Research Trends and Conclusions: Business Crime Defence 2010
Emma Notfors -
The bank bailouts of the darkest months of the downturn have created a clamour in the media and a backlash among enforcers, who are cracking down on business crime.
As the clouds of the bull market rolled back, they revealed a landscape scarred by Ponzi schemes, suspect trading activities, and other fraud. In the US, the new administration has placed great emphasis on restraining Wall Street’s excesses. Meanwhile, in the UK, a looming general election brings the prospect of radical changes to financial and business regulation. In both of these countries, and many others, there has been an increase in scrutiny, investigation and prosecution of corporate crime, which means that the lawyers included in this publication are facing busy times ahead.
Regulation, Investigation and Enforcement
In December 2008, the United States Department of Justice (DoJ) brought charges against Germany’s Siemens for bribery. This resulted in the largest settlement in the history of the Foreign Corrupt Practices Act (FCPA) when American prosecutors gave Siemens a record fine of $800 million, which was then closely matched by the German authorities. As several of our interviewees noted, this marks a watershed in Germany, where bribery was an accepted part of business culture until the late 1990s. The reverberations of this case are still felt around the world by the business and legal communities, as it has become something of a boundary marker of a stricter regime.
The Siemens case is a good example of one of the trends that is reshaping business crime enforcement: increased cross-border cooperation between government agencies. In a show of solidarity with American enforcers (or as a result of increased pressure from them), many countries, particularly in the European Union, are extraditing their citizens to the US – and the more that countries have ramped up their own investigative and prosecution efforts, the more information of activities conducted beyond their borders they can pass on to their opposite numbers abroad. Corrupt business practices should be easier to spot with the benefit of information sharing and transparency, which means that multinational corporations – and their legal counsel – must be sure of their compliance with regulations.
Greater international cooperation is not the only weapon in the collective arsenal of the authorities. In the US, the Federal Communications Commission, the Securities and Exchange Commission and the DoJ are increasingly resorting to tactics that were until now more typical of narcotics, organised crime and terrorism investigations. The DoJ has begun to pay more attention to white-collar crime – financial crime in particular – utilising investigative techniques such as wiretaps, data-mining software and informers in corporate crime investigations. In part, this is simply a reaction to a shift in the behaviour of suspects – white-collar criminals have become more sophisticated about concealing evidence, and are shying away from written communications such as emails, which are readily retrieved in investigations.
Wiretaps, and other surveillance techniques, can present problems. In the US at least, evidence procured by wiretapping is vulnerable to the ‘exclusionary rule’, which can disallow evidence considered to have been acquired by dubious means. Probable cause has to be firmly established before the evidence is used and must be apparent even before these investigative techniques are employed. If a case is heavily dependent on wiretap evidence where the foundations of probable cause are shaky, the whole prosecution could fail. For business crime defence lawyers, this underlines the importance of knowledge or experience of such techniques – which is one reason why we see many former prosecutors listed in this book.
Elsewhere, the UK has instituted a new system to facilitate gathering of evidence of financial crime. In 2008, the Financial Services Authority (FSA) announced that all firms falling under its jurisdiction must record all telephonic and electronic communications and keep these records for six months. Another recent development gives the FSA wider prosecution powers. In the conjoined cases of Rollins and McInerney in 2009, the Court of Appeal granted the FSA the ability to bring prosecutions as a private person for crimes that statute hadn’t expressly empowered it to prosecute, and so the use of informers and plea-bargaining is beginning to come into its own, which presents new challenges in the defence of corporations.
International Implications
The implications of these more aggressive prosecutorial regimes are far-reaching, particularly for companies with a multinational presence. For instance, where international transactions are concerned, the questions faced by lawyers are far more complex. Something that is lawful in one country may not be in another, and only certain aspects may be lawful in a third jurisdiction. This highlights the importance of multi-jurisdictional advice in international deals. Whether this means that an international firm or a series of alliances between local boutique firms is preferable for multinational companies is difficult to say, but what is true is that the larger, international corporate and full-service law firms are turning their attention more to business crime than was previously the case.
This is especially true in the UK, where City law firms keen to promote this side of their practice have been quick to react to the financial crisis and to market their anti-fraud services.
Part of the demand for legal advice has been created by the preventive measures that global businesses are taking on corruption, insider trading and other business crimes. The authorities are rewarding cooperation from business, such as self-reporting and assistance in the pursuit of wrongdoers. Internal investigations and audits and general compliance work – as one lawyer termed them, “strategies for keeping the DoJ at bay” – are fast becoming a major area of activity. Lawyers we spoke to reported that a number of well-known international firms are recruiting specialist business crime lawyers to cater to the new requirements of long-term clients. Alternatively, talent from other practice groups is being funnelled into their white-collar crime teams. Clearly this is an area into which international firms are keen to expand and they will offer the benefit of international presence and knowledge to their clients.
This benefit can, however, be gained by boutique practices through informal alliances between local law firms. Niche practices are reporting that partners are being consulted for their expertise in strategic international cases. One prominent lawyer in the UK pointed out that he had brought in as a bolt-on to cases involving jurisdictions as diverse as Cyprus, Ireland, Bermuda, the Netherlands and Nigeria, showing the importance of international contacts and alliances.
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White-collar criminal defence work looks set to be a practice area that will expand. In economic downturns, illegitimate trading practices, fraud and corporate crimes become easier to unearth, and this has certainly held true for the current recession. Regulatory bodies, particularly in the US and the UK, are keen to flex their muscles, and the US in particular is promoting an international regime of aggressive investigations and prosecutions. Corporations are stepping up their internal controls on fraud and corruption and full-service law firms are increasing their white-collar practices in response. The importance of expertise in dealing with the investigative and prosecutorial techniques has been highlighted, as has the necessity of international strength of talent and knowledge, whether provided through multiple offices of the same firm or through alliances. Either way, business crime defence work appears to be an area set to develop in terms of the volume and the complexity of the work.