Fines, Disgorgement, Injunctions, Debarment: The UK Perspective

25.1 Criminal financial penalties

Financial penalties for corporate and individual fraud, bribery and money laundering offences are determined in accordance with relevant legislation and the sentencing guidelines issued by the Sentencing Council.^[2] For corporates, the relevant guideline is ‘Corporate Offenders: fraud, bribery and money laundering’ (the Guideline).^[3] The Guideline applies to corporates sentenced on or after 1 October 2014, regardless of the date of the offence, and must be followed by the court unless it would be contrary to the interests of justice to do so.^[4]

In applying sentencing guidelines to offences prosecuted under legislation that pre-dates them, the court may reflect ‘modern attitudes’ to historical offences and make allowance for any change in maximum sentence for that particular offence^[5] (although the court cannot exceed the maximum sentence available at the time of the commission of the offence) to ensure that the sentence passed is in the interests of justice.

The sentencing guidelines set out a step-by-step process for sentencing offenders. The Guideline contains 10 steps:

• compensation;
• confiscation;
• determining the offence category;
• starting point and category range;
• adjustment of fine;
• factors that would indicate an adjustment;
• reduction for guilty pleas;
• ancillary orders;
• totality principle;
• reasons.

The steps are explained in further detail below.

25.2 Compensation

The court must first consider ordering a company to pay compensation to a victim of offending for any personal injury, loss or damage resulting from the offence,^[6] in an amount it considers appropriate.^[7] The court will have regard to any evidence and any representations made by the prosecutor or the company^[8] and must consider the company’s ability to pay.^[9] If a company does not have the means to pay both a fine and a compensation order, a compensation order will take priority.^[10] Compensation orders are not mandatory, but if the court does not make one it must give reasons for the decision.^[11]

25.3 Confiscation

The second step under the Guideline is for the court to consider confiscation. The confiscation regime is governed by the Proceeds of Crime Act 2002. The court must consider confiscation where the prosecutor asks it to make a confiscation order or where the court considers it appropriate to do so,^[12] and confiscation must be dealt with before any other fine or financial order (except compensation).^[13] The purpose of a confiscation order is to recover a sum of money equal to the benefit obtained from the offence, whether or not it has been retained. The court will consider (1) whether the defendant has benefited from criminal conduct, (2) the value of the benefit obtained and (3) what sum is recoverable from the defendant.

The defendant’s criminal benefit is the value of the property obtained as a result of, or in connection with, the criminal conduct, including any pecuniary advantage.^[14]

In calculating the benefit, the court must first consider whether the defendant has a ‘criminal lifestyle’.^[15] Circumstances where a criminal lifestyle will be found include where a defendant is convicted of money laundering offences;^[16] where the defendant has obtained benefit of at least £5,000, where the offence forms part of a course of criminal activity;^[17] or where it is committed over six months or more.^[18] Given that serious economic offences are often committed over lengthy periods, (especially where charged as a conspiracy), the criminal-lifestyle provisions are often engaged. Where a criminal lifestyle is found, the court will decide whether the defendant has benefited from ‘general criminal conduct’^[19] namely, any of his or her criminal conduct, whenever it occurred and regardless of whether it has ever been prosecuted.^[20] When calculating the benefit to a defendant with a ‘criminal lifestyle’, the court may draw certain assumptions about the defendant’s property,^[21] which can be very detrimental to a defendant. For example, it may assume that any property transferred to the defendant in the six years preceding a charge was obtained by criminal conduct. However, the defendant may prove that an assumption is incorrect, and the court may not draw an assumption where it would give rise to a serious risk of injustice.^[22]

If the defendant is not considered to have a criminal lifestyle, the court must consider whether the defendant has benefited from the criminal conduct^[23] for which he or she is being sentenced and determine the value of that benefit. The court must then decide the recoverable amount and make a confiscation order requiring the defendant to pay,^[24] unless the defendant can show the available amount is less than the benefit, in which case the recoverable amount will be the available amount, or a nominal amount, if nothing is available.^[25] The available amount is the aggregate of the value of the defendant’s free property and any tainted gifts made by the defendant, less the value of any obligations that take priority.^[26]

A confiscation order is an order to pay a sum of money, but it can be enforced against the defendant’s property and any tainted gifts, if the defendant fails to pay.

Before making an order, the court must consider whether a confiscation order is proportionate.^[27] Case law suggests that it is not proportionate to take the entire value of a corrupt contract as the benefit (where full value is given under the contract), but rather that proportionality dictates that the benefit should be confined to the gross profit, together with any other pecuniary advantage flowing from the corruption.^[28] In a separate case, it has been held that where the defendant can establish that VAT output tax on revenue obtained from criminal conduct has been paid to HM Revenue and Customs, it would be disproportionate to make a confiscation order calculated on the basis that a sum equivalent to that VAT paid has been ‘obtained’ by the defendant.^[29]

25.4 Fine

In determining the level of fine, the Guideline requires the court to first assess the offence category, by reference to the company’s culpability and the harm caused. The Guideline sets out three categories of culpability – high, medium and lesser; and provides a non-exhaustive list of characteristics that may demonstrate each level. The court should weigh up all the factors of the case to determine the company’s culpability.

The harm figure is a financial sum that represents the amount obtained or loss avoided (or intended to be obtained or avoided). For fraud offences and cheating the revenue, the harm is generally the actual or intended gross gain to the company. For offences under the Bribery Act^[30] the harm figure will generally be the gross profit from the contract obtained, retained or sought as a result of the offending. Where the offence is failing to prevent bribery,^[31] the likely cost avoided by the company in failing to put adequate procedures in place may be used as an alternative measure. For money laundering offences, the harm figure will generally be the amount laundered or the likely cost avoided by failing to put in place an effective anti-money laundering programme (if this is higher). If the actual or intended gain cannot be established, the harm figure will be the amount that the court considers was likely to be achieved in all the circumstances. The Guideline also suggests that in large cases in which the true harm is to commerce or markets generally, a harm figure in excess of those guidelines may be justified.

A multiplier is then applied to the harm figure according to the category of culpability. The Guideline sets out a table with the starting point and range for each culpability level. For high culpability, the starting point is a multiplier of 300 per cent; for medium culpability, 200 per cent; and for lesser culpability, 100 per cent. Once the court has determined the appropriate starting point, it must consider adjustment within the range provided for aggravating and mitigating factors (although the Guideline also suggests that in some cases it may be appropriate to use a figure outside the category range). A non-exhaustive list of such factors is set out in the Guideline.

The fine must reflect the seriousness of the offence and take into account the financial circumstances of the offender.^[32]

Once the court has arrived at the fine, it is required to ‘step back’ and consider the overall effect. The combination of compensation, confiscation and fine is supposed to (1) remove all gain, (2) punish appropriately and (3) deter. The court should consider whether there are any further factors that may require an adjustment and ensure those aims are met fairly. Examples set out in the Guideline include the impact of any fine on the company’s ability to implement an effective compliance programme, or on the employment of staff or on the local economy.

If a company is being sentenced for more than one offence, the court should also apply the ‘totality principle’: it should consider whether the total sentence is just and proportionate to the offending.^[33]

A defendant may seek an indication in advance of the maximum sentence that would be imposed were he or she to plead guilty at that stage of proceedings, although a judge may also refuse to give one. This is known as a ‘Goodyear indication’^[34] and is binding on the court once given; although if the defendant chooses not to plead guilty at that stage, it ceases to be binding.

25.5 Guilty plea

Where a defendant pleads guilty, the court must consider a reduction in sentence,^[35] having regard to the ‘Reduction in Sentence for a Guilty Plea Guideline’ (the Plea Guideline).^[36] The level of reduction is determined by the stage at which the defendant pleads guilty and the circumstances in which it was given, but it cannot exceed one-third of the sentence. A defendant will generally receive a discount of one-third if a guilty plea is entered at the first stage of proceedings, which is generally the first hearing at which a plea or indication of plea is sought and recorded by the court.^[37]

For a guilty plea entered after the first stage, the maximum discount available is one quarter up until the first day of trial, when a maximum of one-tenth is available. For pleas entered subsequently during the trial, the discount will reduce again, potentially to zero. The Plea Guideline sets out exceptions where the discounts may not be applied as described, for example, for certain offences that have minimum or appropriate sentences prescribed by statute.

The court should also consider any other factors that would justify a reduction, such as co-operation by the defendant with the investigation or prosecution.^[38]

25.6 Costs

The court may make a costs order in favour of either the prosecution or the defendant.^[39] Ordinarily, in the event of a conviction, the defendant will be ordered to pay costs to the prosecutor that the court considers just and reason­able.^[40] If a defendant is acquitted or the prosecution does not proceed to trial, the court may make an order in favour of the defendant of an amount the court considers reasonably sufficient to compensate for any expenses properly incurred in the proceedings.^[41]

25.7 Director disqualifications

Under the Company Directors Disqualification Act 1986 (CDDA), any director convicted of misconduct^[42] in connection with a company (either in the United Kingdom or overseas) or considered unfit to be concerned with the management of a company, may be disqualified from the right to manage a company for up to 15 years by a disqualification order.^[43] The person will also be entered on the register of disqualified directors. The definition of ‘director’ is very wide, and has been interpreted to include former directors, shadow directors and senior managers who may be considered to be acting as directors of the company.^[44]

Where there is a conviction in respect of an indictable offence,^[45] usually the sentencing court will consider whether a disqualification order ought to be made and impose it. However, the Insolvency Service^[46] may also look to bring separate disqualification proceedings, before or even alongside, a criminal prosecution irrespective of whether the company in question is solvent.

The Secretary of State also may apply to court for a disqualification order if it appears expedient in the public interest, and the court may grant it where it is satisfied that a person’s conduct in relation to the company (alone or taken together with his or her conduct as a director of other companies or overseas companies) makes that person unfit to be concerned in the management of a company.^[47] For offences committed outside the United Kingdom, the Secretary of State may apply to the court for a disqualification order.^[48]

25.8 Civil recovery orders

Some enforcement agencies^[49] may obtain a civil recovery order (CRO) to recover proceeds of crime where it is proved, on the balance of probabilities, that the property has been obtained unlawfully.^[50] Such property is ‘recoverable property’ and it is vested in a trustee appointed to realise the property to maximise the amount payable to the enforcement agency.^[51]

A CRO is made in respect of specific property, and no conviction is required. Guidance issued in 2021 by the Home Office in relation to the use of asset recovery powers by relevant enforcement agencies^[52] states that non-conviction based asset recovery powers may be sought whether or not there is a criminal investigation or prosecution and regardless of what stage any criminal investigation or prosecution may have reached.

In 2018, the Serious Fraud Office (SFO) obtained a significant CRO in respect of Griffiths Energy, a company that had pleaded guilty to bribery charges in Canada relating to bribing Chadian diplomats in the United States and Canada to secure contracts. The SFO recovered £4.4 million of the proceeds of the crime that had been traced to a bank account in London.^[53] The recovered funds were to be transferred to the Department for International Development who were to identify key projects to invest in to benefit the people of Chad.^[54]

The High Court also may make unexplained wealth orders.^[55] These require politically exposed persons or persons suspected of involvement in serious crime to explain how they obtained assets that appear to be disproportionate to their known income. A failure to provide a response will give rise to a presumption that the property is recoverable in civil recovery proceedings.

Certain enforcement agencies may seize and detain cash or listed assets^[56] of £1,000 or more where they have reasonable grounds to suspect that it is recoverable property or intended for use in unlawful conduct.^[57] A magistrate may extend the period of detention.^[58] An application can be made to the court for an account freezing order in relation to money in bank accounts on the same grounds.^[59] Cash, and money in frozen bank accounts, will be automatically forfeited if no objection is raised to a forfeiture notice.^[60] The magistrates’ court may order forfeiture of cash, listed assets or money in frozen bank accounts where it is satisfied the assets are recoverable property or intended for use in unlawful conduct.^[61]

The NCA may also tax the proceeds of crime where they represent income in respect of which tax has not been paid.^[62]

25.9 Criminal restraint orders

Restraint orders can be made to freeze assets at any time following the commencement of a criminal investigation up until the conclusion of proceedings.^[63] An order will be granted at the investigation stage if there are reasonable grounds to suspect that an alleged offender has benefited from his or her criminal conduct;^[64] or, if proceedings have begun, if there is reasonable cause to believe the defendant has benefited from his or her criminal conduct.^[65] An order should only be made where there is a real (rather than fanciful) risk that assets will be dissipated if an order is not made.^[66] If necessary, an allowance will be made from the restrained property for the defendant’s reasonable living expenses^[67] and to enable a person to carry on any trade, business, profession or occupation.^[68] Provision may also be made for reasonable legal expenses, but not if they are incurred in connection with the offences in respect of which the restraint order has been made.^[69]

25.10 Serious crime prevention orders

Serious crime prevention orders (SCPOs)^[70] are injunctions^[71] that can be imposed on a person who has been convicted of a serious offence^[72] or who has ‘been involved in serious crime’^[73] where there are reasonable grounds to believe that making an SCPO would protect the public by preventing, restricting or disrupting involvement by the person in serious crime in England and Wales. The court may include such terms in an SCPO as it considers appropriate for the purpose of so protecting the public;^[74] but they must be proportionate to the identified risk. Restrictions that might be imposed include limitations on financial, property or business dealings;^[75] a person’s associations or communications;^[76] use of any item;^[77] and travel both within and outside the jurisdiction.^[78] An SCPO may also include a requirement to provide specified information or disclose documents to law enforcement.^[79]

Breach of an SCPO is a criminal offence. The maximum sentence for an individual five years’ imprisonment.^[80] Where a corporation is convicted of a breach of an SCPO, the court may order its dissolution where to do so would be ‘just and equitable’.^[81]

25.11 Regulatory financial penalties and other remedies

Companies and individuals may also face regulatory sanctions for their misconduct separately or in addition to criminal penalties; with actions potentially being brought by, among others, the Financial Reporting Council, the UK Office for Financial Sanctions Implementation and the Pensions Regulator.^[82]

The Financial Conduct Authority (FCA) regulates firms and individuals performing regulated financial services activities and may bring enforcement action against regulated firms and individuals in connection with economic crimes if it considers there has been a regulatory breach.^[83] It may also take action against persons who carry out regulated activities without FCA authorisation. The FCA’s Enforcement Guide (EG) describes the FCA’s approach to exercising its enforcement powers, and Chapter 7 summarises its powers to impose financial penalties and other sanctions.

The FCA’s Decision Procedure and Penalties Manual (DEPP) sets out its policy for the imposition and amount of financial penalties (among other things).

The regime for setting financial penalties is based on three principles: (1) disgorgement, (2) discipline and (3) deterrence.^[84]

The total amount payable will comprise disgorgement of any benefit received and a financial penalty reflecting the seriousness of the breach.^[85] These elements are incorporated in a five-step process to determine the level of a financial penalty to be imposed on a firm for a regulatory breach, as follows:^[86]

1. Removal of any financial benefit derived from the breach (which may include the profit made or loss avoided), plus interest. Where a firm’s entire business model depends on breaching FCA rules or other regulatory requirements and the breach is at the core of the firm’s regulated activities, the FCA will seek to deprive the firm of all the financial benefit derived from such activities.^[87]
2. Determining a figure reflecting the seriousness of the breach.^[88] In many cases the FCA considers the amount of revenue generated by a firm from a particular product line or business area is indicative of the harm or potential harm that its breach may cause. In those cases, the FCA will determine the firm’s revenue from the relevant products or business areas during the breach, called the ‘relevant revenue’. The figure will be a percentage of this from 0 per cent to 20 per cent, applied on a sliding scale to reflect the seriousness of the breach, taking into account factors set out in DEPP 6.5.A2.
3. Mitigating and aggravating factors^[89] are applied to increase or decrease the figure reached at step 2.
4. If the FCA considers the figure arrived at after step 3 is an insufficient deterrent, it may increase the penalty.^[90]
5. A settlement discount is applied, if appropriate, to reflect the stage at which the FCA and the firm reached agreement.^[91]

The FCA introduced a new enforcement procedure for disciplinary cases in 2017, under which four settlement options are available for resolving matters at an early stage in proceedings. These are:

• 30 per cent discount if the party settles the factual issues, the fact of a regulatory breach and the amount of penalty with the FCA;
• 30 per cent discount if the party agrees with the FCA all the relevant facts and accepts that they amount to regulatory breaches, whether or not it disputes the penalty to be imposed;
• 15 to 30 per cent discount if the party agrees with the FCA all the relevant facts but disputes that they amount to regulatory breaches and disputes the penalty; or
• 0 to 30 per cent discount if the party reaches partial agreement with the FCA as to facts, liability and penalty but disputes a narrow set of issues.^[92]

This gives regulated firms the ability to receive discounts where they accept some aspects of the case but to keep their right to challenge certain aspects of the FCA’s findings before the Regulatory Decision Committee.^[93]

In 2021, the FCA levied fines totalling just over £567 million.^[94]

25.12 Withdrawing a firm’s authorisation

In addition to imposing financial penalties on authorised firms and individuals, the FCA has a number of other powers including powers to issue public censures and to withdraw authorisation to engage in regulated activities. A common form of authorisation is permission given by the FCA to a firm under Part 4A of the Financial Services and Markets Act (FSMA) 2000 to carry on regulated activities. The FCA’s powers include a right to cancel this permission if it appears to the FCA that the authorised person is failing or is likely to fail to fulfil the threshold conditions.^[95] Withdrawal of permission means that the person ceases to be authorised and cannot engage in regulated activities.^[96] As an alternative to withdrawing permission, the FCA has broad powers to vary a Part 4A permission or to impose specific conditions on its exercise instead.^[97] The EG states that the cancellation power will be exercised mainly where the FCA has ‘very serious concerns’^[98] about a firm, or the way its business is or has been conducted, and sets out a list of non-exhaustive examples of circumstances in which the FCA may cancel a firm’s permission.^[99] These include, for example, where there are repeated failures to comply with rules or requirements,^[100] or where there has been a failure to co-operate with the FCA of sufficient seriousness that the FCA ceases to be satisfied that the firm is fit and proper.^[101]

25.13 Approved persons

The Approved Persons Regime regulates individuals exercising certain functions on behalf of regulated entities. Approved persons are approved by the FCA to exercise ‘controlled functions’ at an authorised firm. They must know and meet the relevant regulatory requirements, meet the fitness and propriety test, and comply with the FCA Conduct Rules.^[102] They have a duty to report to the FCA anything that could affect their ongoing suitability to be an approved person. Senior management functions are a subset of controlled functions. A person holding a designated senior management function has an additional ‘duty of responsibility’ so that if a firm breaches a regulatory requirement, the senior manager responsible for managing the relevant area will also be held accountable for the breach if they did not take ‘such steps as a person in their position could reasonably be expected to take’ to avoid the breach occurring or continuing.^[103]

Where approved persons (including senior managers) have committed a regulatory breach, they may receive a financial penalty or a public censure.^[104] They may also have their approval withdrawn or be prohibited from performing functions in relation to regulated activities,^[105] or both. The FCA may also issue private warnings.

25.14 Restitution orders

The FCA may seek restitution where it seeks to compensate those adversely affected by a regulatory breach.

The FCA will take the following considerations into account in determining whether to seek restitution, in the light of ‘all the circumstances of the case’:

• whether the profits are quantifiable or the losses identifiable;
• the number of persons affected;
• costs to the FCA of securing restitution;
• availability of alternative redress, such as compensation schemes or through another regulator;
• whether victims can be expected to bring proceedings in their own right;
• the firm’s solvency;
• alternative powers available to the FCA; and
• the conduct of persons having suffered loss, for example whether they have contributed to their loss.^[106]

This list is not exhaustive. The FCA can apply for restitution to a court, which may order payment of a sum it considers ‘just’ having regard to the profits made or loss caused.^[107]

Where appropriate, the FCA will consider imposing a restitution order using its administrative powers^[108] where the FCA is ‘satisfied that a person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement’.^[109] The person against whom the order is sought must either have profited from the contravention, or caused loss or other adverse effect to another.^[110]

25.15 Debarment

Companies need to be mindful of the impact that any conviction, or even misconduct not resulting in a conviction, may have on their ability to tender for public contracts. The rules governing debarment are contained in the Public Contracts Regulations 2015 (the Regulations).^[111]

Debarment can be mandatory or discretionary. Debarment is mandatory if the tendering company has been convicted of certain offences, including:

• bribery;^[112]
• corruption; and
• money laundering.^[113]

A company may also face mandatory debarment if certain individual representatives of the company are convicted of one or more of these offences.^[114] Mandatory debarment applies for a maximum of five years.

The Regulations set out a list of circumstances in which discretionary debarment may apply.^[115] One of these is where a contracting authority is able to demonstrate, by appropriate means, that a company is guilty of grave professional misconduct rendering its integrity questionable. Discretionary debarment applies for a maximum of three years.^[116]

In 2015, the United Kingdom adopted the European Union’s concept of ‘self-cleaning’ in relation to mandatory and discretionary debarment. The Regulations set out a number of conditions that, if met, can demonstrate a company’s suitability for access to public procurement tenders despite the existence of grounds for mandatory or discretionary debarment. The conditions include the payment of compensation, co-operation with investigative authorities and the taking of concrete measures to prevent further criminal offences or misconduct being committed.^[117]

25.16 Outcomes under a DPA

The legislation, the SFO’s Operational Handbook^[118] and DPA Code of Practice^[119] state that the level of financial penalty imposed in a DPA should be comparable to a fine that a court would have imposed following a guilty plea.^[120] The DPA Code states that this approach is intended to enable the parties and courts to have regard to relevant sentencing principles and guidelines to determine the appropriate level for a financial penalty. The Director of the SFO has stated that, since DPAs were introduced, they have delivered penalties, costs and returned illicit gains worth more than £1.5 billion.^[121]

In all but two DPAs^[122] approved by the court, a discount of around 50 per cent of the financial penalty has been applied. This figure has been reached by taking an initial one-third discount, equivalent to a guilty plea at the earliest stage, and adding a further discount on the basis of co-operation and remediation activities. This discount is likely to be consistent with what would be imposed under the Guideline, which directs reductions for guilty pleas and co-operation.

For example, in the Sarclad Limited DPA, Sir Brian Leveson, then President of the Queen’s Bench Division, considered that a 50 per cent reduction was appropriate as the company had self-reported in a timely way and had fully co-operated with the SFO.^[123] A similar justification also prompted 50 per cent discounts for the Tesco, Serco Geografix, Airline Services and Amec Foster Wheeler DPAs.^[124]

Even where companies have not self-reported, some have still received 50 per cent reductions in financial penalty when they have provided extensive co-operation after the investigation began. Rolls-Royce did not self-report to the SFO. Although Airbus technically did self-report, it had known of concerns for some time and reported only once it was notified that UKEF considered it was obliged to disclose the matter to the SFO.^[125] The court, in approving the DPA, stated: ‘Airbus could have moved more quickly.’^[126] However, both received a 50 per cent reduction in penalty owing to ‘extraordinary co-operation’ on the part of Rolls-Royce and ‘exemplary co-operation and remediation’ by Airbus.^[127] By contrast, G4S self-reported but only received a 40 per cent reduction in penalty. Its co-operation fell short of being exemplary or extraordinary, and full co-operation was said to have come ‘relatively late in the day’. However, a discount of more than one-third was considered appropriate because of the overall level of co-operation and the unusually wide scope of the self-cleaning steps taken by G4S.^[128]

In the Güralp DPA (where Güralp self-reported), the SFO sought to impose no financial penalty. This was on the basis that to do so would cause the organisation to become insolvent, disproportionately impacting the business, and would also cause harm to the organisation’s innocent employees.^[129]

The mandatory debarment provisions of the Public Contracts Regulations 2015 will not apply because the entry into a DPA does not constitute a conviction. However, a company may still be at risk of discretionary debarment if the conduct underlying the DPA is considered ‘grave professional misconduct’, in accordance with the Regulations.

Footnotes