Acting to stop harm: the FCA and Appointed Representatives
As the recent Anti-Corruption Summit in London drew to a close the outcome was clear – the focus is firmly on holding companies to account and UK corporates are well and truly in the firing line.
SFO Director David Green QC has long called for a model of vicarious liability having raged against the inadequacies of English law on corporate liability and his belief that the current identification principle is too high a bar for prosecutors to successfully attribute criminal culpability to a company. Radically overhauling corporate liability in his view is: “the way we can get after errant corporations effectively in this country.”
While Green has jealously eyed up “US style” powers to punish big business and root out financial crime, the US is focusing on seeking accountability from the individuals who are alleged to have perpetrated the wrongdoing – and how better to do that than to get former colleagues to turn on each other.
When the Memorandum on Individual Accountability for Corporate Wrongdoing (the official title of the Yates Memo) was circulated last September some commented that it is nothing more than a restatement of existing ambition and approach. Indeed, this was the key issue under debate at the New York City Bar Association’s White Collar Crime conference earlier this month which also offered an opportunity to hear directly from Deputy Attorney General Sally Yates herself on “why we did it and how it is working so far in practice”. She commented that the reaction in the corporate defence bar ranged from: “The sky is falling,” to “Nothing has changed”, and noted that “the truth, as it often is, is somewhere in the middle.”
Although confirming that holding individuals accountable for corporate wrongdoing has always been a priority for the Department of Justice, she set out how the DoJ had “shifted the presumption on what a corporate resolution looks like: now, our attorneys must get approval if they decide not to bring charges against individuals”. She also stated in no uncertain terms that individuals may not be released from civil or criminal liability “except under the rarest of circumstances”.
Though an intensified focus on individuals “is not expected to result in a flurry of individual indictments overnight…that was never the goal”, she confirmed that changes in how criminal prosecutors conduct their investigations were already being seen. She reported that DoJ lawyers aren’t just talking about the potential culpability of individuals at the time they are resolving an investigation, they are thinking about individuals from the very beginning of an investigation.
“The first thing the lawyers briefing me discuss is what we are doing to identify the individuals involved and what the company is doing during the course of its cooperation to meet its obligation to provide all the facts about individual conduct.”
The panel debate on the DoJ’s Policy on Cooperation at the New York City Bar Association’s White Collar Crime conference examined a number of issues stemming from the Yates Memo including: the “self-reporting calculation” and the decision to waive attorney-client privilege issues surrounding joint representation of a company and individual employees.
Some panellists expressed a concern that given that prosecutors will be required to defend their decisions on individual accountability in front of their supervisors, they may as a result make extraordinary efforts to bring cases against individuals where they may not be justified. This is very concerning for those of us who regularly act for individuals and have experienced the single-mindedness of prosecutors seeking to fit a set of facts around a theory that they have either developed themselves as to culpabililty, or been fed by the corporate, rather than investigating the facts with an open mind, as they are required to do.
There was some debate about what ‘all relevant facts’ entailed. There was concern that the term is so open-ended and difficult to define. This is heightened by the contents of the memo, which states that ‘if a company seeking cooperation credit declines to learn of such facts or to provide the Department with complete factual information about individual wrongdoers, its cooperation will not be considered a mitigating factor…’ The result is that there is a great deal of discretion in a prosecutor’s hands when assessing whether a corporate has omitted a relevant fact or declined to learn such a fact and that this could lead to arbitrary refusals to grant leniency.
What of Legal Professional Privilege?
Despite Yates’ assurances that she wanted to put the question of waiver of LPP “to bed”, it seems that there are still grave doubts among the US defence bar.
Yates assured the audience that there was nothing in her memo which “required companies to waive attorney-client privilege or in any way rolls back protections already in place.” The difference now though is that “companies cannot – in the name of privilege or otherwise – pick and choose which facts to provide if they want credit for cooperation.” She commented that she would expect a “valid claim of privilege as to a relevant fact” to be brought to the prosecutor’s attention.
However there remained doubt amongst some of the panellists, who confirmed that the practical impact of how relevant facts are given to the government will be likely to require corporates to waive LPP and there is significant unease about this. This is also of course an extremely contentious issue in the UK at the moment, with concerns that the Serious Fraud Office is seeking to erode LPP through its self-reporting regime.
FCPA Pilot Programme
The final item of note was the introduction by the DoJ Criminal Division Fraud Section of the FCPA Unit and their one-year pilot program launched on 5 April 2016 by Andrew Weissmann, which allows for ‘declinations of prosecution’ in cases where the corporate cooperates in FCPA cases in accordance with the requirements set out in the guidance. Weissmann refers throughout to the Yates memo and the importance of providing all relevant facts about the individuals involved in any FCPA violation. Indeed, at its heart is the intention “to encourage companies to disclose FCPA misconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never by uncovered or disclosed to law enforcement” thus promoting “aggressive enforcement of the FCPA and the investigation and prosecution of culpable individuals”.
The rights of individuals
The need for individuals to have their own independent legal advice from good, capable and specialist lawyers, sooner rather than later, and before any interview, was recognised. The issue of pre-interview disclosure was not discussed but there is no doubt that it is in the interests of both the individuals and the corporates for individuals to be given proper disclosure prior to any interviews.
There is nothing more inequitable than marching an employee into an interview where they are being asked to recall events from many months or even years before (often including detailed emails and financial transactions) without the benefit of having had access to those documents in advance and proper independent legal advice. It also does not assist with the accuracy of a company’s internal investigation, aimed at learning all relevant facts, as a witnesses’ initial recollection to a question will generally not be the most accurate without the benefit of their having sat down and gone through the evidence.
Finally, it is crucial that those responsible within the corporate for negotiating the Directors & Officers (‘D&O’) insurance policies (often the Finance Director), take a long hard look at the existing policies and ask themselves a number of questions, including the following: At what point will the D&O insurance policy kick in? Who would it apply to, should wrong-doing be uncovered? What are the excesses due on the policy? In the event of convictions, is there a possibility for the insurer to claw back the money paid out pursuant to the claim? Would claw-back apply if the corporate were to plead or be found guilty, rather than agree a DPA? What are the conditions of the claw-back – for example, is it founded on a finding of dishonesty, or is any criminal finding sufficient?
These are crucial questions, and an important motivator is that some of the individuals responsible for negotiating the policy will be the very same people who will be having to look over their shoulders in the future, as the long arm of the law closes in around them.
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