The United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have recently reiterated their focus on fighting corporate crime (see here and here our more detailed articles on these developments). In particular, the US authorities have:
- renewed their focus on holding individuals accountable for corporate crime (as well as companies);
- committed to increasing the use of corporate monitors where compliance programme issues are identified; and
- stated a renewed focus on a corporation’s admissions of wrongdoing when entering into settlements, in “appropriate” circumstances.
US authorities’ renewed focus on individuals and corporate monitors diverges from current practice in the UK, whereas the return to potentially requiring admissions of wrongdoing is closer to the UK position. In this blog we explain the implications of these developments for companies facing multi-jurisdictional investigations.
1. Focus on Individuals
The DOJ has reiterated its renewed focus on holding individuals accountable, including establishing a team of FBI agents in the criminal fraud section of the DOJ, stating that this is a critical component of ensuring corporate accountability and restoring public trust. The DOJ has specified that corporations must identify individuals involved in the wrongdoing in order to receive any credit for their cooperation in a settlement.
By contrast, whilst the Serious Fraud Office (SFO) stresses the importance of corporates identifying the people responsible for any suspected wrongdoing, regardless of their seniority or position, the SFO’s recent enforcement actions have focused on corporates rather than individuals. The SFO has recently announced that it has dropped its investigation into individuals connected with the underlying events which led to its tenth Deferred Prosecution Agreement (DPA), following a similar announcement in relation to the investigation into individuals following a US$4bn DPA which was secured in 2020.
2. Monitorships
The DOJ has stated that it will increase the use of corporate monitors where issues are identified with a corporate’s compliance programme (and the US has a long history of monitorships in both civil and criminal settlements).
In the UK, formal monitorships have been used far less frequently (although there have been examples of UK DPA’s requiring the company to procure a further report from a quasi-monitor the company had already appointed or referring to the appointment of a monitor under the company’s settlement with other international authorities). Rather than imposing monitorships, the SFO expects companies to overhaul their compliance programme and has in recent DPAs required companies to report back annually on the development of their compliance programmes.
3. Cooperation and admissions of wrongdoing
The SEC recently announced it would recommend an “aggressive” use of its remedies, including making companies admit to the commission of offences in settlements in “appropriate” circumstances (which marks a return to the assertive enforcement approach taken under the Obama administration). Whilst on its face, this may be seen as a move away from the “no admission, no denial” approach which has traditionally been favored in the US in order to promote efficient settlement negotiations, much will depend on how often the SEC demands such admissions in practice (see more here).The SEC has specified that “appropriate” circumstances for requiring an admission of wrongdoing would be where a company has obstructed an investigation. This aligns with the DOJ’s comments that it will focus on a corporation’s cooperation with an investigation (in particular the identification of guilty individuals) when considering appropriate resolutions,
In the UK, the SFO continues to focus its efforts on securing large financial settlements by way of DPAs with corporates which, whilst generally not requiring a formal admission of guilt, have many of the same implications in practice. In particular, once the DPA is approved, the statement of facts on which it is based becomes admissible in subsequent civil proceedings in England and Wales.
Takeaways
Companies facing investigations in the US and UK need to understand the differences in approach and work with their advisors to formulate a global strategy. The increased likelihood of being required to admit wrongdoing means that corporates will need to weigh up carefully the advantages and disadvantages of entering into settlements or DPAs, particularly given the increased likelihood of civil litigation in the event where admissions are made, and the increased likelihood of a monitor being imposed.
