ECC0010

Written evidence submitted by Professor Nicholas Ryder and Demelza Hall, Global Crime, Justice and Security Research Group, Bristol Law School, University of the West of England, Bristol

 

The United States of America

 

The United States (US) approach originated in New York Central & Hudson River Railroad Company v. US.[1]  Here, the issue was whether the corporation was liable for the illegal acts of its agent.  Here, the defendants, were convicted for breaching the Elkins Act 1903,[2] which proscribed the payment of rebates.  The Supreme Court declared that “the old and exploded doctrine that a corporation cannot commit a crime” was no longer appropriate.[3]  The Supreme Court held that a corporation could be held criminally responsible for the illegal acts of its agent.  The US judiciary have adopted the respondent superior model to deal with the doctrine of corporate criminal liability.[4] This is a variation of the vicarious liability doctrine, and it allows the extension of civil liability on employers for the actions committed by their agents.[5] However, the Supreme Court did not offer any specific guidance in what circumstances this model could be applied.  The decision of the Supreme Court has since been broadened to comprise the actions of agents of corporations who are acting without authority or breaching specific directions.[6] Therefore, a corporation could be held liable for the conduct of “low-level employees who acted contrary to the corporate policy and to the compliance program of its firm”.[7]

The Prosecution of Corporations

The instigation of criminal proceedings in corporate economic cases initially concentrated on persons and not corporations [8] and it was not until later decade that the Department of Justice (DoJ) began to indict corporations.  For example, in 1987 EF Hutton revealed that some of its brokers had laundered money for the Patriarca Crime Family.[9]  The company was convicted of 2,000 counts of fraud [10] and entered into a plea bargain,[11] yet none of the employees were prosecuted, only the company was held responsible.  The prosecution of Drexel Burnham Lambert illustrates the impact of a corporate conviction.  After the firm’s managing director pleaded guilty to insider trading charges,[12]  prosecutors launched an investigation into the company,[13] who entered into an ‘Alford plea’[14] and agreed to pay a fine of $650m.[15]  Consequently, Drexel Burnham Lambert was forced to close several of its departments which resulted in the loss of 5,000 jobs, illustrating the far reaching consequences of a corporate conviction.  One way to mitigate the impact of a corporate conviction is by using Deferred Prosecution Agreements (DPA).  Early examples include Salomon Brothers,[16] Prudential Securities Incorporated,[17] where both companies continued to operate in contrast to the damaging impact of the corporate convictions of EF Hutton and Drexel Burnham Lambert. 

It was not until the conviction of Arthur Anderson LLP, that the DoJ reconsidered the indictment of corporations and fully used DPAs. Arthur Andersen had acted as an outside accountant for Enron, which collapsed in 2001 due to fraud.[18] Arthur Andersen was accused of shredding audit documents during the investigation into Enron’s conduct and agreed to surrender its practicing license following its conviction for obstruction of justice.  As a result, Arthur Andersen filed for bankruptcy and 30,000 employees were made redundant. The conviction was overturned in 2005 due to inaccurate jury instructions by federal prosecutors.[19] In the wake of this judgment, the DoJ decided to rethink its use of corporation prosecution and increase its use of the safer, generous and more flexible option, the DPA.[20]  To ensure consistency in the use of this option, the Deputy Attorney General published the Federal Prosecution of Corporations or ‘Holder Memo’.[21]  The Holder Memo (as amended) contained factors that prosecutors are required to consider before deciding to commence criminal proceedings against a corporation,[22]  one of which being that, the potential ‘collateral consequences’ must be considered before any economic crime charges are brought against corporations.[23]  This includes the likely impact of a prosecution on employees, investors and the economy.[24]

US prosecutors are ‘too scared’ to indict corporations following the collapse of Arthur Andersen.  The way HSBC was treated is an excellent point in case.  In December 2012, the DoJ announced that it had reached an agreement with HSBC for violating US anti-money laundering (AML) laws, the United Nations sanctions regime and related criminal offences.[25]  HSBC entered into a DPA, paid fine $1.92bn, introduced a series of measures to improve its compliance procedures and offered an apology.[26] There are two factors, which contributed to this DPA, both relate to the wider consequences of corporate prosecution.  Firstly, HSBC was not indicted because a criminal conviction would weaken an already fragile financial system that was still recovering from the 2007/2008 financial crisis.[27]  Secondly, HSBC was not prosecuted due to political interference from the UK.[28]  Remarkably, again the justification of the wider consequences of corporate prosecution was used, though by the UK, as a way to block indictments. One of the aims of punishment is deterrence. HSBC, like Arthur Andersen, was a repeat offender who had previously been sanctioned in France,[29] the UK,[30] Switzerland,[31] the US [32] and Hong Kong.[33] It has been suggested that “the greatest deterrent effect is not to prosecute a corporation … [it] is to prosecute the individuals in the corporations that are responsible for those decisions”.[34]  However, the DoJ has declined to prosecute any employee or agent of HSBC.  Conversely, there are some instances of corporations entering into a DPA and the DoJ securing convictions of employees.[35]  However, the use of criminal proceedings against employees has been questioned because an individual’s conviction will “seldom affect the way the corporation … will behave itself”.[36]  The indictment of employees or agents of a corporation must be used in conjunction with a DPA if they are to act as a deterrent for future misconduct.  The combination of these two forms of punishment would present a stronger deterrent

However, the DoJ can make use of a variety of other measures. First, it can impose financial penalties in pursuance of the Sentencing Reform Act and second, it can instigate civil proceedings under the Financial Institutions Reform, Recovery and Enforcement Act 1989. A combination of criminal prosecution, possibly using DPAs, as well as these measures is likely to yield the most appropriate results in terms of punishment. The Sentencing Reform Act (1984) has permitted law enforcement and financial regulation agencies to impose a number of large financial penalties on corporations who have breached economic crime legislation.  This is the most frequently used enforcement power against corporations in the US and it is regularly used in association with a DPA, as illustrated in the HSBC case above.  Another important legislative measure that has been used against corporations is the Financial Institutions Reform, Recovery and Enforcement Act (1989).[37]  The Act permits law enforcement and financial regulatory agencies to instigate civil proceedings against corporations for a wide range of economic crimes.[38]  Prosecutors are only required to illustrate a civil burden of proof and not a criminal burden in order to impose civil liability on the offending corporation.[39]  This measure has been used on numerous occasions for corporate economic crime offences and it has generated billions of dollars in financial penalties and compensation.[40]

 

The criminal liability of corporations has evolved since New York Central.  However, the application of the respondent superior doctrine in economic crime cases has not fully materialised as the DoJ tended to favour prosecuting the employees of corporations. The impact of DPAs on corporate behaviour has been queried because they had done little to repeat further economic crime breaches, such as those committed by Arthur Andersen and HSBC.  DPAs must consistently be used in conjunction with the indictment of employees.  Furthermore, legislation permitting financial regulatory and law enforcement agencies to impose financial penalties and instigate civil litigation for a wide range of economic crime cases must be utilised in conjunction with a DPA and the prosecution of errant employees.

 

The United Kingdom

The Doctrine of Corporate Criminal Liability in the UK

 

The doctrine of corporate criminal liability has attracted a great deal of criticism, most of which has been directed at the related common law. The courts began to consider the application of criminal law to companies in the nineteenth century, which included cases involving public nuisance, criminal libel and breach of statutory duty.[41] The doctrine was extended by three Court of Appeal decisions, which concluded that a corporation could be held directly accountable, as opposed to vicariously liable, for the actions of their employees.[42] In order for a company to be found guilty of a criminal offence, a person who has the directing mind of the company and the self-determination of the company must also have criminal intent.[43]  This decision in Tesco resulted in the creation of the ‘identification doctrine’, the test to determine whether corporations are to be held liable for breaches of criminal law.  This test has become the principal reason that prevents prosecutors bringing criminal proceedings against corporations because the identification doctrine.[44] The decision in Tesco and the subsequent judicial interpretation were unsatisfactory and resulted in the publication of a consultation paper by the Ministry of Justice, [45] which seeks to build on the failure to prevent offences under the Bribery Act 2010.[46] 

 

The Success of the Bribery Act 2010

 

The Bribery Act 2010 introduced a new form of corporate criminal liability where a corporation commits an offence if a person associated with the organisation bribes another, intending to obtain or retain business or a business advantage for that organisation.[47] The scope of s. 7 is broad, so as to encompass the whole range of individuals who may be committing bribery on behalf of a third party organisation. The existence of this offence does not affect the common law principle, which governs the liability of corporate bodies for criminal offences. Under this provision, prosecuting bodies must prove a mens rea or fault element in addition to the actus reus or conduct element. This common law principle, also known as the identification principle should still be used instead of s. 7 where it is possible to prove “that a person who is properly regarded as representing the ‘directing mind’ of the body in question possessed the necessary fault element required for the offence”.[48]  Interestingly, the introduction of the failing to prevent bribery offence has been enforced by the Serious Fraud Office (SFO), which has used DPAs.[49] Although s. 7 of the Bribery Act 2010 was introduced to address the limited application of criminal law to corporations, it has resulted in the use of DPAs, which as discussed above is questionable as such.[50] 

 

Applying the UK and US Approaches to UK Corporate Prosecution for Anti-Money Laundering

The introduction of the Senior Managers and Certification Regime (SMCR) presents an opportunity to possibly overcome the problems associated with the identification doctrine. The SMCR has two objectives: to encourage all staff within the financial services sector to take responsibility for their actions and that authorised firms and employees can clearly illustrate where the responsibility lies.[51] The SMCR provides that a corporation’s senior management is responsible for the policies, systems and controls that are designed to reduce the threat posed by economic crime. Therefore, the SMCR places the obligation of the regulated corporations to limit the risk posed by economic crime on its senior management. Under the SMCR one of the most frequently, used powers against corporations for economic crime breaches by the Financial Conduct Authority (FCA) are financial penalties.[52] For example, the FCA fined Deutsche Bank £163.1m for failing to maintain an adequate AML laundering system.[53] Unfortunately, financial penalties appear to be ineffective, a good example being the £72m fine imposed on Barclays Bank.  Here, the FCA stated that the banks “senior management … had failed to oversee adequately Barclays’ handling of the economic crime risks … and that it was unclear which senior managers were in charge of doing so”.[54] Despite the imposition of financial sanction, the regulator decided against imposing any further sanctions such as a prosecution of the banks senior management or the money laundering reporting officer.  The decision by the FCA to impose this record financial penalty can be contrasted with the stance of its predecessor, the Financial Services Authority (FSA), towards HSBC when the regulator decided not to take any action.  This must be questioned and criticized given the contrasting content of each case.  For instance, HSBC flouted AML laws and the UN sanctions regime, which resulted in no enforcement action by the FSA and Deutsche Bank who were fined for not having adequate AML rules, even though there was no evidence of any money laundering.[55] The use of civil proceedings against corporations for violating corporate economic crime legislation might improve the effectiveness of the measures taken against corporations.  With this view it is recommended that UK legislative should introduce legislation that is based on the provisions in the Financial Institutions Reform, Recovery and Enforcement Act 1989. This legislation could provide another mechanism to target corporations who have breached economic crime legislation. As explained above in relation to the US it is the combination of a variety of measures that ensures the effectiveness of these measures in terms of deterrence.

SMCR

For non-compliance with the SMCR, the FCA will take enforcement actions against senior managers.[56] Whilst the FCA has issued financial penalties on individuals since the SMCRs introduction, the overall effectiveness and deterrent of the regime has been questioned. A recent Freedom of Information request revealed there have been only 34 investigations with one successful enforcement action.[57] The outcome is unsatisfactory and the FCA needs to take a more proactive stance to illustrate how the SMCR can serve its purpose; an approach that has been adopted from the Competition and Markets Authority (CMA).  The CMA have actively taken enforcement actions against company directors who have breached competition law with Competition Disqualification Orders (CDO), which allow the disqualification of an individual from being a company director for a period up to 15 years.[58] The CMA recognises individual liability as a powerful deterrent and since 2016, they have disqualified 18 directors with the intention of continuing to make greater use of its disqualification powers.[59] At present, the FCA cannot seek the disqualification of a director itself. Instead, where the FCA considers the conduct of a director falls below the standard required, from information obtained through investigation, it may refer information to the Insolvency Service “to consider whether to seek the disqualification of that person as a director”.[60] Therefore, if a similar tool was available to the FCA, it could provide the FCA with an additional enforcement mechanism. Furthermore, it would strengthen the SMCR regime and send a message to senior management that individual accountability will be scrutinised with impactful consequences if it is not taken seriously. Together with the appropriate use of DPAs and financial penalties, it would provide a forceful deterrent for both corporations and individuals.

Conclusion

The doctrine of corporate criminal responsibility in the UK can be contrasted with the approach in the US.  The House of Lords in Tesco v Nattrass adopted a very narrow and restrictive approach to the criminal acts of corporations.  In order to address this problem, the Corporate Manslaughter and Corporate Homicide Act 2007 was introduced to impose criminal liability on corporations. However, the doctrine has continued to limit the ability to prosecute corporations for breaches of criminal law. Therefore, UK efforts to tackle economic crime have tended to concentrate on targeting individuals as opposed to corporations, thus adopting a similar model to the US. The Bribery Act 2010 resulted in the introduction of the corporate criminal offence for failing to prevent bribery.  Importantly, there have been no related prosecutions used in association with DPAs and UK authorities have adopted a similar approach to that in the US. DPAs must be used in conjunction with criminal proceedings against employees and/or agents of corporations if they are to have a deterrent effect to reduce future misconduct. The introduction of the SMCR by the FCA is potentially the most significant law enforcement mechanism that could overcome the restrictive interpretation of the doctrine of corporate criminal liability. By placing the management of economic control within the remit of a company’s ‘senior management’ this will go some way to allow the courts to identify who within a corporate structure meets the controlling mind test.  The ability to recognise the person who has the controlling mind could go some way to redress this problem. The ability of the FCA to instigate financial penalties draws unfavourable comparisons with the provisions on the US.  The UK needs to introduce legislation based on the Financial Institutions Reform, Recovery and Enforcement Act 1989. Such a move would provide the FCA and other related agencies with the ability to pursue a series of civil actions against corporations for economic crime. The window of self-reform is closing and we hope that corporations will learn to self-regulate. However, the evidence presented in our submission suggests otherwise and corporations will continue to operate in an ecosystem of deviance.

In addition to these suggestions, the Treasury Committee may be interested some of these research publications that provide a more in-depth commentary on how the UK has tackled corporate economic crime:

Hall, D. and Ryder, N. ‘The protection of whistle-blowers in the United Kingdom – a critical and comparative commentary’ In: Grasso, C. Whistleblowers: Voices of Justice Springer (2020).

Herlin-Karnell, E. and Ryder, N. Market Manipulation and Insider Trading – Regulatory Challenges in the United States of America, the European Union and the United Kingdom (Hart, 2019).

Ryder, N. ‘Too scared to prosecute and too scared to jail? A critical and comparative analysis of enforcement of financial crime legislation against corporations in the United States of America and the United Kingdom’ (2018) Journal of Criminal Law, 82(3), 215-233.

Ryder, N. ‘The Legal Mechanisms to control Bribery and Corruption’. In: Rider, B. (eds) Research Handbook on International Financial Crimes, Edward Elgar: Cheltenham, 2015, 381-393.

Ryder, N. The Financial Crisis and White Collar Crime: The Perfect Storm? (Edward Elgar, 2014).

Ryder, N, and Pasculli, L. Corruption, integrity and the law – global regulatory challenges (Routledge: 2020).

 

Pasculli, L. and Ryder, N, Corruption in the Global Era: Causes, Sources and Forms of Manifestation (Routledge: 2019).

 

Ryder, N. The Financial Crisis and White Collar Crime - Legislative and Policy Responses (Routledge, 2017).

 

Ryder, N. Fighting Financial Crime in the Global Economic Crisis: Policy, Trends and Sanctions (Routledge, 2014).

 

November 2020

12 | Page

 


[1] 212 U.S. 481 (1909).

[2] 32 Stat. 847.

[3] 212 U.S. 481 (1909) at 495 per Justice Day.

[4] See generally Marbury Management Inc v Kohn (2d Cir 1980) 629 F 2d 705; Wood, Walker & Co v Marbury Management Inc 449 US 1011; Sharp v Coopers & Lybrand (3d Cir 1981) 649 F 2d 175 cert denied 455 US 938 (3d Cir 1981).

[5] The evolution of this doctrine has been heavily influenced by three distinct theories that the US judiciary have developed regarding the corporate identity: the artificial theory, the aggregation theory and the real entity.  A full discussion of these theories is beyond the scope of this submission but see generally D. Millon ‘Theories of the corporation’ (1990) 2 Duke Law Journal 201.

[6] See United States v. Hilton Hotels Corp., 467 F.2d 1000, 1004 (9th Cir. 1972).

[7] E. Lederman ‘Corporate criminal liability: the second generation’ (2016) 46 Stetson Law Review 74. 

[8] This was illustrated following the 1980s Savings and Loans Crisis, which resulted in the collapse of over 2,100 financial institutions and losses exceeding $150bn and resulted in  over 1,000 senior executives being convicted of fraud and receiving lengthy custodial sentences.  See S. Smith ‘Reforming the law of adhesion contracts: a judicial response to the subprime mortgage crisis’ (2010) Fall Lewis & Clark Law 1060.

[9] C. Golumbie and A Lichy ‘The too big to jail effect and the impact on the Justice Department’s corporate charging policy’ (2014) 65 Hastings Law Journal 1301.

[10] See generally Committee on the Judiciary House of Representatives Hearings before the Subcommittee on Crime of the Committee on the Judiciary House of Representatives on H.R. 3500 and H.R. 3911: Major Fraud Act of 1988 (Committee on the Judiciary House of Representatives: Washington DC, 1989).

[11] See Golumbie and Lichy, above n 9 at 1301-1302.

[12] Levine was given a two-year custodial sentence and ordered to pay a fine of $362,000.  See T. Lueck ‘Levine gets 2-year jail term’, February 21 1987, available from http://www.nytimes.com/1987/02/21/business/levine-gets-2-year-jail-term.html, accessed November 10 2017. 

[13] The investigation and subsequent prosecution was under the Racketeering Influenced and Corrupt Organisations Act 1970.  See Public Law 91-452 and 18 USC ss 1961-1968.

[14] An Alford plea is where a defendant submits a guilty plea but at the same time asserts their innocence.  See North Carolina v Alford 400 U.S. 25 (1970.

[15] K. Eichenwald ‘The collapse of Drexel Burnham Lambert; Drexel, symbol of Wall St, era, is dismantling; bankruptcy filed’, February 14 1990, available from http://www.nytimes.com/1990/02/14/business/collapse-drexel-burnham-lambert-drexel-symbol-wall-st-era-dismantling-bankruptcy.html?pagewanted=all, accessed November 10 2017.

[16] United States Department of Justice ‘Department of Justice and SEC enter $290m settlement with Saloman Brothers in Treasury Securities Case’, May 20 1992, available from https://www.justice.gov/archive/atr/public/press_releases/1992/211182.htm, accessed November 10 2017.

[17] See Securities and Exchange Commission ‘Prudential to pay $600 Million in Global Settlement of Fraud Charges in Connection With Deceptive Market Timing of Mutual Funds’, August 28 2006, available from https://www.sec.gov/news/press/2006/2006-145.htm, accessed November 10 2017.

[18] Two of Enron’s directors, Kenneth Lay and Jeffrey Skilling were convicted on multiple counts of securities, wire fraud, money laundering and insider trading.  Lay was convicted and sentenced to 45 years in prison, although he died before commencing his sentence.  Skilling was sentenced to 24 years imprisonment, which has since been reduced to ten years on appeal.  See Skilling v United States (No. 08-1394) 554 F. 3d, 529.

[19] Indeed the Supreme Court unanimously noted, “jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing”.  See Arthur Andersen LLP v. United States, 544 U.S. 696 (2005). 

[20] C. Grasso, ‘Peaks and Troughs of the English Deferred Prosecution Agreement: The Lesson Learned From the DPA Between the SFO and ICBC SB Plc.’ (2016) 5 Journal of Business Law 39.

[21] United States Department of Justice ‘Bringing Criminal Charges Against Corporations’, June 16 1999, available from https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF, accessed November 29 2017.

[22] The factors are the significance of the offence, the frequency of illegal conduct in the company, any history of comparable behaviour, the voluntary revelation of misconduct, the competence of the company’s compliance regime, the corrective activities of the company, collateral consequences and the appropriateness of civil remedies.  See United States Department of Justice ‘Bringing Criminal Charges Against Corporations’, June 16 1999, available from https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF, accessed November 29 2017.

[23] S. Fredericksen and G. Husisian ‘The future of white collar enforcement under the Trump administration’ (2017) 23(2) International Trade Law & Regulation 78.

[24] R. Cheung ‘Money laundering - a new era for sentencing organisations’ (2017) 1 Journal of Business Law 29.

[25] See United States Department of Justice ‘HSBC Holdings Plc and HSBC Bank USA N.A Admit to anti-money laundering and sanctions violations, forfeit $1.256bn in deferred prosecution agreement’, December 11 2012, available from https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-bank-usa-na-admit-anti-money-laundering-and-sanctions-violations, accessed August 3 2016.  In particular, HSBC admitted to breaching the Bank Secrecy Act 1970, the International Emergency Economic Powers Act 1977 and the Trading with the Enemy Act 1917.

[26] Ibid.  See HSBC ‘HSBC announces settlements with authorities’, December 11 2012, available from http://www.hsbc.com/news-and-insight/media-resources/media-releases/2012/hsbc-announces-settlements-with-authorities, accessed December 6 2017.  In December 2017, HSBC announced that the five year DPA had expired and the charges have been deferred.  See HSBC ‘HSBC Holdings plc Expiration of 2012 Deferred Prosecution Agreement’, December 11 2017, available from http://www.hsbc.com/news-and-insight/media-resources/media-releases/2017/hsbc-holdings-plc-expiration-of-2012-deferred-prosecution-agreement, accessed December 18 2017.

[27] This factor was acknowledged by the former Attorney General Eric Holder who stated that a prosecution “will have a negative impact on the national economy, perhaps even the world economy”.  As cited in D. Douglas ‘Holder concerned megabanks too big to jail’, March 6 2013, available from https://www.washingtonpost.com/business/economy/holder-concerned-megabanks-too-big-to-jail/2013/03/06/6fa2b07a-869e-11e2-999e-5f8e0410cb9d_story.html?utm_term=.24ad57729bdc, accessed July 31 2017.

[28] The House of Representatives Committee on Financial Services published several correspondences from the FSA and HM Treasury who pleaded with the DoJ “against a prosecution, [because] it was clear they were very concerned about the reverberations such an action could have within the financial system”.  See US House of Representatives Too big to jail: inside the Obama Justice Department’s decision not to hold Wall Street accountable (Republican Staff of the Committee on Financial Services, US House of Representatives, 2016) at 13 and appendix 2.

[29] In November 2017 the Cour d’appel de Paris approved the use of a DPA against HSBC for money laundering and tax evasion charges.  See Ministère de la JusticeConvention judiciaire d'intérêt public between the National Financial Prosecutor of the Paris first instance court and HSBC Private Bank (Suisse) SA’, November 14 2017, available from https://www.economie.gouv.fr/files/files/directions_services/afa/CJIP_English_version.pdf, accessed December 6 2017.

[30] Financial Conduct Authority ‘Final Notice HSBC’, November 11 2014, available from https://www.fca.org.uk/publication/final-notices/final-notice-hsbc.pdf, accessed December 6 2017.

[31] J. Titcomb ‘HSBC to pay £28m after money laundering investigation’, June 4 2015, available from http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11652093/Swiss-authorities-fine-HSBC-after-money-laundering-investigation.html, accessed December 6 2017.

[32] Federal Reserve ‘Federal Reserve Board fines HSBC Holdings plc and HSBC North America Holdings Inc. $175 million for unsafe and unsound practices in FX trading’, September 29 2017, available from https://www.federalreserve.gov/newsevents/pressreleases/enforcement20170929a.htm, accessed December 6 2017.

[33] The Securities and Futures Commission ‘HSBC Private Bank (Suisse) SA fined HK$400 million for systemic failures in selling structured products’, November 21 2017, available from http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=17PR138, accessed December 6 2017.

[34] Transcript: Attorney General Eric Holder on ‘Too Big to Jail’, American Banker (online), March 6, 2013, http:// www.americanbanker.com/issues/178_45/transcript-attorney-general-eric-holder-on-too-big-to-jail-1057295-1.html, as cited in A. Chinsky ‘Modern Approaches to Financial Crime: Judge Rakoff, The Financial Crisis, DPAs, and Too Big to Prosecute’ (2014) 8 Harvard Law and Policy Review 13.

[35] See for example Department of Justice ‘KPMG to Pay $456 Million for Criminal Violations in Relation to Largest-Ever Tax Shelter Fraud Case’, August 29 2005, available from https://www.justice.gov/archive/opa/pr/2005/August/05_ag_433.html, accessed December 6 2012 and Department of Justice ‘Virginia investment firm officer sent to prison in KPMG tax shelter case’, May 20 2013, available from https://www.justice.gov/opa/pr/virginia-investment-firm-officer-sent-prison-kpmg-tax-shelter-case, accessed December 6 2017.

[36] G. Stessens ‘Corporate criminal liability: a comparative perspective’ (1994) 43 International & Comparative Law Quarterly 518.

[37] Pub.L. 101-73.

[38] This includes mail fraud, wire fraud, providing false statements and bank fraud. 

[39] Financial Institutions Reform, Recovery and Enforcement Act 1989, s, 951.

[40] See for example, United States Department of Justice ‘Bank of America to pay $16.65 billion in historic Justice of Department settlement for financial fraud leading up to and during the financial crisis’, August 21 2014, available from https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading, accessed August 7 2017; Department of Justice ‘$25 Billion Mortgage Servicing Agreement Filed in Federal Court’, March 12 2012, available from http://www.justice.gov/opa/pr/2012/March/12-asg-306.html, accessed October 2 2013; Department of Justice ‘Justice Department Reaches $335 Million Settlement to Resolve Allegations of Lending Discrimination by Countrywide Financial Corporation’, December 21 2012, available from http://www.justice.gov/opa/pr/2011/December/11-ag-1694.html, accessed October 2 2013; Department of Justice ‘Manhattan U.S. Attorney Files Mortgage Fraud Lawsuit Against Wells Fargo Bank, N.A. Seeking Hundreds Of Millions Of Dollars In Damages For Fraudulently Certified Loans ‘, October 9 2012, available from http://www.justice.gov/usao/nys/pressreleases/October12/WellsFargoLawsuitPR.html, accessed October 2 2013 and United States Department of Justice ‘Justice Department collects more than $15.3bn in civil and criminal cases in fiscal year 2016’, December 14 2016, available from https://www.justice.gov/opa/pr/justice-department-collects-more-153-billion-civil-and-criminal-cases-fiscal-year-2016, accessed August 7 2017.

 

[41] Ministry of Justice, Corporate Liability for Economic Crime: Call for Evidence (Ministry of Justice: London, 2017) at 11.

[42] See DPP v Kent and Sussex Contractors Ltd [1944] 1 K.B. 146; R v ICR Haulage Co Ltd [1944] K.B. 551 and Moore v Bresler Ltd [1944] 2 E.R. 575.

[43] Tesco Supermarkets v Nattrass [1972] A.C. 153.  See Law Commission, Criminal Liability in Regulatory Contexts, (Law Com No 195, 2010) para, 5.34.  This decision has become synonymous with the evolution of the identification doctrine, yet this was initially considered by the House of Lords in Lennard’s Carrying Co Ltd v Asiatic Petroleum Ltd [1915] A.C. 705 HL where the court concluded that the owner of a vessel was the “directing mind and will of the company” because “he was the alter ego of the company.

[44] The restrictive interpretation and the nature of large corporations has been highlighted by several subsequent cases including the Herald of Free Enterprise, the Clapham rail disaster, the Transco gas explosion, the Hatfield Disaster  and the sinking of the Marchioness.  As a result, the Corporate Manslaughter and Corporate Homicide Act 2007, which criminalised harm that leads to a person’s death, was adopted. However, the impact of the Act is negligible as there have only been 19 criminal charges brought under the 2007 Act between 2008 and 2016. 

[45] See Ministry of Justice above, n 41 at 14.

[46] In November 2020, the Ministry of Justice published its response to its call for evidence and the matter has now been passed onto the Law Commission to investigate.  See Ministry of Justice Corporate Liability for Economic Crime Call for Evidence: Government Response (Ministry of Justice: 2020), Ministry of Justice ‘Spotlight on corporate crime laws’, November 3 2020, available from https://www.gov.uk/government/news/spotlight-on-corporate-crime-laws, accessed November 26 2020 and Law Commission ‘Law Commission begins project on Corporate Criminal Liability’, November 3 2020, available from https://www.lawcom.gov.uk/law-commission-begins-project-on-corporate-criminal-liability/, accessed November 26 2020.

[47] Bribery Act 2010, s.7.                                                                                                                                                                                                                                                                                           

[48] Ministry of Justice, Bribery Act 2010, Circular 2011/05 (Ministry of Justice: London, 2011) para. 18.

[49] Crime and Courts Act 2013, schedule 17.  The Coalition Government announced its intention to introduce DPAs in October 2012 and stated that they will “give prosecutors an effective new tool to tackle what has become an increasingly complex issue … this will ensure that more unacceptable corporate behaviour is dealt with including through substantial penalties, proper reparation to victims, and measures to prevent future wrongdoing”.  See HM Government ‘New tool to fight economic crime’, October 23 2012, available from https://www.gov.uk/government/news/new-tool-to-fight-economic-crime, accessed August 5 2017.

[50] See Serious Fraud Office ‘Standard Bank PLC’, December 10 2015, available from https://www.sfo.gov.uk/cases/standard-bank-plc/, accessed August 5 2017; Serious Fraud Office ‘SFO secures second DPA’, July 8 2016, available from https://www.sfo.gov.uk/2016/07/08/sfo-secures-second-dpa/, accessed August 5 2017; Serious Fraud Office ‘Rolls-Royce PLC’, September 11 2014, available from https://www.sfo.gov.uk/cases/rolls-royce-plc/, accessed August 5 2017; Serious Fraud Office ‘SFO agrees Deferred Prosecution Agreement with Tesco’, April 2017, available from https://www.sfo.gov.uk/2017/04/10/sfo-agrees-deferred-prosecution-agreement-with-tesco/, accessed January 18 2018; Serious Fraud Office ‘SFO completes DPA with Serco Geografix Ltd’, July 4 2019, available from https://www.sfo.gov.uk/2019/07/04/sfo-completes-dpa-with-serco-geografix-ltd/, accessed November 23 2020; Serious Fraud Office ‘Three individuals acquitted as SFO confirms DPA with Guralp Systems Ltd’, December 19 2020, available from 

https://www.sfo.gov.uk/2019/12/20/three-individuals-acquitted-as-sfo-confirms-dpa-with-guralp-systems-ltd/, accessed November 23 2020; Serious Fraud Office ‘SFO enters into £991 Deferred Prosecution Agreement with Airbus as part of £3.6bn global resolution’, January 31 2020, available from https://www.sfo.gov.uk/2020/01/31/sfo-enters-into-e991m-deferred-prosecution-agreement-with-airbus-as-part-of-a-e3-6bn-global-resolution/, accessed November 23 2020; Serious Fraud Office ‘Investigation into individuals’, n/d, available from https://www.sfo.gov.uk/cases/g4s/, accessed November 23 2020; Serious Fraud Office ‘SFO enters into Deferred Prosecution Agreement with Airline Services Limited’, October 30 2020, available from https://www.sfo.gov.uk/2020/10/30/sfo-enters-into-deferred-prosecution-agreement-with-airline-services-limited/, accessed November 23 2020.

[51] Financial Conduct Authority ‘Senior Managers and Certification Regime’, July 7 2015, available from https://www.fca.org.uk/firms/senior-managers-certification-regime, accessed November 29 2017.

[52] Financial Services and Markets Act 2000, s. 206(1).

[53] Financial Conduct Authority ‘FCA fines Deutsche Bank £163 million for serious anti-money laundering controls failings’, January 31 2017, available from https://www.fca.org.uk/news/press-releases/fca-fines-deutsche-bank-163-million-anti-money-laundering-controls-failure, accessed August 2 2017.

[54] Financial Conduct Authority ‘FCA fines Barclays £72 million for poor handling of financial crime risks’, November 26 2015, available from https://www.fca.org.uk/news/press-releases/fca-fines-barclays-%C2%A372-million-poor-handling-financial-crime-risks, accessed August 2 2017.

[55] The FCA has imposed large financial penalties for money laundering breaches on several other banks.  See for example Financial Services Authority ‘Turkish Bank (UK) Ltd: Decision Notice’, July 26 2012, available from http://webarchive.nationalarchives.gov.uk/20130202000754/http://www.fsa.gov.uk/static/pubs/final/turkish-bank.pdf, accessed August 3 2017; Financial Services Authority ‘FSA fines Habib Bank AG Zurich £525,000 and money laundering reporting officer £17,500 for anti-money laundering control failings’, May 15 2012, available from http://webarchive.nationalarchives.gov.uk/20130201230641/http://www.fsa.gov.uk/library/communication/pr/2012/055.shtml, accessed August 2017 and Financial Services Authority ‘Coutts fined £8.75 million for anti-money laundering control failings’, March 26 2012, available from http://webarchive.nationalarchives.gov.uk/20130201230628/http://www.fsa.gov.uk/library/communication/pr/2012/032.shtml, accessed August 3 2018.  It is also interesting to note, that in none of these cases did the FCA pursue any prosecutions for breaches of the Proceeds of Crime Act 2002 against any employee. 

[56] Financial Conduct Authority The Senior Managers and Certification Regime: Guide for insurers (Financial Conduct Authority: 2019) at 16.

[57] Bovill, ‘Only 34 investigations and one enforcement action after four and a half years of SMCR’ (Bovill: 27 October 2020) <https://www.bovill.com/only-34-investigations-and-one-enforcement-action-after-four-and-a-half-years-of-smcr/> accessed 16 November 2020Here, FCA together with the PRA each imposed James Staley with a £458,000 financial penalty, which was combined to a total of £642,430 after a 30% discount for early settlement. This followed Staley’s two attempts in 2016 to uncover the identity of an anonymous whistleblower who had raised concerns regarding his hiring strategy.  See Financial Conduct Authority, ‘FCA and PRA jointly fine Mr James Staley £642,430 and announce special requirements regarding whistleblowing systems and controls at Barclays.’ (2018)16 <https://www.fca.org.uk/news/press-releases/fca-and-pra-jointly-fine-mr-james-staley-announce-special-requirements> Accessed 16 November 2020

[58] The CMA can also accept a competition disqualification undertaking (CDU), which is voluntarily offered from a director who does not wish to go through the whole court proceedings. This has the same effect as a CDO. See Herbert Smith Freehills LLP, ‘CMA director disqualification cases signal greater focus on individual accountability for breach of competition rules’ (Lexology, 22 May 2019) <https://www.lexology.com/library/detail.aspx?g=3ae97a92-794e-4fc1-949c-5bcacd58ac6e> accessed 24 November 2020.

[59]Ashurst, ‘UK real estate director banned for seven years after court grants CMA order’ (Ashurst: 30 July 2020) <https://www.ashurst.com/en/news-and-insights/legal-updates/competition-law-newsletter---july-2020/cn10---uk-real-estate-director-banned-for-seven-years-after-court-grants-cma-order/> accessed 24 November 2020.

[60] Financial Conduct Authority, ‘Memorandum of Understanding between Financial Conduct Authority and Insolvency Service’ (Financial Conduct Authority: 25 January 2018) <https://www.fca.org.uk/publication/mou/mou-insolvency-service.pdf> accessed 24 November 2020.