New US Department of Justice Policy demonstrates commitment to pursuing individual wrongdoing. Anoushka Warlow and Suzanne Gallagher consider the new policy, and whether the UK’s Serious Fraud Office will follow suit.
The US Department of Justice (‘DoJ’) announced a revised approach to corporate self-reporting. Its new Corporate Enforcement and Voluntary Self Disclosure Policy (“the Policy”) sets out that companies can now receive up to a 75% discount in fines arising from corporate wrongdoing where they come forward and provide “extraordinary cooperation”. The discount represents a significant increase, up from 50% under previous guidance, and introduces a new essential ingredient of extraordinary cooperation.
In a speech at Georgetown University Law School to accompany the publication of the Policy, Assistant Attorney General Kenneth Polite also confirmed that companies which fully cooperate, but do not self-report, can expect a 50% reduction in the penalty. This is double the amount previously offered.
AAG Polite went on to set out three factors that will determine whether the increased discount will be applied:
- Immediacy: voluntary self-disclosure is made immediately upon the company becoming aware of misconduct;
- Compliance: at the time of the misconduct and disclosure the company had an effective compliance programme and system of internal controls; and
- Extraordinary cooperation: Even companies implicated in serious misconduct, with aggravating factors such as senior executive involvement, will potentially be able to avoid prosecution if they provide extraordinary cooperation.
“Extraordinary Cooperation” – Losing Friends and Implicating Individuals
In his speech, AAG Polite distinguished between ‘extraordinary’ and ‘full’ cooperation.
Whilst there is no strict criteria (“we know [it] when we see it”), AAG Polite made clear that extraordinary cooperation goes above and beyond the criteria for full cooperation; it is not “run of the mill or even gold standard cooperation but truly extraordinary.” Importantly, it includes the role of the corporate entity in bringing individuals to account and ensuring the “disciplining bad actors and rewarding good ones.”
The new Policy sets out what this means. ‘Voluntary self-disclosure’ is described as (amongst other things), the disclosure of “all relevant facts and evidence about all individuals involved in or responsible for the misconduct at issue, including individuals inside and outside of the company….”. ‘Full cooperation’ is described as the timely disclosure of all non-privileged facts and includes “identification of all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, including the company’s officers, employees, customers, competitors, or agents and third-parties, and all non-privileged information relating to the misconduct and involvement by those individuals.”
If this is the minimum required to satisfy the ‘full cooperation’ criteria, plainly more is required if a corporate entity is to be regarded as ‘extraordinarily’ cooperative. AAG Polite suggested that, for example, making individuals available for interview, allowing for the collection evidence from hard-to-get sources, having recorded conversations, and testifying at a trial or providing information that leads to additional convictions might help tip the scale.
The “number one goal”, as repeatedly emphasised in AAG Polite’s speech, is individual accountability. Identifying all individuals responsible for the misconduct at issue, irrespective of status and seniority is at the heart of this new policy and chimes with the objectives set out in Deputy Attorney General Lisa Monaco’s Memorandum, issued in September 2022, which confirmed that the DoJ’s ‘first priority’ was to hold accountable the individuals who commit and profit from corporate crime.
Individual accountability across the pond – are the DOJ having more success than the Serious Fraud Office?
The DoJ’s success rate in securing convictions against individuals where a corporate has secured leniency by way of self-reporting is patchy. Between 2016 and 2020, the DoJ prosecuted employees in 37% of 146 cases where companies received leniency. An example that the DoJ will not be highlighting in speeches and policy papers is the attempted prosecution of Robert Bogucki, a senior executive at Barclay’s Bank who was indicted for fraud. The evidence against him consisted of phone call recordings, chat messages and testimony obtained through the agreement reached with his employer, the first time the DoJ had declined to prosecute a company in a non-corruption case.
In 2019, US District Judge Charles Breyer acquitted Mr. Bogucki before the matter went before a jury. In his judgement, Judge Breyer stated that the DoJ had overreached by pursing a criminal prosecution “on the basis of conduct that violated no clear rule or regulation.”
Parallels can be drawn between Mr. Bogucki’s experience and the attempted prosecution of senior executives by the Serious Fraud Office (‘SFO’) in this jurisdiction. It is well known that, to date, the SFO have been unable to secure the conviction of any individual following the approval of Deferred Prosecution Agreements (‘DPA’) between the SFO and a corporate entity. DPAs have been available to the SFO and other specialist prosecutors for almost a decade for a wide range of offences including fraud, bribery and corruption. A corporate entity successful in securing a DPA can expect a penalty reduction of 50%, an opportunity to avoid prosecution, and a quicker and more certain resolution of the matter. They are, as a consequence, a convenient (and often commercially sensible) mechanism of enabling a corporate entity to resolve investigations regardless of the overall strength of underlying evidence. DPAs are similarly attractive to the SFO, avoiding trial with all its uncertainty and generating approximately £1.8 billion in fines and disgorgement of profits to date. Whilst a DPA requires judicial approval, the court is not required to assess whether the evidence underlying the DPA is sufficient to establish the agreed facts.
As a result, the DPA process allows the SFO and a corporate entity to accept criminal wrongdoing on the basis of evidence which, when tested, does not stand up to scrutiny. The recent failed prosecution of Nicholas Woods and Samuel Marshall following the DPA with Serco is a case in point. In his report into the matter, Brian Altman KC quoted leading counsel for Mr Marshall who said “The principal lesson of Serco can only be learned if the SFO asks itself some hard questions about the process which led to the manufacture of a flawed case against an individual, in order to suit the convenience of a DPA. It was abundantly clear that there was simply no process by which the case agreed between the company (on behalf of its non-trading subsidiary) and the SFO was tested.”
Further, it is worth remembering the comments of the trial judge in the Tesco case that the evidence was “so weak that it should not be left for a jury’s consideration” in circumstances where Tesco had already accepted, as part of the DPA process, the guilt of the defendants who were subsequently acquitted.
Should the SFO follow suit?
The new DoJ Policy restates and intensifies the US focus on the role of individuals inside and outside organisations in corporate wrongdoing. Companies involved are now, more clearly than ever before, incentivised to disclose evidence that will determine the fate of the so called ‘bad actors’. To secure substantial reductions in fines, they are now asked, on one reading, to limit their own liability by amplifying others.
The SFO will no doubt wish to focus on quashing doubts cast in recent years about its capacity to secure convictions against individuals in cases involving settlement with corporates, and – given trials which are currently ongoing or in the pipeline – it may well soon be successful in doing so. However, plainly the success of trials of individuals will rest on a proper assessment of the evidence. In circumstances where the strength of the evidence is often not the most important factor in a corporate entities’ decision to seek a DPA, it may be unwise for the SFO to follow the DoJ’s lead in further incentivising boards into becoming hired guns in the pursuit of individuals.