Global Investigations Review - The law and practice of international investigations

The Practitioner’s Guide to Global Investigations

Introduction

Outer Temple Chambers

Fountain Court Chambers

Clifford Chance LLP

As an introduction to Part I of the guide, this chapter addresses UK and US law regarding two critical concepts that a corporate facing an investigation in either or both jurisdictions will need to consider at the outset: corporate criminal liability and double jeopardy. This chapter also sets forth in summary the priorities and challenges corporations face at each stage of an investigation – topics that are explored in more detail in the chapters that follow.

1.1         Bases of corporate criminal liability

When corporate misconduct that potentially implicates multiple jurisdictions is uncovered, a critical preliminary question is: what is the test, in each jurisdiction, for corporate criminal liability? Not all countries have corporate criminal liability, but for those jurisdictions that do, it typically rests on the premise that the acts of certain employees can be attributed to the corporation. However, the category of employees that can trigger corporate liability differs between jurisdictions – in some jurisdictions, it is limited to those with management responsibilities, whereas in others the category of employees who can trigger corporate liability is much broader. Generally speaking, the act must occur within the scope of the employee’s employment activities. The act must also generally be done in the interest of, or for the benefit of, the corporation. The difference between theories of liability across jurisdictions inevitably poses challenges and complicates a company’s strategy for dealing with a global investigation, and in some instances can determine the outcome.

1.1.1      Corporate criminal liability in the United Kingdom

In the United Kingdom, there are two main techniques to attribute to a corporate the acts and states of minds of the individuals it employs.

The first is by use of the ‘identification principle’ whereby, subject to some limited exceptions, a corporate may be held liable for the criminal acts of those who represent its directing mind and will and who control what it does. The relevant test is set out in the leading case of Tesco Ltd v. Nattrass:1

Where a limited company is the employer difficult questions do arise in a wide variety of circumstances in deciding which of its officers or servants is to be identified with the company so that his guilt is the guilt of the company. I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent.

It is for the judge to decide, as a matter of law, whether there is evidence on which a jury could be sure that a particular individual was a ‘directing mind’ within the Tesco principles; and, if there is such evidence, the jury must then be sure that the particular individual was in fact a directing mind for the purposes of his particular actions. A directing mind is not necessarily limited to board directors; it may also be found in a delegate who has full discretion to act independently of instructions from the directors. In short, under the identification principle, before a corporate can be found guilty of a criminal offence, someone who represents its directing mind and will must also be found guilty. There cannot be an aggregation of acts or omissions to attribute the company with criminal conduct; rather, the criminal act or omission must be performed by a single person who can be identified with the corporate for it to be liable.

The second technique of attributing liability to a corporate under English law is that of vicarious liability. Although, in general, in the United Kingdom a corporate entity may not be convicted for the criminal acts of its inferior employees or agents, there are some exceptions, the most important of which concerns statutory offences that impose an absolute duty on the employer, even where the employer has not authorised or consented to the criminal act.2

Most significantly, recent developments represent a radical shift from a policy perspective – in particular section 7 of the Bribery Act 2010, which introduced a strict liability offence of failure to prevent bribery by an ‘associated person’ committed on behalf of the corporate, unless the corporate can demonstrate that it had adequate procedures to prevent such an offence occurring. It does not matter whether the associated person has been convicted of bribery, or whether UK courts have jurisdiction over the underlying bribery conduct by the associated person. A corporate, falling within the definition of a commercial organisation under the Bribery Act, could therefore be guilty even where no conduct occurred in, and where the associated person has no connection with, the United Kingdom.

The policy of the legislation to improve corporate governance is clear: Ministry of Justice guidance refers to the need for a corporate to create an ‘anti-bribery culture’.3 Similarly, a corporate is guilty of the offence of corporate manslaughter under the Corporate Manslaughter and Homicide Act 2007 if the way in which its activities are managed or organised causes a person’s death where a duty of care was owed. Both these statutes invite consideration of the corporate’s culture – its attitudes, policies, systems and practices. The test for liability is closer to the test in the regulatory context where liability of a corporate is wider and based on broad principles. Further, an amended version of the section 7 model is proposed by the UK government in the Criminal Finances Bill 20164 for the corporate offences of a failure to prevent the facilitation of UK and foreign tax evasion. Draft guidance has been published, closely mirroring the Bribery Act guidance.5 This model of corporate criminal liability is likely, inexorably, to expand to all economic crimes; while the Criminal Finances Bill does not mention the proposed offence of failure to prevent economic crime, it is likely only to be a matter of time before a broader section 7 offence is introduced. In September 2016, the Attorney General said that the government would soon consult on plans to extend the scope to other economic crimes, such as money laundering, false accounting and fraud,6 on the basis that it encourages effective corporate governance. It also meets a political imperative to ensure corporate accountability. In his speech, the Attorney General also repeated criticisms that have long been made about the impact and effect of the identification principle.7 In 2010 the Law Commission described the identification principle as making it ‘impossibly difficult for prosecutors to find companies guilty of some serious crimes, especially large companies with devolved business structures’ while making it easier to convict small companies, giving companies ‘a perverse incentive . . . to operate with devolved structures that insulate directors (or equivalent persons) to a certain extent from knowledge of what their managers or employees are doing, when that knowledge might involve awareness of offences being committed for the benefit of the company.’ The Law Commission also noted that this led to prosecutors being incentivised ‘to pursue small businesses . . . rather than larger companies in respect of the same kind of offences. . . . because it will be faster, cheaper and easier to prove directorial involvement when small companies are being investigated (something referred to as the temptation of ‘low-hanging fruit’).’8

The Attorney General reiterated these themes, noting that the failure-to-­prevent offence avoided such disparity of treatment while also encouraging better governance and leading to an improvement in corporate culture. In the context of global investigations, he referred to the fact that ‘the weaknesses in our current law result in other jurisdictions holding British companies to account when ours has not, as in the LIBOR case. This has clear implications for the reputation of our justice system.’9

In the deferred prosecution agreement (DPA) context, the current high threshold for establishing corporate criminal liability in the United Kingdom is a problem inherent in the DPA regime: to enter into a DPA, a prosecutor must satisfy the evidential test, which requires either that the evidential stage of the Full Code Test in the Code for Crown Prosecutors is satisfied10 or, that ‘there is at least a reasonable suspicion based upon some admissible evidence that the corporate has committed the offence, and there are reasonable grounds for believing that a continued investigation would provide further admissible evidence within a reasonable period of time, so that all the evidence together would be capable of establishing a realistic prospect of conviction in accordance with the Full Code Test.’11 For that reason many expected DPAs to be used principally for section 7 offences, where the identification principle does not present an obstacle to satisfying the evidential test. The prospect for DPAs to be used for the proposed failure to prevent the facilitation of tax evasion offence is specifically laid out in the government’s draft guidance accompanying the Criminal Finances Bill.12 Both the first two DPAs in the UK were for section 7 offences, although XYZ Ltd – anonymised because of ongoing criminal proceedings against individuals – also accepted misconduct in relation to conspiracies to corrupt and to bribe. However, XYZ Ltd was a small company and, as Sir Brian Leveson, President of the Queen’s Bench Division, found, ‘there is no question but that XYZ spiralled into criminality as a result of the conduct of a small number of senior executives bending to the will of agents.’13 In other words, the identification principle did not, in that case, present a problem.

1.1.2      Corporate criminal liability in the United States

The United States has long recognised principles of corporate liability based on common law and statutory bases.14 The application of these concepts, however, has evolved over time and was most recently shaped by the global financial crisis of 2007–2008, where the spectre of industry and market collapse loomed large. Today, increasing emphasis on individual liability and corporate culture continues to shape and refine this area of law.

In the United States, the common law of agency plays an important role. Specifically, under principles of respondeat superior, a company may be held vicariously liable for the illegal acts of any of its agents (including employees and contract personnel) so long as those actions were within the scope of the agents’ duties and were intended, even if only in part, to benefit the corporation.15 An act is considered ‘within the scope of an agent’s employment’ if the individual commits the act as part of their general line of work and with at least the partial intent to benefit the corporation.16 The corporation need not receive an actual benefit and may be liable for these offences even if it directs its agent not to commit the offence.17

Moreover, even where no single employee has the requisite intent or knowledge to satisfy the scienter element of a crime, courts have recognised a ‘collective knowledge doctrine’ – where several employees collectively know enough to satisfy the intent or knowledge requirement, courts can impute this collective intent and knowledge to the corporation.18 This doctrine is not universally accepted and some courts have limited it to circumstances where the company was flagrantly indifferent to the offences being committed.19

Additionally, beyond the common law principle of respondeat superior, some legislation imposes criminal liability for companies, including in the fields of environmental and antitrust law.20 Such statutes have the dual effects of forcing companies to internalise the costs of their wrongdoing and of increasing the deterrent effect of the law or regulation. For example, in a field like environmental law, where misconduct can have tremendous collateral and long-term consequences, the imposition of liability on the company acts as a strong incentive for corporate monitoring of employees and thorough due diligence and risk assessment.

Although corporate criminal liability has been a feature of US law since the nineteenth century,21 the criminal prosecution of corporations slowed abruptly and significantly – although temporarily – following the ill-fated prosecution of Arthur Andersen in 2002; the conviction (subsequently overturned by the US Supreme Court) resulted in the firm’s collapse and job losses for many thousands of innocent employees.22 In the aftermath of the Arthur Andersen case, prosecutors became far more hesitant to unleash the brute force of criminal charges against companies.23 Although limited prosecutions continued following Arthur Andersen, they were further reduced in number when, in the wake of the financial meltdown of 2007–2008, many feared that prosecuting big banks and large employers might lead to further economic turmoil.24 This idea, that an entity might be ‘too big to fail’, is now widely rejected by both prosecutors and the public, and there has since been a marked uptick in prosecutions. Today, prosecutors are generally less willing to accept the prospect of dire collateral consequences as justification for not pursuing criminal charges against corporations and have required guilty pleas from large corporations, previously considered ‘too big to jail’. As corporations survive – and even thrive – in the wake of guilty pleas, the spectre of the Arthur Andersen case recedes and the rigour with which prosecutors pursue companies continues to increase.25

In recent years, the United States has increasingly placed emphasis on an organisation’s compliance culture and internal controls. The result is that self-reporting, full acceptance of responsibility and the disclosure of all relevant facts concerning culpable individuals (regardless of seniority) now form the basis on which the government awards co-operation credit. The Department of Justice’s (DOJ) US Attorneys’ Manual, the Security and Exchange Commission’s (SEC) Seaboard factors, US Sentencing Guidelines, and most recently the so-called ‘Yates Memorandum’, each of which is discussed in detail in various chapters below, all reflect this pronounced shift in enforcement priorities. Although the price of attaining corporate co-operation credit is often painfully high, most companies have no choice but to tolerate it; co-operation typically provides the best prospect for a company to prevent a criminal charge, minimise financial penalties and avoid other harsh collateral consequences, such as the imposition of a monitor. Still, co-operation is not for the faint of heart, and any company operating in the United States or subject to US jurisdiction should carefully consider the far-reaching consequences – both good and bad – of setting off down the often treacherous path of co-operation. Once a company voluntarily discloses misconduct to the government, the ability to defend the case and control the process is effectively relinquished, and a company will find it very difficult to withhold sensitive, embarrassing or even harmful information. Given the highly uncertain alternative to co-operation, however, most companies accept and embrace this new reality from the start of an internal investigation and understand that factual findings far more often than not – if they involve potential criminal misconduct – will be presented to law enforcement.26

1.2         Double jeopardy

Another key question in any global investigation – where misconduct crosses borders and where more than one enforcement authority may seek to assert jurisdiction – is the extent to which different authorities can sanction the same or similar conduct. While domestic constitutional provisions on double jeopardy are similar between nation states, no universally accepted international norm exists and the protection afforded by the laws in one country may offer no protection in another. This can present a major difficulty to achieving a satisfactory global settlement for a client.

The doctrine of double jeopardy is that a person should not be tried twice for the same offence.27 Its underlying objective is to bring finality to criminal proceedings against individuals and companies in specific circumstances. Double jeopardy applies to criminal proceedings, but has been held by the European Court of Human Rights (ECtHR) to encompass an administrative penalty, in circumstances where that penalty was classified as a criminal penalty because of the nature of the charges and the severity of the punishment.28

In the United Kingdom, there are two essential conditions for the doctrine to apply.  First, the case must be ‘finally disposed of’ and second, any penalty imposed must actually have been enforced or be in the process of being enforced. The rationale for the doctrine is that it confers protection on the person (individual or corporate) from the risk of repeated prosecution by the State with its greater resources.29 Reflecting similar concerns, the concept of double jeopardy in the United States is rooted in the Fifth Amendment to the US Constitution, which reads in relevant part: ‘nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb.’30 These twenty words have generated tens – if not hundreds – of thousands of pages of case law and are worthy of a treatise in themselves. Distilled to its essence, however, double jeopardy in the United States applies to prohibit subsequent prosecution or multiple punishments of an individual or corporations for the same conduct.31 Nevertheless, the doctrine of double jeopardy is complicated by the question of dual sovereignty, which holds that double jeopardy’s bar against successive prosecution for the same conduct does not apply when the prior prosecution was brought by a separate sovereign, for example, the US government is not barred from bringing a case where a state or another country has already prosecuted the defendant for the same conduct or vice versa.

1.2.1      Double jeopardy in the United Kingdom

In England, the principle of double jeopardy is well established and has its origins in 12th century common law and ecclesiastical law. The modern principle of double jeopardy in English law was set out by the Divisional Court in Fofana v. Deputy Prosecutor Thubin Tribunal de Grande Instance de Meaux, France:

The authorities establish two circumstances in English law that offend the principle of double jeopardy:

      Following an acquittal or conviction for an offence, which is the same in fact and law – autrefois acquit or convict; and following a trial for any offence which was founded on ‘the same or substantially the same facts’, where the court would normally consider it right to stay the prosecution as an abuse of process and/or unless the prosecution can show ‘special circumstances’ why another trial should take place.32

The Divisional Court referred expressly to the United Kingdom’s adoption of Article 54 of the Schengen Convention and its underlying rationale.33 This is particularly important, as Article 54 states that a person (or company) whose case has been ‘finally disposed of’ by one Contracting Party may not be prosecuted by another for the ‘same acts’, provided that any penalty imposed has been enforced or is in the process of being enforced.34

Throughout the judgment, the court stressed the need to look at the underlying acts behind each charge, rather than the label of the charge itself. In the event, the court stayed the extradition proceedings on the basis that, although the extradition offence specified in the warrant was not based exactly, or solely, on the same facts as those charged in the UK indictment, there was such significant overlap between them as to require the proceedings to be stayed.35

In the case of DePuy International Limited, the Serious Fraud Office applied the double jeopardy principle and confirmed that it will likely arise where there is or has been an investigation into the defendant’s conduct by another authority overseas and the essence of a criminal offence in England and Wales is the same offence for which the defendant already faces trial, or has been acquitted or convicted. DePuy was a UK subsidiary of Johnson & Johnson, a US company that self-reported to the DOJ and the SEC bribery of foreign officials by DePuy, as well as other offences that did not involve the company, under the FCPA. Johnson & Johnson agreed to a DPA with the DOJ covering the FCPA violations and a civil sanction with the SEC that encompassed criminal and civil fines amounting to US$70 million.

The DOJ informed the SFO of the criminal conduct and the SFO commenced an investigation into DePuy and Mr Dougall, the company’s marketing manager. The SFO took the view that the DPA agreed by the parent company with the DOJ had the legal character of a formally concluded prosecution that punished the same conduct that had formed the basis of the SFO investigation. It determined that the rule against double jeopardy prevented any further criminal sanction being applied in the United Kingdom and instead pursued the company using a civil route to obtain the proceeds of crime. The civil sum obtained by the SFO took into account the global settlement in the United States including the civil fines paid and recovered of £4.8 million.

Whether a DPA under the United Kingdom’s regime would qualify for double jeopardy protection remains an open question. Although entry into a DPA does not constitute a criminal conviction, it does become the final disposal of specific intended criminal proceedings on its expiry and is almost certain to include the enforcement of a fine against the corporate subject. Furthermore, prosecution may follow in the event of a breach of the DPA.

1.2.2      Double jeopardy in the United States

As noted above, the Fifth Amendment to the US Constitution contains a double jeopardy clause. Generally speaking, the double jeopardy clause prohibits the US federal government, or any individual state, from twice prosecuting someone for the same conduct if they have already been acquitted or convicted (or after certain mistrials once a jury has been empanelled and ‘jeopardy has attached’).36 It also prohibits courts from imposing multiple punishments for the same conduct, which may be covered in multiple charges in an indictment.37 The double jeopardy clause of the Fifth Amendment – unlike its privilege against self-incrimination – applies to both individuals and corporations.38

The US Supreme Court, however, has recognised a significant exception to the double jeopardy clause, known as the ‘dual sovereignty’ doctrine. Pursuant to this doctrine, double jeopardy does not prohibit the federal government from prosecuting a person previously convicted or acquitted by a state, or vice versa, or one state from prosecuting a person convicted or acquitted by another.39 In other words, under this doctrine the US federal government can prosecute individuals and entities for the exact same conduct that they have previously been tried for in one of the states, regardless of whether they were convicted or acquitted in that prior case.40

To blunt the potentially harsh impact of the dual sovereignty exception, the DOJ has adopted a policy that precludes the initiation of federal prosecution following a prior state (or federal) prosecution based on substantially the same facts. The Dual and Successive Prosecution Policy (the Petite Policy) seeks ‘to vindicate substantial federal interests through appropriate federal prosecutions, to protect persons charged with criminal conduct from the burdens associated with multiple prosecutions and punishments for substantially the same act(s) or transaction(s), to promote efficient utilization of Department resources, and to promote coordination and cooperation between federal and state prosecutors.’41 To overcome this policy, federal prosecutors must not only comply with the standards applicable for commencing any federal prosecution (i.e., that the defendant’s conduct constitutes a federal offence and that the admissible evidence probably will be sufficient to obtain and sustain a conviction by an unbiased trier of fact), but they must also obtain the approval of the appropriate Assistant Attorney General and establish that: (1) the matter involves a substantial federal interest; and (2) the prior prosecution left that federal interest ‘demonstrably unvindicated’. It is the second of these two factors that provides the greatest protection against successive prosecutions, as, under this policy, the DOJ ‘will presume that a prior prosecution, regardless of result, has vindicated the relevant federal interest.’42 While this presumption can, of course, be overcome (and the policy lists the factors relevant to make such an assessment),43 federal prosecutors traditionally reserve such challenges for those cases where it perceives the preceding result to have been manifestly unjust.

Notably, the Petite Policy does not expressly preclude the DOJ from bringing criminal charges based on the same conduct previously prosecuted by a foreign sovereign. Nevertheless, similar, if not identical, principles are at play whether the prior prosecution was brought by a state or federal government, or a foreign sovereign. Counsel endeavouring to persuade the DOJ to defer to the foreign result certainly should be prepared to demonstrate why a successive prosecution would contravene that policy. The DOJ will, of course, consider if US interests have been sufficiently redressed by the foreign prosecution.44 And, in the cases of corporate criminal activity, it is likely that the DOJ will seek to extract a penalty based on the harm to its interests.

Still, if a prior prosecution by a foreign sovereign has resulted in adequate penalties proportionate to the conduct, the DOJ may well decline or defer the prosecution or, perhaps, offset any US fines or penalties by the amounts paid abroad, particularly in the corporate context. For instance, in the recent Standard Bank DPA, the English court said that the DOJ had been conducting its own investigation into possible Foreign and Corrupt Practices Act (FCPA) violations but that, ‘noting the co-operation of Standard Bank and Stanbic with them, the Department of Justice has . . . intimated that if the matter is resolved in the UK, it will close its inquiry.’45 This, again, is simply a matter of prosecutorial discretion given the dual sovereignty exception to the double jeopardy clause.

The double jeopardy clause generally does not restrict the ability of the US government to pursue successive criminal and administrative remedies for the same conduct.46 Indeed, while it is more common for administrative investigations to run in parallel with DOJ investigations, double jeopardy is not offended when a criminal prosecution follows the imposition of an administrative sanction (or vice versa). As the Supreme Court held in Hudson v. United States, the double jeopardy clause does not apply to non-criminal penalties.47 Though the Court in Hudson recognised that criminal charges following in the wake of stinging administrative penalties could potentially implicate double jeopardy concerns, a defendant mounting such a challenge must establish by the ‘clearest proof’ that the administrative penalty was so punitive as to render it criminal for double jeopardy purposes – a very high hurdle indeed.48

1.2.3      The application of double jeopardy between EU Member States

Increased focus on combating overseas corruption following the signing of the Organisation for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, has resulted in a rise in multiple prosecutions. A person or company engaging in overseas corruption faces the prospect of prosecution in any signatory country where he, she or the company may have sufficient involvement, either by citizenship or place of incorporation, or as a place where relevant acts took place.

The picture is evolving on both the supranational and national levels, and this is discussed below. The double jeopardy principle is set out in Article 54 of the 1985 Schengen Agreement.49 On 29 May 2000 the United Kingdom adopted Article 54 of the Schengen Convention and so it presently forms part of the UK’s domestic law.50 The rationale for the application of the principle across the EU was made clear in R v. Gozutok and Brugge,51 as permitting finality in criminal proceedings and also engendering mutual trust in national criminal justice systems by requiring that each Member State recognise the criminal laws in force in the others even when the outcome would be different if its own national law had been applied.

The Council Framework Decision 2009 on the prevention and settlement of conflicts of exercise of jurisdiction in criminal proceedings (the EU Framework Decision)52 sets out measures to prevent situations where the same person is subject to parallel criminal proceedings in different Member States in respect of the same facts that might lead to the final disposal of those proceedings in two or more Member States.

The EU Framework Decision is constitutionally binding on the UK as a Member State and as such must be taken into account by the SFO in its decision whether to open a criminal investigation. The double jeopardy principle is not a bar to a criminal investigation however and the SFO has very wide discretion in deciding whether to carry out an investigation.53

1.2.4      The European Court of Human Rights

Article 4 of Protocol 7 to the European Convention on Human Rights (ECHR) specifically recognises the double jeopardy principle.54

The importance of the principle was emphasised in the ECtHR’s Chamber judgment in the case of Grande Stevens and Others v. Italy.55 Here, the applicants received an administrative penalty from Consob, the Italian Companies and Stock Exchange Commission, in respect of providing false or misleading information concerning financial instruments. The penalty took the form of substantial fines and various banning orders. Subsequently, the applicants were committed for trial before the Turin District Court in respect of criminal allegations of market abuse arising out of the same facts.

The applicants argued before the ECtHR that the subsequent criminal proceedings were in breach of Article 4 as they had already been subject to a penalty that was akin to a criminal penalty, even though it was imposed as an administrative penalty. The court accepted their argument and ruled that the administrative penalty should be considered a criminal penalty for the purposes of the ECHR and that Article 4 prevented the criminal proceedings from taking place on the grounds of double jeopardy.

In March 2015, France’s Constitutional Court ruled that Airbus executives could not be prosecuted for insider trading because they had been cleared over similar administrative charges by France’s Financial Markets Authority, the AMF. In reaching its decision the Court gave considerable weight to the decision of the ECtHR in the Grande Stevens case.

The Grand Chamber of the Court of Justice of the European Union has recently considered the application of the double jeopardy principle to the Schengen Agreement in the context of an individual under investigation in Poland and Germany for allegations of extortion.56 In this case it upheld the German prosecutor’s decision that the double jeopardy principle did not apply. The matter had not been finally disposed of as no detailed investigation had taken place.

1.2.5      Double jeopardy in France

Recent developments in France warrant a special mention as the issue of double jeopardy and its application has come before the courts on a number of occasions recently. The appellate courts are currently considering the extent to which domestic law will recognise convictions in the United States as a bar to prosecution, as well as the status of US DPAs in domestic proceedings. On 18 June 2015 a criminal court in Paris acquitted four French corporates that were accused of paying bribes in connection with the United Nation’s Oil-for-Food Programme on the grounds that they (or their corporate parents) had already signed DPAs with the DOJ. The rationale given was that it was inconsistent with French international obligations to prosecute the companies for a second time on what the Court found to be the same facts. The prosecutor has appealed against this decision and the French Court of Appeal and the Court of Cassation may reach a different conclusion when they rule on the matter in 2016 or 2017.

A particular concern in the French courts is the potential unfairness to a corporate that has effectively admitted the offence in another jurisdiction to obtain a DPA and then finds those admissions being used against it in a jurisdiction that does not recognise the DPA under the double jeopardy principle.

From the perspective of the applicability of double jeopardy to proceedings against an individual, the French Constitutional Court will rule in 2016 or 2017 on whether French former budget minister Jérôme Cahuzac can be criminally prosecuted for alleged tax fraud despite having already faced administrative sanctions for the same misconduct.

1.2.6      Conclusion

At first sight, the doctrine of double jeopardy appears to be a substantial protection against repeated prosecution in respect of the same conduct. However, although the doctrine may be a protection against a similar prosecution within the state, or member group such as the EU, it may well fail to protect against a prosecution brought by a separate state.

Because many countries do not recognise a foreign conviction for the purposes of double jeopardy, it is not possible to reassure a corporate client that a criminal settlement in one jurisdiction will qualify as a settlement in others as well. Further, entering into a DPA in one jurisdiction may risk damaging the client’s interests in another if the DPA is not recognised as a bar to prosecution, but the admissions it made to secure the DPA are admissible against it in other jurisdictions.

The picture is uncertain and many questions remain unanswered. These include:

  • Should there be international recognition of criminal convictions for the purposes of double jeopardy, to encourage global settlements?
  • Should DPAs be given the status of a criminal conviction for the purposes of double jeopardy?
  • Should regulatory sanctions qualify for the purposes of double jeopardy?

Until these issues are resolved, a corporate client will only be able to place very limited reliance on the double jeopardy principle as a bar to further prosecution in respect of the same conduct. At present, the only safe course will be to seek to negotiate a global settlement with all the states most likely to take an interest in the conduct, before admitting guilt in any state. Whether this is practicable will vary from case to case.

1.3         The stages of an investigation

Issues that at first glance may appear to be isolated or technical can quickly spread across borders and escalate into multifaceted threats to businesses, reputations and careers. Even within jurisdictions, different enforcement authorities operate within their own, often complex, legal and technical frameworks. Any investigation, whether an internal fact-finding inquiry aimed at establishing the size and nature of a problem or one commenced by an enforcement authority, is inevitably a dynamic process. There can be no ‘one-size-fits-all’ approach and the scope of an investigation can change significantly as it progresses.

Nonetheless, it is possible to identify three broad, and often overlapping, phases to an investigation, namely the commencement, information gathering and disposal phases. Particular challenges arise, and sometimes recur, at each of these.

Conducting and handling investigations, limiting the damage they cause and bringing them to as swift and efficient a conclusion as possible is an art rather than a science. It requires advisers to anticipate, balance and respond to a wide variety of challenges, and to appreciate the potential ramifications of every interaction with a diverse cast of characters.

1.3.1      Commencement

When deciding whether or how to commence an investigation, or how best to respond to one already commenced by an enforcement authority, it is axiomatic that the very first task to be carried out must be to establish as precisely as possible the size and shape of the problem. Which corporate entities and individuals are regarded as subjects of the investigation? Which offences are they thought to have committed, and which regulatory provisions might they have infringed?

In some cases (typically those involving alleged breaches of regulatory requirements), the answers will be self-evident from notices confirming the commencement of an investigation or the appointment of investigators, and there may be opportunities to seek to establish more detail through scoping discussions. However, in other cases (typically those involving alleged criminal misconduct), the investigators will not necessarily provide details or opportunities for discussions. In some cases, the first indication an individual or entity receives of an investigation by an enforcement authority will be a requirement to attend an interview or provide documents, or, worse still, a knock at the door from investigating officers. In all cases – whether or not enforcement authorities are already aware of alleged misconduct – steps must be taken immediately upon discovery of the alleged misconduct to preserve and to avoid the destruction or deletion (inadvertent or otherwise) of documents that are, or could become, relevant. In large multinational organisations, identifying the custodians of these documents, drafting and disseminating appropriately inclusive document-retention notices, gathering the material and suspending automatic deletion policies is a substantial undertaking in itself.

Where authorities are not already aware of apparent misconduct, considering whether, when and how to disclose matters to them will be an immediate priority. In some cases, specific regulatory obligations will require disclosures. In others, it may be appropriate to voluntarily report matters to maximise the prospects of a consensual resolution on favourable terms. Both types of disclosures require careful handling. Consideration must be given to potential consequences, both for those individuals or corporates already implicated in alleged misconduct, and for those that may become so. Where information is disclosed voluntarily, wider considerations about whether co-operation will be appropriate and would be likely to encourage the relevant enforcement authority to curtail its investigation (and on which terms) should be borne in mind. Identifying the potential risks and benefits will typically involve assessing the enforcement policy and posture of each agency involved (and often of individual investigators) and its ability and propensity to pass information to other investigating or prosecuting authorities (both within and between jurisdictions).

These assessments will inform the answers to a number of practical questions:

  • Should an initial notification be made before a full internal investigation has been undertaken?
  • What should be disclosed at the end of the internal investigation and to whom?
  • Should information be disclosed to the authorities orally rather than in writing?
  • Will investigators regard anything less than unfettered access to witnesses’ first accounts and other underlying documents as true co-operation enabling them to contemplate a negotiated outcome?
  • Is it feasible to maintain claims to legal professional privilege or challenge investigators’ actions or demands while still seeking to claim that the subjects of the investigation are co-operating?

Choices made at this stage about how much information and control to relinquish over the investigative process and the robustness of the line to be taken with investigators in relation to issues such as privilege can be crucial in setting the tone for the rest of the investigation, and any proceedings that flow from it.

In cases involving allegations made by or against directors or employees, early determinations need to be made as to whether any specific whistleblower protection legislation or rules have been engaged and whether action should be taken to suspend or dismiss those individuals.

1.3.2      Information gathering

Once the scope of an investigation has been determined, the process of gathering and analysing relevant information, whether in documentary or electronic form or in the form of witnesses’ accounts, commences.

In substantial cross-border investigations, the task of collating relevant material, ascertaining whether it is responsive to requirements to produce documents or provide information (or whether it should otherwise be produced to demonstrate a co-operative stance), and filtering it to remove material exempt from disclosure is time- and resource-intensive. It often requires specialist technical input and expertise. Information should not be treated as a readily portable commodity, and careful consideration should be given to applicable data protection and other confidentiality constraints before information is transferred between jurisdictions or produced to investigating authorities.

Witness interviews during internal investigations raise no fewer questions. When should interviews take place? Who should be present? What material and questions is it appropriate to put to them during such interviews? Should they be represented (and, if so, at whose expense)? Taking a wider view across all jurisdictions in which action could be taken, and from the individual’s perspective, is it in the interests of subjects of the investigation to provide information voluntarily, or should they insist on being compelled to do so?

Of course, where investigations by the authorities have already begun, investigating authorities will be keen to interview individuals who are suspects. Depending on the nature of the investigation and the allegations against them, it may be open to individuals to remain silent in response to questions (although this course of action may limit their options in any proceedings flowing from the investigation). Conversely, it may serve such individuals’ interests to proactively volunteer information to secure more lenient treatment by authorities, or ultimately the courts.

1.3.3      Disposal

As the information gathering progresses, and evidence is assimilated and understood, a decision will need to be reached as to whether this may be resolved through negotiation, or whether the individual or corporate disputes the allegations entirely or is unprepared to reach any resolution or enter into any settlement that requires admissions of misconduct.

Where settlement is an option, from economic, commercial and reputational standpoints, settling with as many investigating authorities as quickly and on as favourable of terms as possible is likely to be preferable. Particularly in regulatory enforcement investigations involving corporates, it is often clear from the commencement phase that this will be the most likely outcome, and dialogue throughout the investigation will have to be directed towards this outcome.

It should not be assumed that the process leading to a negotiated disposal is a smooth or simple one. Even in cases involving only one enforcement authority, the legislation and rules governing settlement and the calculation of penalties are complex. Although the discounts available for early settlement are potentially significant, the processes leading to them can involve successive rounds of proposals, counter proposals, representations and negotiations. In criminal investigations, in jurisdictions where it is possible to achieve negotiated outcomes as an alternative to prosecution, although the degree of scrutiny varies depending on which jurisdiction is concerned, such settlements will also be examined by a judge.

Complexity is multiplied where multiple authorities or jurisdictions are involved, or where it is possible that a finding, even if it does not involve any admission of liability, may fuel subsequent litigation from third parties such as erstwhile customers, employees or shareholders.

Although major investigations are unlikely to have progressed to the disposal stage without attracting at least some publicity, it is at this stage that press and political interest will peak. Enforcement authorities usually must make the outcomes of investigations public (and indeed corporate entities themselves may be obliged to do so if their securities are listed).

Other difficult questions arise with negotiated disposals: what will be the size of the fines, if any? For individuals, is there the prospect of imprisonment or other career threatening penalties? Will it be possible to settle with all interested investigating authorities? For the corporate to bring matters to a close, will it be necessary to assist authorities in their pursuit of individuals? Will the disposal of the investigations mark the end of the matter, or simply the start of a new phase of litigation or the commencement of a long process of reporting to a monitor and heightened levels of regulatory scrutiny or supervision? What can be said publicly by the subjects of the investigations?

With these themes in mind, we turn now to a detailed consideration of each stage in the chapters that follow.

Notes

  1. Tesco Supermarkets Ltd v. Nattrass [1972] AC 153; reaffirmed in Attorney General’s Reference (No. 2 of 1999) [2000] 2 Cr App R 207 at 217-218 in which Rose LJ stated: ‘Tesco v. Nattrass is still authoritative . . . and it is impossible to find a company guilty unless its alter ego is identified. None of the authorities since Tesco v. Nattrass . . . supports the demise of the doctrine of identification: all are concerned with statutory construction of different substantive offences and the appropriate rule of attribution was decided having regard to the legislative intent, namely whether Parliament intended companies to be liable. There is a sound reason for a special rule of attribution in relation to statutory offences rather than common law offences, namely there is, subject to a defence of reasonable practicability, an absolute duty imposed by the statutes. The authorities on statutory offences do not bear on the common law principle in relation to manslaughter. Lord Hoffmann’s speech in Meridian is a re-statement not an abandonment of existing principles . . . .’; and Environment Agency v. St Regis Paper Co. Ltd [2012] 1 Cr App R 177, at paras. 10-12 in which, at para. 12, Moses LJ said: ‘It seems to us that as a matter of statutory construction it is impossible to impose criminal liability for a breach of Regulation 32(1)(g) to the company in circumstances other than those where an intention to make a false entry can be attributed by operation of the rule in Tesco Supermarkets. There is, in our view, no warrant for imposing liability by virtue of the intentions of one who cannot be said to be the directing mind and will of St. Regis Paper Company.’ The identification principle was reaffirmed by the Court of Appeal in R v. A Ltd, X, Y [2016] EWCA Crim 1469.
  2. These statutory offences are referred by Rose LJ in Attorney General’s Reference (No. 2 of 1999) [2000] 2 Cr App R 207 at 217-218, see above at footnote 2.
  3. Ministry of Justice Guidance on the Bribery Act 2010, issued pursuant to section 9 of the Bribery Act 2010.
  4. While there are many similarities with section 7 of the Bribery Act 2010, there are also some important differences: whereas section 7 requires the corporate to have benefited from the conduct in question, there is no such requirement in the tax evasion offence; secondly, the defence to the proposed offence is more widely drafted: whereas the defence under section 7 requires ‘adequate procedures’ to be demonstrated, under the new tax offence a corporate would have a defence if it could establish that it took such ‘prevention procedures’ as were reasonable in all the circumstances, or alternatively that it was not reasonable in all the circumstances to expect it to have any such prevention procedures in place.
  5. Tackling tax evasion: Government guidance for the corporate offence of failure to prevent the criminal facilitation of tax evasion. Draft Government Guidance, Updated October 2016, available at https://www.gov.uk/government/consultations/tackling-tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-of-tax-evasion.
  6. Attorney General Jeremy Wright, speech to the Cambridge International Symposium on Economic Crime, 5 September 2016, available at https://www.gov.uk/government/speeches/attorney-general-jeremy-wright-speech-to-the-cambridge-symposium-on-economic-crime.
  7. These criticisms were then echoed by both the Director and General Counsel of the SFO on 6 September 2016, also at the Cambridge International Symposium on Economic Crime.
  8. The Law Commission, Consultation Paper No. 195 (Overview) ‘Criminal Liability in Regulatory Contexts’, 2010, paras. 1.64–1.66.
  9. Attorney General Jeremy Wright, speech. See footnote 7, above.
  10. Namely that prosecutors must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge. They must consider what the defence case may be, and how it is likely to affect the prospects of conviction. A case that does not pass the evidential stage must not proceed, no matter how serious or sensitive it may be.
  11. DPA Code of Practice at para. 1.2(i)(b)(https://www.sfo.gov.uk/publications/guidance-policy-and-protocols/deferred-prosecution-agreements/).
  12. Draft Government Guidance, at page 13. See footnote 6, above.
  13. SFO v. XYZ Ltd Case No. U20150856, (Preliminary Redacted) Approved Judgment, dated 8 July 2016 at para. 34.
  14. Charles Doyle, Congressional Research Service, Corporate Criminal Liability: An Overview of Federal Law 1 (2013).
  15. Jones v. Federated Fin. Reserve Corp., 144 F.3d 961, 965 (6th Cir. 1998). See also Hamilton v. Carell, 243 F.3d 992, 1001 (6th Cir. 2001).
  16. United States v. Singh, 518 F.3d 236, 249 (4th Cir. 2008) (citing United States v. Automated Med. Labs., 770 F. 2d 399, 406-47 (4th Cir. 1985).
  17. Automated Med. Labs. 770 F.2d at 407.
  18. United States v. Sci. Applications Int’l Corp., 555 F. Supp. 2d 40, 55–56 (D.C. Cir. 2008). See also United States v. Bank of New England, N.A., 821 F. 2d 844, 856 (1st Cir. 1987); United States v. T.I.M.E.-D.C., Inc., 381 F. Supp. 730, 738–39 (W.D. Va. 1974).
  19. T.I.M.E.-D.C., Inc., 381 F. Supp. at 740.
  20. See, e.g., United States v. Hopkins, 53 F.3d 533 (2d Cir. 1995) (imposing a strict liability standard for a violation of the Clean Water Act); United States v. Weitzenhhoff, 35 F.3d 1275 (9th Cir. 1993). Contra United States v. Ahmad, 101 F.3d 386 (5th Cir. 1996) (suggesting that there is a mens rea requirement for violations of the Clean Water Act). See also James Swann and Alex Ruoff, Self-Referral Law Seen as Barrier to New Provider Agreements, Bloomberg BNA (5 May 2016), http://www.bna.com/selfreferral-law-seen-n57982070764/ (discussing the physician-self referral law’s imposition of strict liability).
  21. For a discussion of the history and development of corporate criminal liability in the United States, see Kathleen F. Brickey, Corporate Criminal Accountability: A Brief History and an Observation, 60 Wash. U. L.Q. 393, 404–15 (1982).
  22. Arthur Andersen LLP v. United States, 544 U.S. 696 (2005). For a complete history of Arthur Andersen LLP, see Susan E. Squires et al., Inside Arthur Andersen: Shifting Values, Unexpected Consequences (2003).
  23. See Gabriel Markoff, Arthur Andersen and the Myth of the Corporate Death Penalty: Corporate Criminal Convictions in the Twenty-First Century, 15 U. Pa. J. Bus. L. 797, 805–07 (2013).
  24. See Gretchen Morgenson & Louise Story, Behind the Gentler Approach to Banks by US, N.Y. Times, 7 July 2011, at A1.
  25. See, e.g., Peter J. Henning, Seeking Guilty Pleas From Corporations While Limiting the Fallout, N.Y. Times Dealbook (5 May 2014), http://dealbook.nytimes.com/2014/05/05/seeking-guilty-pleas-from-corporations-while-limiting-the-fallout/; Francine McKenna, Why the Ghost of Arthur Andersen No Longer Haunts Corporate Criminals, MarketWatch (21 May 2015), http://www.marketwatch.com/story/why-the-ghost-of-arthur-andersen-no-longer-haunts-corporate-criminals-2015-05-21.
  26. U.S. Dep’t of Justice, United States Attorneys’ Manual 9-28.700 (2015).
  27. The ne bis in idem or double jeopardy principle is well established both in EU law and under the European Convention on Human Rights (ECHR). The phrase is derived from the Roman law maxim nemo debet bis vexari pro una et eadem causa (a man shall not be twice vexed or tried for the same cause).
  28. Grande Stevens and Others v. Italy (4 March 2014) Application Nos. 18640/10, 18647/10, 18668/10 and 18698/10. The judgment is not final.
  29. The protection is not absolute. A second trial is permitted in defined circumstances. In the UK, a prosecutor will seek a retrial if a jury has been unable to reach a verdict in the initial trial. A further trial in murder cases may also be permitted in circumstances where compelling new evidence comes to light.
  30. U.S. Const. amend. V.
  31. See generally Ernest H. Schopler, Annotation, Supreme Court’s Views of Fifth Amendment’s Double Jeopardy Clause Pertinent To or Applied In Federal Criminal Cases, 50 L. Ed. 2d 830 (2012).
  32. [2006] EWHC 744 (Admin), Judgment, para. 18.
  33. Id. para. 14.
  34. In the United Kingdom, the decision to leave the EU adds further uncertainty to the recognition of double jeopardy principle in its application to convictions in other Member States.
  35. Fofana, Judgment, para. 29. See footnote 33, above.
  36. See U.S. Const. amend. V; Martinez v. Illinois, 134 S. Ct. 2070, 2074, reh’g denied, 135 S. Ct. 342 (2014).
  37. See Breed v. Jones, 421 U.S. 519, 528 (1975).
  38. See United States v. Martin Linen Supply Co., 430 U.S. 564 (1977) (applying double jeopardy to corporate defendants without discussing their status as corporations); United States v. Sec. Nat’l Bank, 546 F.2d 492, 494 (2d Cir. 1976).
  39. United States v. Lanza, 260 U.S. 377, 385 (1922).
  40. Notably, the Supreme Court very recently declined to extend the dual sovereignty doctrine to successive prosecutions by Puerto Rico and the United States, concluding that the question of separate sovereignty requires an assessment of the source of the power to punish. Puerto Rico v. Sanchez Valle, 136 S. Ct. 1863 (2016). There, the Court held that successive prosecutions may be brought only where two prosecuting authorities derive their power to punish from independent sources; if those authorities draw their power from the same ultimate source, successive prosecutions are prohibited.
  41. U.S. Dep’t of Justice, United States Attorneys’ Manual 9-2.031 (1999).
  42. Id.
  43. Id.
  44. See Thompson v. United States, 444 U.S. 248, 248 (1980) (noting that there is an exception to the Petite Policy where US prosecution would serve ‘compelling interests of federal law enforcement’).
  45. SFO v. Standard Bank Plc (2015) (Case No. U20150854) para. 58.
  46. See Hudson v. United States, 522 U.S. 93, 96 (1997).
  47. Id. at 99.
  48. See id.
  49. Article 54: ‘A person whose trial has been finally disposed of in one contracting party may not be prosecuted in another contracting party for the same acts provided that, if a penalty has been imposed, it has been enforced, is actually in the process of being enforced or can no longer be enforced under the laws of the sentencing contracting party.’
  50. 2000/365/EC: Council Decision of 29 May 2000 concerning the request of the United Kingdom of Great Britain and Northern Ireland to take part in some of the provisions of the Schengen acquis.
  51. [2003] 2 CMLR 2.
  52. 2009/948/JHA.
  53. Section 1(3) of the Criminal Justice Act 1987; ‘The Director may investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud.’ See also R (Corner House) v. Director of the SFO [2008] EWHC 714 (Admin), at para. 51.
  54. ‘Article 4 – Right not to be tried or punished twice
    1 No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.
    2 The provisions of the preceding paragraph shall not prevent the reopening of the case in accordance with the law and penal procedure of the State concerned, if there is evidence of new or newly discovered facts, or if there has been a fundamental defect in the previous proceedings, which could affect the outcome of the case.
    3 No derogation from this Article shall be made under Article 15 of the Convention.’
  55. Grande Stevens and Others v. Italy (4 March 2014) Application Nos. 18640/10, 18647/10, 18668/10 and 18698/10. The judgment is not final.
  56. Case C-486/14, Kossowski, 29 June 2016.

Previous Chapter:Preface

Next Chapter:The Evolution of Risk Management in Global Investigations