Plea Deals Run Aground in British Courts

Last year the United Kingdom finally appeared to be delivering on its promise to crack down on bribery and corruption. The Serious Fraud Office scored its first-ever successful conviction of a company for fraud and hoped that would telegraph a clear message to troubled corporations: Agree to a plea deal with us, or face prosecution and heavy penalties.

Now, however, that carrot-and-stick approach seems to be all stick and no carrot.

The SFO had wanted companies that discover bribery and corruption to turn themselves in, cooperate with an investigation, and agree to a plea. It also has a powerful means to punish those who don’t: Britain’s new Bribery Act, which became law earlier this month. The law pulled the country’s woefully outdated bribery laws into the 21st century, making it easier to secure a conviction against a company and to impose stiffer penalties.

That’s the stick, and a flurry of recent corruption arrests and other enforcement activity in Britain suggests that it’s working just fine. The carrot—the plea deal given in exchange for cooperation—is turning out to be more problematic.

At issue are Britain’s judges, who view American-style plea bargaining as anathema to the British legal system. Judges in the United Kingdom have always reserved the right to impose whatever sentence they deem appropriate, and have refused to allow what they perceive as cozy arrangements between prosecutor and defendant.

One example is Robert Dougall, former marketing director at medical supplies company DePuy International. Dougall had previously admitted to his role in making corrupt payments of £4.5 million ($6.9 million) to people working for the Greek state health system, and agreed to help the SFO investigate the case. The SFO hailed him as its first-ever “cooperating defendant” in a major corruption case, who had given the agency “substantial assistance” with its efforts.

When Dougall finally appeared in court on April 14, he and the SFO asked that he receive a suspended sentence. The judge, however, sent him to jail for 12 months—making Dougall the first executive in Britain ever imprisoned for overseas bribery.

The judge on the case said he understood the public policy interest in encouraging cooperation from defendants, but added: “It does not justify a suspended sentence in a case where corruption was systemic and long-term and involved several million pounds in corrupt payments.”

Another, more spectacular outburst came on March 30, when a top British judge expressed his outrage at a bribery settlement with chemicals manufacturer Innospec. Innospec had agreed to a joint settlement with both the SFO and the U.S. Department of Justice, which included an £8 million ($12.4 million) fine in London. Lord Justice Thomas, one of the most senior judges in Britain, was furious; he wanted to fine Innospec “tens of millions” for its bribery, he said, but felt handcuffed to accept the arranged deal because it was a joint settlement with Washington.

“The SFO should be nervous about giving any assurances. They can only go so far, and defendants should now be very aware of that.”

—Chris Colbridge,

Partner,

Kirkland & Ellis

Thomas, who took over the Innospec cause because the plea deal with the SFO raised constitutional issues, then warned that the SFO “had no power to enter into the arrangements made, and no such arrangements should be made again.”

Hard Bargains

British prosecutors did not expect to be in this position. Last year the country’s attorney general (Britain’s top legal official) approved new permissions to let a prosecutor hold formal plea talks with a defendant and take plea agreements to a judge. That alone will sound familiar to U.S. corporate counsel, but there are two vital differences. First, British litigants are explicitly not allowed to agree to a sentence, or make sentence a condition of a plea. Second, the new process was only set out in guidelines—the formal rules of court procedure were unchanged, leaving the judge presiding over the case firmly in charge.

Nevertheless, the SFO and other prosecutors were hopeful, and the first test of the new procedures passed with flying colors: In July 2009, construction company Mabey & Johnson agreed to plead guilty to corruption charges. The presiding judge approved the plea deal essentially as written, ordering a £3.5 million ($5.4 million) fine and confiscation of some assets.

Things have gone badly for the SFO since then. Its next plea deal, with arms company BAE Systems, suggested a £30 million ($46 million) fine and admission of U.K. accounting infractions. U.S. authorities, in contrast, clobbered the company for $400 million—which prompted anti-corruption groups to challenge the British end of the settlement as too light. (Those legal challenges failed.) The BAE plea deal has yet to come before a judge in London, but the intervening missteps with Innospec and DePuy International have not inspired much confidence.

THE CHALLENGERS

Below is a statement from Campaign Against Arms Trade and The Corner House after they withdrew their objections to the SFO’s plea bargain settlement with BAE Systems.

Campaign Against Arms Trade (CAAT) and The Corner House today announce with regret that they are withdrawing their application for a judicial review of the Feb. 5, 2010 decision by the Serious Fraud Office (SFO) to enter a controversial plea bargain settlement with BAE Systems and to drop “conspiracy to corrupt” charges against a BAE former agent, Count Alfons Mensdorff-Pouilly.

Kaye Stearman, spokesperson for CAAT, says:

We are disappointed we cannot take the judicial review process further. Anyone looking at the details of the numerous corruption allegations regarding BAE that have emerged over the last six years can draw their own conclusions as to whether or not justice has been served by the plea bargain that SFO has accepted from this large, well-connected company.

Nicholas Hildyard for The Corner House says:

Many searching questions need to be asked about a plea bargain process in which corporates negotiate their crime and punishment. Legal guidance needs to be strengthened if the SFO Director is to fulfill his duty of upholding the law rather than helping companies avoid its consequence …

Despite withdrawing their legal challenge, the groups remain deeply concerned at many aspects of the settlement and the process that led up to it.

The SFO has apparently given an undertaking to BAE that it will never in future prosecute any individual if doing so involves alleging that BAE was guilty of corruption.

No explanation has been given as to why the U.S. plea bargain settlement on BAE’s deals in Eastern and Central European countries took priority over the SFO’s prosecution in the U.K., given that BAE Systems is headquartered in the U.K. and the allegations relate to activities emanating from the U.K.

The SFO Director acknowledges that “a conviction for an offence of corruption would have had the effect of debarring BAE for tendering for public contracts in the EU” under Article 45 of the European Union Public Sector Procurement Directive 2004. The SFO’s own Guidance on Corporate Prosecutions states that “a decision not to prosecute because the Directive is engaged will tend to undermine its deterrent effect, ” which “is intended to be draconian. ” Yet the SFO Director states that this consequence would have been “a disproportionate outcome.”

Source

CAAT and Corner House Statements on BAE (April 8, 2010)

The SFO declined to comment on its anti-corruption problems, saying that it could not discuss policy issues with U.K. elections coming on May 6. Private lawyers, however, were more than ready to express concern.

Chris Colbridge, partner at law firm Kirkland & Ellis, says the SFO will definitely have a harder time offering defendants and other regulatory agencies any certainty about the outcome of plea discussions. “The SFO should be nervous about giving any assurances,” he says. “They can only go so far, and defendants should now be very aware of that.”

Delahunty

It seems inevitable that the SFO will need to reconsider its approach to plea deals, and the guidelines prosecutors use will need to change. But if the SFO ultimately does receive the authority to offer more certainty to defendants and other agencies, judges may have to accept that their powers will be curtailed, at least in some circumstances. The judiciary might not agree to that, says Louise Delahunty, a business crime specialist at the law firm Simmons & Simmons.

“You can say that we need to change the rules, but judicial discretion on sentencing is a fundamental and historic part of our criminal justice system,” she says. “Any fettering of that discretion may be seen as an attack on judges’ independence.”

Even assuming the SFO can win judges over to its way of thinking—which is a big if—curbing the power of the judiciary could require new legislation, which would be time consuming.

“The question that people are asking is, ‘What happens in the meantime?’” Delahunty says. “There is a worry that in this confusion companies will not come forward to self-report, because there isn’t any clarity about what will happen. It is very concerning and needs to be dealt with quite urgently.”

Eastwood

Sam Eastwood, partner at law firm Norton Rose, remains optimistic that the SFO can make plea-deals work. “The constitutional and procedural issues are real, but the direction of travel is very evident,” he says. “There is a will at the SFO and with the government, whoever gets elected, to resolve this.”