery orders. These have the advantage that it is not necessary to convict a person under UK law in order to obtain such an order--it is merely necessary to prove that property is recoverable property under the Proceeds of Crime Act 2002, s 242 (POCA 2002). In this regard, the explanatory notes are inexcusably brief in describing the true effect of the amendments.

While the Crime and Courts Act 2013, s 48 (CCA 2013) does indeed deal with the Perry position(Perry v Serious Organised Crime Agency [2012]All ER (D) 252 (Jul)), CCA 2013, s 49 introduces wholesale changes which provide those pursuing a civil recovery investigation with sweeping powers that are ordinarily only available to those conducting a criminal investigation.

Thus a civil recovery investigation may now found applications for:

·         production orders

·         search warrants

·         disclosure orders

·         customer information orders

·         account monitoring orders, and the like

These involve substantial invasions of the personal rights of individuals, which it is submitted are simply not justified in a non-criminal context.

The Perry amendments themselves closely reflect the structure of some criminal offences which are given extraterritorial effect in respect of those with a 'close connection' to the UK. See for instance the Bribery Act 2010. CCA 2013 goes further, however, and provides for property-related and conduct-related connections which may also confer jurisdiction on the court.

Why has this avenue been pursued after the Serious Organised Crime Agency (SOCA) lost in the Supreme Court?

Plainly, SOCA has made a good case for arguing that at the very least, recovery orders should be made extraterritorial in respect of citizens and residents of the UK, and where there is a property or conduct related connection to the UK.

SOCA has, rightly in my view, made a good case for arguing that there should be some limited extraterritorial application in respect of recovery orders. However the amendments in CCA 2013, s 49 go too far in my view, and risk once again blurring the distinction between a criminal and civil investigation, which I deal with further below.

What are the limits of the NCA's powers in relation to worldwide freezing of assets?

That depends on what kind of order is sought by the NCA. It must be borne in mind that Perry (and the subsequent amendments) only relate to civil recovery orders. The NCA has always had the power to obtain a restraint order against a person's assets worldwide where it is conducting a criminal investigation.

In this regard, it is worth highlighting the difference between the two regimes. Restraint orders may be obtained where a criminal investigation (or proceedings) has begun in England and Wales, and there are reasonable grounds to believe that an offender has benefited from his conduct.

Restraint orders operate in personam, in contrast to civil recovery orders which operate in rem. Thus a person served with a restraint order is under a personal duty to comply with that order--which may include not dealing with his assets wherever situated. A restraint order may even include an obligation to repatriate assets held outside the UK to within the jurisdiction.

In this regard, it is interesting that in the Court of Appeal (which ruled in favour of SOCA) Hooper LJ, in finding that civil recovery orders did have extraterritorial jurisdiction, 'derived support for his conclusions from analogies with the law of bankruptcy and from the practice of issuing worldwide freezing orders'.

Although not explicitly stated by the Supreme Court, it would seem that there is a more appropriate analogy to be drawn between worldwide freezing orders issued by the High Court and restraint orders. Both operate in personam, and the effect of breach by a person served personally with the order may include imprisonment for contempt of court.

What are the challenges facing the NCA in this area?

The two main challenges are identification of property, and the exercise of proper jurisdiction over the relevant property and persons. To that extent the amendments may cause some confusion by their inclusion of clauses conferring jurisdiction by reference to the identity of those holding the property, who acquired it, or who committed the unlawful conduct. In my view those clauses do not change the fundamental nature of a recovery order namely that it operates in rem.

What are the possible wider implications of this case?

The case has served to further clarify and underline the distinction between asset recovery in a criminal context (the POCA 2002, Pts 2 and 7) and that in a non-criminal context (POCA 2002, Pt 5). In this regard it is important to note that the recent amendments have not sought to disturb the primary finding of the court in Perry, which is that civil recovery orders operate in rem whereas orders under POCA 2002, Part 2 operate in personam. This distinction becomes clearer when comparing the respective definitions of criminal/unlawful property and benefit in:

·         Part 7--(s 340(5): A person benefits from conduct if he obtains property as a result of or in connection with the conduct, and

·         Part 2--(s 242(1): A person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct

The requirement for a greater nexus ('by or in return' versus 'as a result of or in connection with') between conduct and acquisition can be contrasted with the fact that POCA 2002, Pt 5 proceedings do not require proof of specific criminal conduct. This is part of the balancing exercise that must be undertaken between the need to confiscate criminal property and the need to respect property rights. By contrast, where a criminal offence of money laundering is charged under Pt 7, there is a looser connection between conduct and property, which need only be acquired 'in connection with' the conduct, albeit that this must be proved to a much higher standard.

What should lawyers do next?

There is likely to be much room for debate on the precise application of the criteria for what constitutes a 'connection' between the case and the 'relevant part' of the UK. In this regard it is worth noting that England and Wales on the one hand and Scotland on the other are treated no differently to other foreign jurisdictions in requiring there to be a connection between the case and the 'relevant part' ie where the order was made, whether it be England and Wales or Scotland.

There is also provision for jurisdiction according to whether property was within the jurisdiction, or whether it was recoverable property, even if for a limited period of time.

Close attention must be paid to the use of invasive powers such as search warrants, account monitoring orders, and the like. Appropriate cases may well see a challenge to the validity of such provisions, on the basis that they represent a disproportionate interference with personal and property rights in the circumstances of a non-criminal investigation.

Interviewed by Dave Thorley. The Views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This is reproduced with the kind permission of Lexis Nexis. 

Is UK Legislation on the Internet Sale of DVDs Fair or Even Fit for Purpose? by Maria Cronin

To read Maria's article which was originally published in Issue 6 of the Entertainment Law Review 2013, please click on the attachment below. Maria Cronin is an Associate in the Business Crime Department and can be contacted at mcronin@petersandpeters.com


'Anti-Competitive Camouflage: Pay-for-Delay Agreements' by Jonathan Tickner and Emma Ruane, the 6th edition of The International Comparative Legal Guide to Competition Litigation 2014

To read the article in full please click on the attachment below.

Enforcing White Collar Crime in the UK by Neil Swift, Financier Worldwide, September 2013

Responsibility for the investigation and prosecution of white-collar crime in England and Wales is shared between three specialist agencies: the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA) and the Office of Fair Trading (OFT).

In addition, serious frauds investigated by the police and tax frauds investigated by Her Majesty’s Revenue & Customs are prosecuted by the Crown Prosecution Service Central Fraud Division.

This article looks at the remit of the three specialist agencies, examines their recent history and discerns what each aspires to.

Who's Afraid of the Bribery Act

Monty Raphael asks the question

"Conducting Internal Investigations”, Financier Worldwide, August 2013

Running an internal corporate investigation is fraught with risk. Even a single-site, small to medium sized company will face a number of difficulties in carrying out an internal investigation. The risks multiply many times when the company concerned operates in a number of different countries.

To read the full article, please click on the link below. Financier worldwide is subscription only.

Keith Oliver and Maria Cronin have their Case Study on Fraud published in 'Droits De la Personne', May 2013

To purchase this publication, or to find out more information please click on the link below.

Article by Helen McDowell and Emily Wilson, 'Challenging extradition on human rights grounds', Lexis Nexis, 12 July 2013

Corporate Crime analysis: Are the courts showing signs of relaxing the stringent threshold to be met when resisting extradition? Helen McDowell, business crime managing partner, and Emily Wilson of Peters & Peters, advise that it’s worth considering new human rights angles in extradition cases. To read the article in full please click on the attachment below.

'Privilege Against Self-Incrimination In Civil Cases' by Jason Woodland, YFLA Newsletter Vol 2, Issue 2, 2013

This article focuses on what happens at trial. What steps can a party to civil proceedings take at that stage to avoid providing evidence which might incriminate them? To read the article please click on the attachment below.