The Attorney General’s Guidelines on Plea Discussions in Cases of Serious or Complex Fraud (the Guidelines) came into force on 5 May 2009 in an attempt to reduce both the time and cost associated with complex fraud prosecutions. The Attorney General has said that the Guidelines are: ‘Designed to help prosecutors deal with fraud more effectively and efficiently, to the benefit of the public and all parties involved.’
Background of the Guidelines
The Guidelines are the result of the implementation of Recommendation 62 of the Fraud Review that was published in July 2006 following an interdepartmental review into the detection, investigation and prosecution of fraud. This Review was undertaken as a result of the government’s manifesto to overhaul the laws on fraud and the way that fraud trials are conducted to update them for the 21st century. A report commissioned by the Association of Chief Police Officers in 2007 estimated that fraud costs the UK £14bn per annum. The Fraud Review identified that prosecution opportunities to engage formally in discussions with the defence over possible pleas were more limited in England and Wales than in other jurisdictions. The Fraud Review recommended that, given the vast amount of public money spent on serious fraud cases, it was important that systems were put in place to allow the early resolution of cases where appropriate so that unnecessary costs and delay can be avoided. A consultation process for the development of plea negotiations regulations was launched in April 2008 and the Guidelines were announced by the Attorney General in March this year as part of the National Fraud Strategy.
The Fraud Review in particular commented on the success of plea bargaining in the US, where over 95% of cases involve a plea. In comparison, according to Ministry of Justice statistics, only 66% of criminal defendants in England and Wales plead guilty before trial, and 10% of the rest wait until the first day of trial to admit their guilt. The US system has, however, been developed against a sentencing framework that not only imposes very high sentences, but also provides a high degree of certainty of what sentence is likely to be imposed. The US Sentencing Commission provides a complex formula that is used to calculate a fraud sentence. In any plea bargaining arrangement in the US the prosecutor is therefore generally in a position to assure a defendant of a lower sentence. The Review refers to the Enron case (USA v Andrew Fastow [2004] and USA v Michael Kopper [2006]) as an example in which the ex-chief financial officer and ex-chief accounting officer entered into plea bargain arrangements in which they will serve ten years, and between five and seven years respectively, rather than the 25 years-plus sentence they would have received if they had been convicted following a contested trial.
Informal plea discussions between prosecution and defence before trial are not a new feature of our system. Such informal discussions often take place about the appropriateness of the charges faced and what charges a defendant may be minded to plead guilty to. Being informal in nature, these discussions take place in private and may for that reason be seen to be unjust. Such discussions inevitably occur at a late stage in the process after a defendant has been charged following what is usually an extremely lengthy investigation. The Court of Appeal in R v Goodyear [2005] developed this further by providing a formalised procedure to allow a judge, when requested by the defence, to give an indication as to the maximum sentence on a guilty plea. The Guidelines are intended to offer a formal, transparent framework to encourage plea discussions in serious and complex fraud cases to take place at a much earlier stage. The Fraud Review saw such Guidelines as ‘more an evolutionary change than a revolutionary one’.
in Practice
The Guidelines apply in cases of serious and complex fraud. Fraud is defined by the Guidelines as any financial, fiscal or commercial misconduct or corruption that is contrary to the criminal law. A fraud becomes serious and complex if at least two of the following factors listed in the Guidelines are present:
- the amount obtained or intended to be obtained is alleged to exceed £500,000;
- there is a significant international dimension;
- the case requires specialised knowledge of financial, commercial, fiscal or regulatory matters, such as the operation of markets, banking systems, trusts or tax regimes;
- the case involves allegations of fraudulent activity against numerous victims;
- the case involves an allegation of substantial and significant fraud on a public body;
- the case is likely to be of widespread public concern; or
- the alleged misconduct endangered the economic well-being of the UK, for example by undermining confidence in financial markets.
It is ultimately a matter for the prosecutor to decide whether a case is one of fraud and whether or not it is serious or complex.
The Guidelines state that the purpose of plea discussions is to narrow the issues in the case with a view to reaching a just outcome at the earliest possible time, including the possibility of reaching an agreement about acceptable pleas of guilty and preparing a joint submission as to sentence.
The Guidelines stipulate general principles that in conducting such plea discussions the prosecutor must act openly, fairly and in the interests of justice. The prosecutor must consider the impact of a proposed plea on the community and the victim; must respect the rights of the defendant; and must not put any pressure on a defendant during the course of plea discussions. The prosecutor should ensure that agreements reflect the seriousness and extent of the offence, and enable the court, the public and victims to have confidence in the outcome. The prosecutor must not exaggerate the strength of a case to persuade a defendant to plead guilty. A full and accurate record of the discussions must be prepared and a prosecutor will communicate with the victim before accepting a reduced basis of plea.
It is the prosecutor who will initiate discussions by way of an invitation letter once they are satisfied that the suspect’s criminality is known. This is envisaged to be at any stage after interview under caution. The prosecutor will not initiate discussions with a defendant who is not legally represented.
Effectively plea discussions will take place on a ‘without prejudice’ basis in that the prosecutor will give an undertaking not to rely on the fact or contents of the discussions should agreement not be reached. The Guidelines state that the undertaking will make it clear that the prosecutor is not prevented from relying on:
- a concluded and signed plea agreement as confession evidence or as admissions;
- any evidence obtained from enquiries made as a result of the provision of information by the defendant;
- information provided by the defendant as evidence against them in any prosecution for an offence other than the fraud that is the subject of the plea discussion and any offence consequent upon it (eg money laundering); and
- information provided by the defendant in a prosecution of any other person for any offence.
Significantly there is no requirement on a defendant during such discussions to provide information or give evidence about others. The Guidelines make clear that should a defendant wish to do so then this should be done in accordance with ss71-75 of the Serious Organised Crime and Police Act (SOCPA) 2005. The provisions set out in SOCPA 2005 provide for contractual immunities from prosecutions, undertakings as to the use of evidence and reductions in sentence for defendants who have assisted the prosecution.
Engaging in a Plea Discussion
Deciding how to respond to a plea discussion invitation will be a balancing act for a defendant. Defence solicitors will have to be in a position to fully advise a client on the strength of the evidence, prospects of conviction and likely sentence. The majority of serious and complex fraud investigations inevitably involves thousands of pages of material, much of which is in electronic form. During the investigation stage a suspect has no legal right of disclosure from the prosecution. Frequently in fraud investigations there is a lack of adequate disclosure provided to the defence during this early stage. Such lack of adequate disclosure will make it difficult for legal teams to assess whether there is sufficient evidence for the prosecution to establish a case and to properly advise a client as to the risk of conviction. Such considerations will be of vital importance for a client safely to take such a critical decision. The Guidelines seek to address this by requiring the prosecutor to provide a written statement of case to the defence containing a summary of the nature of the allegation and supporting evidence. The prosecutor may also provide material in support of the statement of case. However the Guidelines make clear that a prosecutor is not obliged to reveal all of the information or evidence.
Once an agreement has been reached as to the pleas, discussion as to the sentence will follow with a joint submission being presented to the court. Such a submission should include any aggravating or mitigating features arising from the agreed facts, set out any personal mitigation and refer to any relevant sentencing guidelines. Submissions should also be made as to the applicable sentencing range. Importantly the court has absolute discretion as to whether it sentences in accordance with the agreed joint submission. It remains to be seen how often such judicial discretion will be exercised.
The Guidelines make clear that due regard should be had to the court’s asset recovery powers and express an expectation that a confiscation order will be sought by the prosecutor reflecting the full benefit to the defendant. The question of confiscation is often a real obstacle to the early resolution of many fraud cases, as are the provisions in respect of corporate defendants relating to exclusion from tendering for public contracts. Not only should due regard be had to such asset recovery powers but the Guidelines state it is particularly desirable that measures should be included that achieve redress for victims, such as compensation orders and protection for the public such as directors’ disqualification orders. Legislation is planned to provide crown courts with the power to impose certain regulatory sanctions in fraud cases as part of the sentencing process. This is to reduce the need for duplicated criminal and regulatory proceedings and is described by the Attorney General as strengthening confidence in the ability of the courts to protect the public from fraud and to compensate victims. As and when such legislation is passed this will also have to be considered in any plea discussion.
Alternative Methods in Practice
The jurisdiction of England and Wales has for some time been moving towards a US approach. The Attorney General has, however, been at pains to reiterate that the new Guidelines are not about offering discounts, immunity or incentives and have been ‘specifically designed for our criminal system’ to avoid the perception of an association with US-style plea bargaining arrangements.
Since his appointment as director of the Serious Fraud Office (SFO), Richard Alderman has been seeking to ‘sharpen the tools’ available to the SFO and has made no secret of his desire to explore alternative methods to dispose of criminal investigations in a proportionate manner, particularly those involving corporate defendants. Such methods include the power to obtain a civil recovery of property through Unlawful Conduct and Serious Crime Prevention Orders that enable a prosecutor to obtain court orders regulating the future conduct of those who have engaged in serious crime. Alderman has been encouraging corporate boards and their legal advisors to self-report problems to the SFO with a view to engaging in negotiations, in appropriate cases, to an alternative method of disposal.
Indeed, in October 2008, Russell Jones & Walker negotiated the first (and so far only) Civil Recovery Order settlement with the SFO on behalf of Balfour Beatty. The Order related to certain payments in respect of the execution of a joint venture contract. Balfour Beatty self-reported to the SFO following the board having discovered irregularities and conducted its own internal investigation. The company accepted that unlawful conduct, in the form of inaccurate accounting records arising from certain payment irregularities, occurred within a subsidiary of Balfour Beatty. Under the Order the company agreed to pay a settlement figure of £2.25m together with a contribution towards costs. The company voluntarily agreed to introduce certain compliance systems and for these to be monitored for an agreed period. No criminal proceedings were issued against any individual or corporate body arising out of the investigation.
Future consequences
In the current economic climate, with more fraud offences and scandals being uncovered, these new Guidelines may provide the prosecuting authorities with a sharpened tool to obtain higher conviction rates in a swifter, more cost-effective manner. However, given that the Guidelines provide for absolute judicial discretion together with disclosure hurdles, there will be no easy response to a plea discussion invitation. Defendants involved in serious and complex fraud cases generally face very lengthy investigations followed by a long, public trial. Inevitably such investigations are extremely stressful, often costly and can damage reputations. In some cases the new arrangements, together with the SFO’s desire to explore alternative disposal methods, may provide a real opportunity for defendants in fraud cases to achieve a satisfactory and timely disposal of their case.
It remains to be seen just how effective these Guidelines will be in practice because the court retains absolute discretion as to whether or not it sentences in accordance with the plea discussions. Following receipt of an invitation letter to enter into plea discussions, legal teams and their clients must be prepared and properly resourced, to undertake full preparation of a case at a much earlier stage.
By Shula de Jersey, solicitor in the business crime and regulation team, Russell Jones & Walker.
E-mail:s.d.jersey@rjw.co.uk
