Fraud, Bribery, and Money Laundering: Sentencing guidelines in the context of suing the Banks

Posted on Posted in ACFE Blog

New sentencing guidelines come into force on 1st October 2014 and apply to all Courts.

They are focused upon economic crime by corporates.

The Courts determine the levels of fine according to Section 164 of the Criminal Justice Act 2003.

Section 174 of the Criminal Justice Act 2003 imposes a duty to give reasons for, and explain the effect of the sentence.

The fine must reflect the nature and seriousness of the offence, but must take into account the financial means of the offender to pay any such fine imposed.

This blogpost serves merely to highlight some of the offences to which new sentencing guidelines apply, and is correct at the time of publication.

“…unless the Court is satisfied that it would be contrary to the interests of justice to do so.”

It applies to all who are sentenced on or after 1st October 2014, regardless of the date of the offence.

The Court must consider making a compensation order requiring the offender to pay compensation for any personal injury, loss or damage resulting from the offence in such an amount as the Court deems appropriate, having regard to all the circumstances including the financial means of the offender and his/her ability to make payment.

Confiscation must be considered if either the Crown asks for it or the Court thinks that it may be appropriate.

In respect of compensation, confiscation must be dealt with before taking into account assessing, any other fine or financial order.

The Court then determines the offence category with reference to http://sentencingcouncil.judiciary.gov.uk/docs/Fraud_Definitive_Guideline_(web).pdf levels of culpability and harm.

Culpability means the extent to which someone is to blame. There are 3 levels of culpability: High culpability, medium culpability, and lesser culpability.

High culpability can include, by way of a non-exhaustive list: A leading role in organised or illegal activity, hampering or evasive conduct and behaviour to thwart the investigation, targeting vulnerable victims, and a wilful disregard of victims over a period of time. Lesser culpability can mean, by way of a non-exhaustive list: Involvement through coercion, intimidation, or exploitation; A minor or peripheral role in unlawful activity.

Harm in the context of these guidelines, relates to a financial sum obtained or to be obtained, or loss avoided, or to be avoided.

In relation to Fraud, harm will normally be the actual or intended gross gain to the offender.

In relation to Bribery, it will normally be the gross profit from the contract obtained, or sought as a result of the offending.

Culpability and Harm, considered:

The level of harm determined, is then multiplied by the degree of culpability.

Illustrative theoretical example:

Let us say, a Banker fraudulently misrepresents a need to enter into a financial product which the customer neither needs, or requires. The Banker says, however, that a current loan may not be renewed, but will be looked upon favourably if the customer agrees to enter into a product of the Bank such as, for example an Interest Rate Hedging Product. The Banker benefits from the commission received in making the customer enter into a product he/she never needed.

Interest rates never increased as speculated by the Banker. Interest rates remained and remain at a historic low, and the Hedging Product was unnecessary.

In such circumstances, the Banker as a trusted advisor, has misled and possibly breached contractual and tortious duties of good faith, and trust.

The Banker may have abused his position contrary to the Fraud Act 2006.

The Banker may have by commission or omission of key information, misrepresented the true position, contrary to the Fraud Act.

Let us postulate that the value of the financial product was for £100,000.

Applying the forthcoming sentencing guidelines, the Banker was working on maximising his commission personally, and contributing to the expected high profits of the Bank, by all means necessary. He acted within the typical culture of his particular Bank, being criminogenic. If this is correct, the Bank would be vicariously liable for the criminal acts of its employees.

The intended gross gain to the offender would be the gross gain of the commission earned. The intended gross gain of the Bank could be the full value of the financial product.

Let us further postulate that the harm = £100,000, and the level of culpability by the offender is deemed, ‘high culpability’. The multiplier would be 300%. The category range is between 250% and 400%. In contrast, if the level of culpability was deemed ‘lesser culpability’, the starting point would be 100%, and the category range would be between 20% and 150%.

Factors are then applied which increase or decrease the range of culpability, such as attempts made to conceal conduct, and fraudulent activity being endemic within the Bank. These factors would be examples of an increase within the range.

The Court should then consider an adjustment to the fine, based on the overall appearance of a number of Orders to be made.

Objectives such as deterrence, punishment, and removal of gain, are likely to feature highly when considering adjustment generally.

Take note, however, that in the general notes relating to harm, that the Court can steer away from these guidelines where the true harm is to commerce or markets generally. This may justify much higher figures beyond the normal measures.

Discounted sentences may apply to those who have assisted in enquiries. as will reduction of early guilty please, and ancillary orders. The totality principle then applies (i.e. the total sentence must be just and proportionate to the offending behaviour.

The Sentencing Council’s response to Sentencing Guidelines is very illustrative of a sea-change in the attitude towards Banking Practice in particular. It is not insignificant that the British Banker’s Association, hosted the consultation.

The writer very much hopes that the imposition of these forthcoming sentencing guidelines, coupled with the imposition of Deferred Prosecution Agreements, will dictate finally a change in corporate avarice, and change in the corporate atmosphere of profiteering at the expense of consumers and the public.

Professor David Rosen