Jail Time & Multi-National Cooperation in Investigations: Clues to Future Enforcement of U.K. Financial Crimes

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In the first of three posts on the future enforcement of U.K. financial crimes, we explore the implications of enforcement actions in the U.K.

A handful of recent developments provide valuable clues to how U.K. enforcement of financial crimes may play out in the future. Companies falling under the jurisdiction of U.K. authorities—which, given the breadth of the jurisdiction established by U.K. Bribery Act, includes the vast majority of multi-national companies—would do well to pay attention and to make proactive adjustments to their business conduct programmes.

Clue #1: Jail Time for Executives Convicted of Financial Crimes

On 4 August 2014, three former, U.K.-based executives of a specialty chemicals company were sentenced to jail for their part in a bribery scheme. These sentences have been widely analysed, with some commentators stating that the sentences were too harsh and others that they were too lenient given the crimes. Either way, the most remarkable fact is that the executives will go to jail at all, since jail time for executives in significant financial crimes cases is rare.

Looking across the pond to the U.S., the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have become very adept at obtaining multi-billion dollar settlements with alleged offenders, but the cases rarely include jail time—in part because so many are settled before trial. The recent $16.5 billion dollar settlement with a major U.S. bank stemming from alleged mortgage-backed securities fraud is a good example. Huge fines were paid, but there were no personal penalties for the bank’s executives.

The American public and many commentators are increasingly frustrated that no individuals have been sent to jail for the abuses that sparked the financial crisis. The U.K. case cited above stands in stark contrast. The U.K. Serious Fraud Office (SFO) not only settled the criminal case against the company (resulting in a relatively modest $12.7 million in fines), but went on to prosecute individual executives and senior managers involved in the bribery.

Testimony in the case of the specialty chemicals company showed that the bribery was a calculated business decision. Indeed, the judge heard extensive testimony about the “good character” of the defendants. That four “good” people were knowingly involved in bribery—or failed to stop it once they became aware of it—reveals how improper conduct can be rationalised away as a necessary “part of doing business.”

The essential role of individuals in corruption was not lost on the judge. In his sentencing remarks, the judge stated “The corruption was endemic, ingrained and institutional” and that, while companies are separate legal entities, they are not automated machines. Rather, “decisions are made by human minds. It follows that those high up in the company should bear a heavy responsibility under the criminal law.” In this light, jail time serves both as a punishment and as a warning to others.

Given the judge’s remarks and the precedent set by the sentences, company leaders (whether they are of “good” or “bad” character) now will have to consider the real risk of prison time as they plot their course of action to address corruption risk.

Clue #2: Multi-National Cooperation in Investigations

Another key feature of the case against the specialty chemicals company officials is the degree of cooperation with authorities in other countries. The case began with a referral from the DOJ in 2007 and ultimately involved U.K. cooperation with American, Swiss, Indonesian, and Singaporean authorities. As U.S. officials have emphasised, cooperation of foreign governments makes it substantially easier to obtain the evidence needed to successfully prosecute a case against a company with operations around the world.

For the SFO, which generally is considered underfunded and has been criticized in the past for failing to successfully prosecute financial crimes, cooperation with foreign governments is likely going to be an important—and on-going—element of future cases. Not only will cooperation lower the cost of successful prosecution (helpful to prosecutors with limited budgets), but it will increase the overall likelihood of success.

For example, local authorities are often the only ones able to require companies to produce sensitive company records. With the cooperation of those local authorities, U.K. prosecutors are now much more likely to end up with the evidence they need to prove a crime has occurred. This, like the prospect of jail time, alters the risk/reward calculation of executives contemplating financial crimes and acts as a deterrent.


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