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THE IMPACT OF THE US ON UK CORPORATE CRIME INVESTIGATIONS
Commercial Litigation Journal
01 March 2008
Over the past 10 years the US Department of Justice (DOJ) has been extremely active in investigating corporate fraud. The Department of Justice Antitrust Division alone has reported obtaining criminal fines in excess of $2 billion since 2000 and that more that 150 individuals have served prison sentences as a result of their investigations.
Recently the DOJ has shown similar determination in investigating fraud perpetrated beyond their own borders.
This article highlights two legal issues which have significantly contributed to the US extending its criminal jurisdiction with relative ease. Both issues relate to the UK/US extradition process. The first issue concerns the quality of evidence that must be produced at the extradition hearing to satisfy the UK courts that there is sufficient information for an extradition order to be granted. The second issue concerns the handling of fraud cases by investigation and prosecution agencies in the UK and US in cases with concurrent jurisdiction in other words a case which has the potential to be prosecuted in both the UK and US. In relation to the latter issue I also wish to consider the Attorney General’s guidance which has been agreed with the Attorney General of the USA. Notwithstanding, that it was issued last year it has received scant public attention to date.
Additionally, I will outline the way in which the US investigative techniques are having an increasingly strong bearing on the UK law enforcement agencies in business and regulatory investigations.
Whilst the extradition process and the influence of US investigative techniques in the UK may be regarded as separate topics, both subjects benefit from being considered together in order to fully appreciate the extent to which the US is having a very strong influence on corporate crime investigations and to identify how the investigative landscape is changing. It is clear that appropriate steps need to be taken by the business community to deal effectively with the new challenges which lie ahead.
Extradition from the UK to US – No evidence required
The first legal issue I wish to consider is the relatively low evidential hurdle which US authorities need to overcome in order to satisfy the extradition courts that information has been produced which would justify the issue of a warrant for the arrest. The US authorities are not required to produce evidence that a crime was committed or to prove a prima facie case as the US has been classified as a designated Category 2 territory .
The sole obligation on the prosecution is to provide the extradition court with ‘’information’’ which would justify the issue of a warrant for the arrest of the person who is arrested or unlawfully at large in accordance with section 71 of the Extradition Act 2003 (hereafter referred to as ‘’the Act’’). This means that UK nationals do not have the opportunity to contest the charges brought against them in the UK. In practise the prosecution are simply required to produce a detailed description of the facts on which the indictment is based. No supporting evidence need be produced nor a prima facie case established as would be the case had the US not been designated.
The UK is required to produce ‘’such information as would provide a reasonable basis to believe that the person sought committed the offence’’ if they are to successfully apply for extradition from the US. The US and the UK ratified the 2003 Extradition Treaty on 26 April 2007 which has brought that requirement into force. However the fact that the Treaty has been ratified and a similar test imposed on both sides of the Atlantic is of no comfort to those facing proceedings in this country.
The absence of any opportunity for the subject of the proceedings to test the US prosecution case may lead to the US viewing the UK as a soft target when considering whether to apply for extradition and has contributed to the US being able to extend their corporate criminal jurisdiction with relative ease
Guidance for handling criminal cases with concurrent jurisdiction between the UK and US
The second legal issue to consider is the way in which the US are able to determine whether cases are heard in the US when the offences could be investigated or prosecuted in either jurisdiction. There are likely to be many such cases as there is no requirement that the alleged perpetrator of the fraud has actually visited the US in order that the extradition court may determine the alleged criminal conduct occurred in the US. In some instances, simply the sending of emails, transferring of funds or making telephone call to the US may be sufficient to bring the individual within the US criminal jurisdiction and the conduct regarded for the purpose of extradition proceedings as having occurred in the US for the purposes of section 137 of the Act.
At present the Act does not stipulate how cases which could be investigated in two or more jurisdictions should be dealt with. Instead, the most significant guidance can be found in the ‘’ Guidance for handling criminal cases with concurrent jurisdiction between the United Kingdom and the United States of America (Attorney General England and Wales and the Attorney General of the USA ‘’ (hereinafter called ‘’the Guidance’’). The guidance was issued on the 18 January 2007 and has received limited publicity to date.
The guidance is relevant to the representatives of those facing extradition proceedings to the US and to prosecutors on both sides of the Atlantic. The ‘’fundamental’’ principle that should be followed in determining where the criminal trial should take place is as follows:-
“Any decision on issues arising from concurrent jurisdiction should be seen to be fair and objective. Each case is unique and should be considered on its own facts and merits.”
The guidance also makes clear that there must be close consultation and sharing of information between the two prosecutorial agencies as to where and how the investigation may be most effectively pursued and where and how prosecutions should be initiated, continued or discontinued.
In cases where the prosecutors in the two jurisdictions are unable to reach agreement on issues arising from concurrent jurisdiction the offices of the Attorney General should take the lead with the aim of resolving those issues.
Whilst the guidance is not comprehensive, for instance there are no rules for allocating jurisdiction, and while many would argue that legislative changes are needed to address that issue, the guidance is worthy of consideration as a failure to consult and follow the guidelines could arguably constitute an abuse of process.
However the Appeal courts have previously shown a marked reluctance to become embroiled in the comparative views of the UK and the US investigative agencies. This was illustrated in the NatWest Three case and notably by Laws LJ choosing to underline the observations of Lord Ordinary in Wright v Scottish Ministers 2004 SLT 823:
‘Extradition does not and should not depend on the ability or otherwise of the requested state to undertake its own investigations with a view to prosecuting the case within its own jurisdiction. Such an approach would involve unnecessary duplication of effort, would result in additional delays in the prosecution of suspected criminals and would have an adverse effect upon international relations and international cooperation in the prosecution of serious crime. In most, if not all, extradition cases the requested state would depend upon cooperation from the requesting state if the requested state were to embark upon its own investigation and prosecution of the case.’
It is therefore likely to remain relatively easy for the US prosecuting authorities to insist that matters are heard in the US and to disregard the wishes of the UK law enforcement agencies whilst the guidance remains vague and there is no legislative change.
In the meantime the legal battle as to the appropriate venue for trial will intensify and arguments surrounding the guidance and its application will be pursued especially where the views of the UK prosecuting authority have not been sought or have been disregarded.
US Style Investigations
The main features of the US criminal process are generally well documented. There are far longer sentences for those who are convicted of offences after trial. Faced with very lengthy sentences if convicted it is not surprising that plea deals are routinely struck. For instance it was reported in the legal press that the NatWest Three used plea bargaining to reduce the maximum sentence they faced from 35 years to 37 months.
Immunity and leniency provisions are also routinely used in the US , public funding is rarely available and stringent bail terms are commonplace.
It is not therefore surprising that issues of forum are crucial to those facing extradition and why many consider the absence of clear guidance to be a serious issue.
Whilst the US and UK criminal justice systems remain significantly different there are clear signs that the methods used by the US are increasingly being adopted by UK law enforcement agencies.
Historically, the UK law enforcement agencies have been very reluctant to grant immunity against prosecution to those who have admitted offences notwithstanding that they are willing to give evidence against others. The appearance of the “whistleblower” in a criminal fraud trial was extremely rare and formal applications for leniency hardly ever sought by defendants in return for providing evidence against others. Legislation including Serious Organised Crime and Police Act 2005 (hereafter referred to as ‘’SOCPA’’) now lays out a statutory scheme for written agreements to be made between the suspect and the prosecutor specifying exactly what the suspect must do and in return they may receive complete immunity, or an undertaking that certain information will not be used to prosecute them or a reduction in their sentence as the Court can take account their assistance.
The CPS, RCP, SFO and SOCA are all able to utilise the statutory immunity and leniency provisons referred to above.
In the US, immunity and leniency provisions are frequently used and this is particularly the case in cartel investigations. Since the launch of the “Corporate Leniency Programme” in the mid 1990’s there has been a marked increase in their use and recent legislation in the UK has shown the Government has been keen to introduce wide statutory powers to a range of prosecuting agencies so that they may grant immunity from prosecution on a statutory basis, including the Enterprise Act 2002 and SOCPA.
As a result of the legislative changes the landscape of corporate criminal trials is changing. Whistleblowers providing key evidence to prosecutors in return for immunity are becoming a feature of major criminal fraud investigations.
There are two notable examples. The first being the British Airways and Virgin Atlantic price fixing case. The second is the fraud investigation into various pharmaceutical companies .
In the BA/Virgin Atlantic case, Virgin Atlantic was given immunity from criminal prosecution after it reported price fixing had taken place between the two companies. The record fines of approximately £270 million by the authorities on both sides of the Atlantic have been widely publicised and a criminal investigation into the conduct of BA executives and directors is ongoing. Virgin Atlantic have avoided being subject to the fines and avoided the possibility of facing any criminal proceedings as a result of utilising the OFT leniency provisions and section 190 of the Enterprise Act 2002. It remains to be seen if the OFT or DOJ will choose to pursue criminal charges and if so issues of forum may well arise.
In the ongoing pharmaceuticals fraud investigation it is understood that immunity from prosecution has been offered to a large number of suspects in return for providing evidence on behalf of the prosecution.
Opponents of the use of immunity and leniency provisions maintain that those who use them may seek solely to serve their own ends in providing evidence against others. This point is encapsulated in Matthew Hale’s quotation, which was adopted by Lord Justice Lawton in the case of Turner (1975) 61 CRAppR 67, at 79.
“More mischief hath come to good men by these kind of improvements by false accusations of desperate villains, than benefit to the public by the discovery and convicting of real offenders.”
Whatever the merits may be of the use of immunity and leniency provisions it is important to recognise the investigative trends that are emerging and to ensure that the business community receive the specialist advice they require in order to prevent the investigative process operating unfairly.
The Future Direction of Corporate Crime Investigations and Proceedings
At present the trend towards adopting US measures is likely to go on unabated as the financial results and conviction rates secured by the DOJ will not go unnoticed by the Government. It is also likely to be only a matter of time before we see a even greater use of the immunity and leniency provisions combined with an increased use of plea deals and a reduced number of fraud trials. It is perhaps significant that the Government have acknowledged the findings of the Fraud Review which recommended the introduction of a formal plea bargain system and a working party has been formed to look at a “plea discussions framework.”
It is understood that the FSA who do not have statutory immunity powers are seeking them and Margaret Cole’s comments in October of last year make her intentions clear in relation to US style plea bargaining.
“We also, currently at least, lack the ability to plea bargain which the Americans have used to great effect. This, and the ability to gather sound evidence in this way may be a key to undoing a number of difficulties….”
Turning to the likely future direction of the UK/US extradition process, the current appeal to the House of Lords may prove pivotal in determining how much further the US Department of Justice Anti-Trust Division may wish to go in pursuing alleged fraudsters in the UK, particularly in relation to cartel offences as Ian Norris being the first UK national that the DOJ have sought to extradite on charges of price fixing. However it appears that the DOJ are keen to use the extradition process extensively. Scott Hammond, the prosecutor leading the case was recently quoted,referring to the case as a “significant test case that could see some thirty other business men pursued.”
Irrespective of the result of the House of Lords decision scheduled for May 2008 it is likely that the debate as to the fairness of the evidential testing and decisions as to forum will continue. While the extradition process remains as it currently stands the DOJ are likely to continue to extend their criminal jurisdiction.
Conclusion
It is imperative that those who conduct business minimise their risks of becoming the subject of a corporate crime investigation. If an investigation does arise it is crucial that there are measures in place to ensure the subject of the investigation receive specialist advise given that the as the techniques applied in corporate crime investigations are changing rapidly and the US are increasingly pursuing cases through the extradition process.