10 Feb 2023

The perils of the DoJ's new corporate self-reporting guidance

Greater incentives are now available for businesses which report wrongdoing in the US, write Anoushka Warlow and Suzanne Gallagher. But at what price for the individuals? And should the UK's SFO follow suit?

Self-reporting wrong-doing can reduce regulatory penalties Shutterstock

 The US Department of Justice (DoJ) has revised its approach to corporate self-reporting. Its new Corporate Enforcement and Voluntary Self Disclosure policy confirms that companies can now receive up to a 75% discount in fines (up from 50%) arising from wrongdoing where they come forward and provide “extraordinary cooperation”. 
 
In a speech to accompany the publication of the policy, Assistant Attorney General Kenneth Polite set out three factors that will determine whether the increased discount will be applied:

1.     Immediacy: voluntary self-disclosure is made immediately upon the company becoming aware of misconduct;

2.     Compliance: at the time of the misconduct and disclosure the company had effective compliance systems; and

 3.    Extraordinary cooperation: whilst there is no strict criteria, Polite made clear that extraordinary cooperation goes above and beyond full cooperation; it is not “run of the mill or even gold standard cooperation but truly extraordinary.”  
 
‘Voluntary self-disclosure’ is described in the policy as – amongst other things – the disclosure of “all relevant facts and evidence about all individuals involved in or responsible for the misconduct”. ‘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 … 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. Polite suggested that, for example, making individuals available for interview, testifying at trial or providing information that leads to additional convictions might help tip the scale.
 
The “number one goal”, as repeatedly emphasised in Polite’s speech, is individual accountability. Identifying all individuals responsible for the misconduct is at the heart of this new policy. 
 
Individual accountability –  failures on both sides of the pond? 
 
The DoJ’s success rate in securing convictions against individuals is patchy. Between 2016 and 2020, the DoJ prosecuted employees in 37% of 146 cases where companies received leniency by way of self-reporting, but not all those prosecutions go smoothly: in 2019, a US judge acquitted Robert Bogucki, a senior executive at Barclays Bank who had been indicted for fraud on the basis of evidence obtained through his employer. The judge stated that the DoJ had overreached by pursing a criminal prosecution “on the basis of conduct that violated no clear rule or regulation.”
 
UK parallels can be drawn with the attempted prosecution of senior executives by the Serious Fraud Office (SFO).  To date, the SFO has been unable to secure the conviction of any individual following the approval of a Deferred Prosecution Agreement (DPA). DPAs have been available for almost a decade and 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. They are, as a consequence, a convenient and often commercially sensible mechanism of dealing with investigations. Whilst a DPA requires judicial approval, the court is not required to assess whether the evidence underlying the DPA is sufficient to establish the facts agreed between the corporate and the SFO. 
 
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 individuals following the DPA with Serco is a case in point. In his report into the matter, Brian Altman KC quoted leading defence counsel, 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….”
 
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’.   
 
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. However, plainly the success of cases against individuals will rest on a proper assessment of the evidence and, in circumstances where the strength of the evidence may not be the most important factor in a corporate entity’s decision to seek a DPA, it may be unwise for the SFO to follow the DoJ’s lead in incentivising boards into becoming hired guns in the pursuit of individuals. 

Anoushka Warlow is a partner and Suzanne Gallagher is an associate at BCL Solicitors, which is based in London

 

Email your news and story ideas to: news@globallegalpost.com

Top