Fraud, Bribery and Money Laundering Offences Guideline: Consultation - Justice Committee Contents


Annex A


Letter dated 29 October 2013 from the Chair of the Justice Committee, Rt Hon Sir Alan Beith MP, to Lord Justice Leveson, Chair of the Sentencing Council

The Justice Committee welcomes the opportunity to consider the draft Fraud, Bribery and Money Laundering Offences Guideline, and thanks the Sentencing Council for its work in producing the draft Guideline and liaising with us in our scrutiny of it. In particular we are grateful to the Council for its agreement that, as with the previous two sets of draft guidelines (on sexual offences and environmental offences), we could submit our views after the conclusion of the formal consultation period.

Economic crime is perpetrated in diverse ways and the draft Guideline is split into separate guidelines for (i) Fraud, (ii) Possessing, making or supplying articles for use in frauds, (iii) Revenue fraud, (iv) Benefit fraud, (v) Money laundering, (vi) Bribery and (vii) Corporate offenders. In considering the best means for the Committee to meet its role as statutory consultee, pursuant to section 120 of the Coroners and Justice Act 2009, we decided to focus on practical and procedural aspects of sentencing for the relevant offences, in particular for corporate offenders. This appeared to us to be the most appropriate and effective way for us to add value to the Council's extensive consultation process.

As you know, we held a seminar on 23 October 2013 with a number of organisations who are involved in, or have an interest in, the prosecution and defence of fraud, bribery and money laundering offences. We are grateful to all our invitees for their participation, including representatives from the Sentencing Council. In advance we asked invitees to send us a copy of their written submission to the Council's consultation; these submissions were very useful in our preparation for the seminar. Within this letter we do not rehearse arguments raised in the submissions, unless they were included within discussions during the event; instead we have selected a number of points that we, as parliamentarians, consider most important.

The two-stage approach to the assessment of harm

In line with the Council's overarching approach to sentencing, the draft Guideline puts greater emphasis on the impact the crime has had on the victim than previous guidelines issued by its predecessor body and on culpability, rather than focusing more exclusively on financial loss. We welcome this approach in relation to the six individual guidelines, as we are conscious that victims, particularly vulnerable individuals, may suffer significant financial and psychological harm over the loss of relatively small sums.

In the fraud guideline, victim impact is promoted from an aggravating factor to the second element in determining harm (Harm B), after caused or intended financial loss (Harm A). It was put to us that the use of three categories to define Harm B—"lesser", where there is "some detrimental impact", "medium", where there is "considerable detrimental impact" and "high", in cases of "serious detrimental impact"— risks creating a two or three-tier status of victim, whereas all victims would be likely to consider themselves in the "high impact" category. We also noted contrasting evidence that after the initial distress experienced on realisation that one had been a victim of fraud, most victims could in fact make rational judgments about the seriousness of the impact on them; moreover, there is clearly a need to differentiate between levels of harm, otherwise the whole approach becomes redundant. However, the Council may wish to give further consideration to the wording used to distinguish between levels of detriment to victims, to ensure it is sensitive to victims, particularly if it is intended to be utilised in judgments.

The corporate guideline

Corporate prosecutions for economic crime have in the past been rare for various reasons: in particular the difficulties in proving the culpability of "directing minds" in the case of alleged fraud committed by large enterprises, and the propensity of smaller companies committing fraud to go into dissolution. They are likely to increase in the future, especially in the context of developments such as the introduction of strict liability under section 7 of the Bribery Act 2010. The few cases that have come to court mean that there is a lack of established sentencing practice for the Sentencing Council to use as a basis to draw up its corporate offences guideline.

Fundamental concerns were raised at our seminar about the proposed approach to using harm to determine sentences in the corporate offender guideline, in which harm is represented by a financial figure "assessed as the actual gross amount obtained (or loss avoided) or intended to be obtained (or avoided) by the offender as a result of the offence". We note that the corporate guideline is completely new, and there are few precedents in terms of corporate prosecutions. The view was convincingly expounded that it is unrealistic to concentrate on evaluating the amount of financial harm because, in many cases, such as bribery, corruption, LIBOR manipulation, and issuing of false prospectuses, this is impossible; it would lead to endless legal argument at every stage of the process; and in particularly complex and wide-ranging cases judges often try only a small part of an overall case to make it manageable, which would tend to devalue the total level of harm caused.

The suggested alternative was to base sentences primarily on a percentage of turnover, as this would render them more meaningful. We agree that this would be a more appropriate means of penalising corporate offenders, provided that harm to victims, whether financial or otherwise, remains factored into the sentencing process as an aggravating factor where it is identifiable. We therefore ask the Council to revisit its proposed approach.

We did not have an opportunity to explore fully the question of whether fines should be based on a proportion of turnover, profit or revenue. However in our previous seminar on the Environmental Offences Guideline, in light of concerns that the use of turnover is simplistic as it fails to take into account a true financial picture of the company and business concerned, we suggested that turnover should be the starting point for categorisation, but that other financial information should be taken into account in appropriate cases. The precise percentage figure used as a starting point for sentencing needs to be sufficiently high to supplement the primary deterrent factor of the risk of being detected.

The Council's work on the draft Guideline was expedited to ensure consistency between sentencing and the Ministry of Justice's guidance on Deferred Prosecution Agreements, agreements between prosecutors and suspected corporate offenders where court action is deferred pending compliance with certain conditions. We note that there is no requirement on the Council to take account of DPAs in drawing up sentencing guidelines, although we would expect failure to observe the terms of a DPA to come under the aggravating factor at Step 3 relating to "previous relevant convictions or subject to previous relevant civil or regulatory enforcement action". While technically outside the remit of our response to you, we would also like to use this opportunity to record our support for the presumption that criminal sanctions are used rather than DPAs, where the evidence allows for it.

On a final point in relation to the corporate guideline, we endorse and bring to the Council's attention the suggestion put to us that ignoring warnings from compliance officers should be added to the list of factors increasing seriousness at Step 3.

The breadth of the Guideline

We understand that the Sentencing Council tries to rationalise the number of guidelines wherever possible, and, in drawing up this draft Guideline, discovered that the harm and culpability factors and the sentencing parameters for confidence frauds and banking and insurance frauds were remarkably similar, leading the Council to bring these previously separate guidelines together. We encountered general support for this approach, although we noted some concern that it might potentially lead to lower sentences for confidence fraud as the previous guideline for this type of offending had carried higher starting points and sentencing ranges: this is an area we consider the Council will need to keep under review. The decoupling of benefit fraud from banking fraud was welcomed as the offending circumstances tend to be quite different.

Sentences

The sentence starting points and category ranges in those guidelines relating to individual offenders were generally welcomed, although in relation to some offences, it was argued that the starting point was marginally too low. We understand that there is always headroom between the top of the category sentencing range and the statutory maximum sentence, which allows for judicial discretion. In light of this assurance, we do not wish to bring any specific points about sentence levels to the Council's attention.

We discussed the importance of sentences providing an appropriate signal both as an indication of public disapproval to perpetrators and as a deterrent to potential perpetrators, as well as to aid public faith that justice has been served. It was agreed that community sentences, including unpaid work, and suspended custodial sentences could serve such functions usefully for the types of offences covered by the Guideline in some cases. We note that, unlike in some other guidelines, neither the relative effectiveness in preventing re-offending of different types of sentence nor the circumstances in which, for example, a community sentence or suspended sentence might be more appropriate than a custodial sentence are referred to explicitly in this Guideline.

Given that the Council must work within the framework of the statutory maximum sentences imposed by Parliament, it is not possible for it to deal with some of the potential inconsistencies across the various offences within the Guideline.

The payment of compensation

In the case of corporate offenders, where a fine is the only sanction available, compensation is the first step in the sentencing process. For individual offenders, it is considered at step six. Seminar participants generally thought that incentivising voluntary reparation to victims and voluntary facilitation of the recuperation of losses including repatriation of funds from abroad when relevant was important in ensuring that it was possible for victims to be properly compensated during the sentencing process. We heard that this is often difficult to achieve without the perpetrator's compliance at an early stage in the investigation. We welcome the Council's inclusion of voluntary reparation as mitigating factors both in the corporate guideline and the guidelines for individual offenders. We suggest that particular emphasis should be placed on voluntary reparation having been made at an early stage, and the offender's cooperation in such reparation and where relevant in repatriation of funds from abroad should be mentioned specifically. We note that "early active co-operation particularly in complex cases" is also a mitigating factor, which we did not discuss, but we propose that further thought should be given to the best means of incentivising co-operation in the interests of optimising the chances of compensation to victims in all cases, regardless of their complexity.

Benefit fraud

We discussed at the seminar whether the ways in which the draft Guideline takes into account financial means, particularly in relation to benefit fraud, are appropriate. For example, the Council proposes the inclusion of the following mitigating factor at Step 2 of the benefit fraud guideline: "offender experiencing significant financial hardship pressure at time fraud was committed due to exceptional circumstances." We understand that poverty tends to be a factor in most of this offending, and we consider that some account should be taken of hardship in sentencing, but we accept that poverty per se cannot be a mitigating factor for offending. We shared the view expressed by some that the definition of "exceptional" circumstances may not be sufficiently clear in the draft Guideline. In relation to another mitigating factor, "remorse, particularly where evidenced by voluntary repayment", the Council may wish to give further consideration to whether the Guideline as currently drafted takes sufficient account of the fact that, on the one hand, moneys recuperated by deduction from ongoing benefits cannot really be described as "voluntary" repayments, but on the other, it is important to ensure that more affluent defendants who pay back defrauded amounts are not treated preferentially to remorseful but impecunious defendants who offended in straitened circumstances.




 
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