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Justice Committee calls for "more meaningful" penalties for companies convicted of financial crime

Out-Law News | 13 Nov 2013 | 9:38 am | 2 min. read

Fines handed to companies convicted of fraud or other financial crimes should be calculated as a percentage of turnover, rather than with reference to the amount of financial harm caused, a committee of MPs has said.

In its response to the Sentencing Council's recently-published draft guideline on the sentencing of fraud, bribery and money laundering offences, the Justice Select Committee said that penalties for corporate offenders had to be "more meaningful". Using the traditional harm-based approach to calculate fines in these cases would be "difficult to achieve" and would likely "result in overly lenient sentences", it said in its letter.

"We would like the Sentencing Council to revisit their proposed approach to calculating sentences for corporate offenders, to ensure they pay a more meaningful penalty," said Sir Alan Beith, committee chair.

"At the same time, we welcome many aspects of the new Guideline for sentencing offenders convicted of fraud and related offences, in particular the greater weight given to the harm caused to victims," he said.

The Committee, which must be consulted by law in relation to new sentencing guidelines, was more positive in relation to proposals for the sentencing of individual offenders. It welcomed the Sentencing Council's greater emphasis on the impact that the crime has had on the victim rather than focusing exclusively on financial loss; however, it did recommend that the document "be redrafted slightly" to incentivise offenders to offer voluntary reparation at an earlier stage.

The Sentencing Council, chaired by Lord Justice Leveson, published its draft guideline in June. The document provides guidance on the sentencing of money laundering and bribery offences in England and Wales for the first time, along with guidance for sentencing corporate offenders. It gives judges a range of penalties to consider and lists aggravating and mitigating circumstances.

According to the draft, companies could be fined by as much as 400% of the amount that they gained from the crime depending on the existence of mitigating and aggravating factors. The guideline states that any fine imposed on a company must be "substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law", and that in some "bad cases" it may be acceptable for the proposed fine to be so large as to put the offender out of business.

However, the Justice Committee said that it would be "unrealistic", and in some cases impossible, to use this as an effective measure of calculating corporate fines.

"The view was convincingly expounded [by invitees to a Justice Committee seminar] 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," it said.

"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," it said.

The Justice Committee did not recommend a precise percentage figure, but said that it should be "sufficiently high to supplement the primary deterrent factor of the risk of being detected".

Corporate crime and enforcement expert Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, said that the report reflected "the public appetite to see serious punishments meted out for white collar crime". However, he said that the real question was whether funding would be made available for enforcement.

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