Who’s Who Legal brings together Saverio Lembo at Bär & Karrer and Judith Seddon at Clifford Chance to discuss issues facing business crime defence lawyers and their clients in the industry today, including key cases, the increasing focus on prosecuting individuals and upcoming market developments.
Saverio Lembo: The key white-collar crime trends in Switzerland involve money laundering, fraud, embezzlement, criminal mismanagement and corruption.
A recent noteworthy case is the Petrobras matter, in which the Office of the Attorney General has received reports of around 340 suspicious banking relations from the Swiss Money Laundering Reporting Office in relation to the international corruption affair involving the semi-state-owned Brazilian company Petrobras. In response, the Office of Attorney General has since April 2014 opened some 60 investigations on the suspicion of aggravated money laundering. In the course of these 60 investigations, around US$800 million of assets held in Switzerland have been frozen.
Another noteworthy case is related to criminal proceedings opened in August 2015 against two former officials of the Malaysian state-owned fund 1MDB, who are suspected with others of having misappropriated funds for more than US$3 billion, earmarked for investment in economic and social development projects in Malaysia.
Judith Seddon: The two cases involving deferred prosecution agreements (DPAs) – the first involving Standard Bank (concluded in November 2015), and the second involving the as-yet-unnamed company currently referred to as XYZ (concluded in July 2016) – have been very significant in putting theory into practice. It will take more publicised cases before we can reliably predict the answers to questions such as which cases will be assessed by the Serious Fraud Office (SFO) as suitable for DPAs, and how judges will assess whether it is in the interests of justice and its proposed terms fair, reasonable and proportionate.
However, these cases have provided some guidance in these areas. It is interesting to note that the SFO and the court were comfortable entering into a DPA in the XYZ case, which concerned systematic corruption over a number of years as compared with the Standard Bank case, which appears to have concerned more isolated misconduct.
It is significant that the judge (Sir Brian Leveson P in both cases) recognised the need to provide incentives for early self-reporting and indicated that he thought a 50 per cent discount for XYZ was appropriate (although this, ultimately, was academic because of the impecuniosity of the company). Interestingly, this followed not long after the US Department of Justice’s announcement in relation to its FCPA pilot programme (under which there is also a 50 per cent reduction available to companies that fully cooperate), and also after criticism in the defence community that a one-third discount (the amount defendants have always been entitled to expect for pleading guilty to offences at the earliest opportunity, which does not require them to proactively self-report matters to or cooperate with the SFO) was insufficient incentive.
The UK’s first case involving a DPA was also significant as it was the first occasion on which the SFO has concluded action in respect of the corporate offence of failing to prevent bribery under section 7 of the Bribery Act 2010. It underlined the SFO’s readiness to take action where it perceives weaknesses in commercial organisations’ anti-bribery and corruption arrangements, even where bribery has occurred in faraway jurisdictions and/or even where the links between the UK entity concerned and the individuals and entities involved in alleged bribery may appear relatively remote.
The case involving Sweett Group, which concluded in December 2015, has also been significant as an indicator of when the SFO will consider an entity to be cooperating or not. In that case, the SFO declined to enter into a DPA and proceeded to prosecute the company having deemed it insufficiently cooperative.
Saverio Lembo: The statistics for the past two years (2014–2015) show a steady number of convictions for embezzlement, fraud, criminal mismanagement and money laundering. On the other hand, the number of convictions for corruption of public officials has almost tripled in 2015 (43) as compared to 2014 (15).
In 12–13 per cent of the total number of convictions within the same period, an imprisonment sanction was chosen, as compared to substitute fines imposed in the vast majority of cases (84–86 per cent).
As for the willingness to negotiate, authorities do not seem to be more willing to negotiate nowadays than before. However, it is our experience that authorities are willing to do so when the case is particularly complex, or if they feel that they do not have a strong case.
Judith Seddon: Whilst a lack of resources still appears to hamper progress at the SFO (for instance those involving GSK and Rolls-Royce) the SFO has shown itself ready to take on cases and actively pursue them, as demonstrated by the recent charges in the Tesco investigation. Where cases stall, it is not always easy to understand why it takes so long for decisions to be made or investigative steps taken. While we have not seen substantial increases in the number of charges brought by the SFO in recent years, the pressure on its resources has not prevented it from taking on new cases and it has shown its readiness to seek “blockbuster” funding to enable it to sustain some of its most high-profile investigations.
We have now seen the first publicised cases in which the sentencing guideline for corporate offenders concerning fraud, bribery and money laundering offences has been applied. This guideline has been introduced in an effort to provide demonstrable transparency in relation to financial penalties, and to address concerns previously expressed by judges, NGOs and others that England and Wales may become an attractive jurisdiction in which to seek to conclude investigations by way of negotiated global settlements. In the Standard Bank and XYZ DPAs and the Sweett case, the courts have carefully followed the guideline. The amounts of financial penalties imposed have largely been the product of the financial circumstances of the companies involved, and a key message emerging from these cases is that it is judges who still have the final say when determining the level of fine appropriate in the circumstances. The Sweett and XYZ cases in particular have provided clear examples of the courts’ ability to apply the guideline flexibly where they are dealing with companies in difficult financial circumstances, although the guideline is clear that there may be cases where it is appropriate that fines are so high that they have the effect of putting companies out of business.
Following the introduction of DPAs in the UK, the range of disposals available to authorities is wider and so from that perspective there is clearly greater scope for negotiation. However, the SFO has been clear that it will only negotiate in the right case where the conduct of the corporate merits a consideration of non-prosecution. In practice, this may culminate in either a DPA or proceedings leading to a civil recovery order under the Proceeds of Crime Act 2002.
Saverio Lembo: Swiss authorities generally prosecute individuals rather than companies. This may be explained by the fact that, under Swiss law, corporate criminal liability exists in limited circumstances. Furthermore, prior to 2003, corporate criminal liability did not exist at all.
For most of the offences, the Swiss Criminal Code provides only a subsidiary criminal liability of the company. This means that such liability shall be incurred only if the offence cannot be attributed to any specific individual due to deficiencies in the organisation of the company (lack of supervision, lack of description of employees’ responsibilities, etc). The primary criminal liability of legal entities may apply to a limited number of offences, including participation in criminal organisations, terrorism financing, money laundering, bribery of officials and bribery in the private sector. That said, there might be a new trend, insofar as we noted recently that prosecutors were making an increasing use of this possibility and indicted banks or companies.
Judith Seddon: There is a definite focus on prosecuting individuals. Indeed, the reason XYZ is embargoed from full publication is to prevent prejudice in proceedings being pursued against individuals. The willingness of a corporate organisation to provide proactive assistance against individuals suspected of wrongdoing is referred to in prosecutorial guidance as a factor indicating that a DPA, rather than immediate prosecution, may be appropriate.
There is a similar focus on individual accountability in the regulatory sphere. The Senior Manager’s Regime came into force for UK banks in March 2016. It implements the recommendations of the Parliamentary Commission on Banking Standards by requiring individuals to clearly take responsibility for defined parts of institutions’ activities and by making it easier for the Financial Conduct Authority (FCA) and Prudential Regulation Authority to take action against individuals where banks breach their regulatory obligations. The enforcement function of the FCA in particular – under the direction of its new Director of Enforcement and Market Oversight, Mark Steward – is keen to demonstrate its commitment to holding individuals to account and to respond to criticism about its record of doing so in the past (see, for example the report concerning its enforcement action in respect of individuals associated with HBOS report, which suggested that the threshold used to consider whether to proceed against individuals was too high).
Saverio Lembo: Since 1 January 2016, Switzerland has included tax offences in the list of predicate offences for money laundering. This development might significantly increase the number of reports of suspicious banking relations, respectively the number of criminal proceedings for money laundering.
Another important development is related to corruption offences. Until 30 June 2016, only the corruption of public officials constituted a criminal offence. Corruption in the private sector was punishable only under the Act against Unfair Practices, if it sought to distort competition. Accordingly, the Swiss Criminal Code has been recently revised, introducing criminal liability for private sector bribery, effective from 1 July 2016. In addition to enacting new offences in the private sector, broader provisions have been introduced in respect of the bribery of public officials. Going forward, bribery will also be a criminal offence in cases where it has been paid to a third party instead of the public official. Besides, private sector bribery is listed in the catalogue of offences for which a corporate entity can be held liable if it fails to take all the organisational measures reasonably required in order to prevent such offence. This exposes companies to a significant risk of prosecution if they fail to take sufficient measures to counter the risk of bribery.
Judith Seddon: The UK is due to introduce a new corporate offence of a failure to prevent the facilitation of tax evasion, subject to a reasonable steps defence; and the Government has announced a consultation on the corporate offence of failing to prevent economic crime, broadly following the failure to prevent bribery offence under section 7 of the Bribery Act 2010 .
Separately, the UK government has recently consulted on potentially significant changes to the anti-money laundering reporting regime under the Proceeds of Crime Act 2002. If they proceed, they would involve the removal of arrangements whereby banks and others operating in the “regulated sector” seek and obtain consent to proceed with transactions which they suspect may be associated with money laundering and would bring in new mechanisms for the sharing of suspicions and other information between banks and enforcement authorities.