The term ‘white collar crime’ was probably coined by the academic Edwin Sutherland in his 1939 address to the American Sociological Society as offences committed by persons of repute and high social standing in the course of their occupation.
In the UK the term carries strong connotations: fat cats in the dock for months-long trials involving thousands of documents in front of bemused jurors. White collar crime produced the first million-pound brief fees, thus creating a still pervasive sentiment that the only winners in what are often regarded as victimless crimes are the lawyers.
White collar crime caused the creation of a new investigating and prosecuting authority, the Serious Fraud Office (SFO), with an array of hawkish investigatory powers. Perhaps most profoundly, these crimes came to be viewed not simply as instances of high-level dishonesty, but as examples of control failures within companies, so leading to the various obligatory and voluntary codes on corporate governance.
But while white collar crime has had a deep and enduring effect on the UK’s legal, regulatory and political thinking, the term is a straitjacket for those lawyers whose aim is to manage businesses and businesspeople’s brushes with criminal law.
The first difficulty is that the term is essentially anthropological: it implies a human perpetrator. However, the majority of business crimes are committed by corporate entities and have long been regarded as regulatory, rather than criminal, offences. As a legal commentator once said, they are “offences where any element of stigma has been diluted to vanishing point”. Some of the world’s most respected companies have ‘rap sheets’ that would rival in length those of the professional criminal, but often their offences relate to environmental, health and safety, taxation or Companies Act transgressions. These tended to be strict liability offences, subject mostly to due diligence-type defences. In certain sectors, prosecutions for regulatory offences were regarded as a pretty easygoing business tax.
So what has changed? First, there is a widespread perception among regulators and policymakers that the current levels of enforcement and penalty have not operated as a sufficient deterrent. A good example is health and safety. A recent survey by the British Safety Council suggests that securing the health and safety of their staff and other individuals who come into contact with their undertaking is very far from being a high priority for UK directors. Would they continue to have such an attitude if all of their health and safety transgressions were investigated with a view to prosecution, and if on being prosecuted the company faced penalties that could threaten its existence? Despite the fact that 200-300 people die each year in workplace fatalities, there has been only a handful of successful prosecutions for corporate manslaughter. Plans to reform this most serious of business crimes to make it easier to secure prosecution is in part driven by a need to spell out to directors that the law will take the issue very seriously.
The second important factor driving a change in attitude is supply chain pressures. There will always be certain companies that genuinely subordinate most other commercial objectives to ensure that they comply with all relevant laws and regulations. Whether driven by trade union pressures, ethical investor concerns or simply by the moral outlook of the board, these companies want to ensure that their employees are reasonably safe, that their products or services are not misdescribed, that they do not distort markets and that they deal properly with any personal information they hold. Such companies have appreciated for some time that their plans can be scuppered if they use suppliers or subcontractors who do not have the same approach, so they regularly audit and check those suppliers to ensure their compliance. In such an environment, a supplier or contractor that has been convicted of a regulatory offence will find it very difficult to keep its clients. In a recent DLA survey, 50 per cent of the respondents were audited by their own customers for regulatory compliance, and around the same number audited their own suppliers and contractors.
Companies are also beginning to understand how disabling a criminal investigation can be. It is the directors and employees whose offices, and some times homes, are raided; who suffer the indignity of being interviewed under caution and/or compulsion interviews; and who experience the mounting and peculiar pressures that only being the subject of a criminal investigation can bring. At one time, white collar offences were regarded as victimless crimes.
Increasingly, the true victims are regarded as the innocent employees of the likes of Enron and Barings, who have lost their jobs through allegations that in no normal sense could they be said to be responsible for. The commission of regulatory offences is now well above the threshold of materiality for most companies.
A further difficulty with the term ‘white collar crime’ is that it implies criminal trials. However, criminal trials for serious frauds are few and far between: according to the SFO, only 24 were concluded in the year up to April 2001 and there were only eight the year before.
Businesspeople will regard the prospect of a criminal trial, at the very least, as a substantial failure of strategy, even if they are subsequently acquitted.
Driven by Turnbull and corporate governance considerations, companies also appreciate that the commission of regulatory offences is almost always a symptom of management failure and a deficiency in the systems for ensuring compliance, something which all sensible businesses should have in place. A large part of regulatory lawyers’ time is spent advising companies on how they can better augment their current regimes to ensure that they are providing shareholders with reasonable assurances that they are doing all they can to comply with applicable laws and regulations. While non-lawyers, such as accountants and environment and health and safety consultants, compete to offer these services, only lawyers have the benefit of legal professional privilege, allowing their diagnostics of a company’s compliance status to be created with the minimum of risk.
Finally, even when companies have committed offences, the role of the regulatory lawyer should begin way before charges are brought. Like individuals, companies will be subject to interviews under caution and/or compulsion interviews. Those investigating regulatory offences, such as the Environment Agency, the Health and Safety Executive and the competition authorities, have some of the most onerous powers of search, seizure and investigation known to law.
The unpalatable truth is that all companies are capable of committing the sorts of offences that can implicate directors and employees, erode a company’s share value and destroy a customer base. The good news is that the risk of regulatory offences is susceptible to simple and low-cost management, provided that companies take the initiative. To most minds, Barings, BCCI, Drexel Burnham Lambert, Guinness, Sotheby’s and now Andersen and Enron constitute the white collar hall of fame, regardless of whether charges were ever brought, let alone proved. Companies that fail to act risk joining this exclusive club.
Steven Francis and Neil Gerrard are partners in the regulatory group’s corporate defence team at DLA
Legal professional privilege is either a vital common law right to privacy that must be defended at all costs or, depending on your point of view, an elaborate con trick practised by wily defence lawyers to shield the nefarious acts of their criminal clients. While the legal profession – and in particular the white collar crime lawyers who are on the front line of this debate – consistently argue the former, it is becoming increasingly apparent that the powers that be are convinced of the latter.
“The Government is listening very much to the law enforcement lobby and legal privilege is becoming regarded as a badge of the dishonest to conceal their sins and cover up their crimes,” argues David Corker, a solicitor specialising in criminal and regulatory work at Corker Binning. Over the last year he believes that privilege has been, if not significantly damaged, then at least undermined both in the courts and by the legislators.
The frustration shared by many lawyers is that there is little coherent rationale behind this constant snipping away at privilege. “I really don’t understand the gripe,” declares Adam Cowell, a partner in Irwin Mitchell’s business crime unit and secretary of the International Criminal Law Association. As he points out, the protection of privilege does not attach itself to any information provided in pursuance of a crime and even in the situation when a solicitor is not party to a crime and receives information inadvertently.
Of course, it requires a fairly dim view of the profession to fully comprehend what drives the sustained attack. “I can only imagine that they have a completely mistaken idea about what info is provided to solicitors by clients,” Cowell points out. “Clients generally don’t come into our offices and tell us they’re guilty and ask for our help in getting them off, and then expect us to hide by privacy.”
So why are lawyers once again on their guard about inroads into privilege?
For a start, last year’s report by the Office of Fair Trading into competition in the professions applied a strict competition law analysis to this fundamental tenet of the law, and found it wanting. The Director General of Fair Trading John Vickers argued in the report that, for example, in the provision of tax advice, “where lawyers are in competition for work with non-lawyers”, legal professional privilege could “distort” competition. “There are clearly fundamental arguments for protecting the exchanges between clients and their legal advisers,” Vickers acknowledged. “However, in such cases, there is an argument for reviewing the scope of privilege to remove the distortion in competition that favours the lawyer.”
But there have been more focused attacks on privilege in recent times. It was the case of Morgan Grenfell & Co
v Special Commissioner (2001), which concerned an Inland Revenue investigation, that set the alarm bells ringing among practitioners. In that case, the appeal judges ruled that in the application of the Taxes Management Act 1970, the rule of legal professional privilege was excluded except where it was expressly preserved. The public interest in the protection of the public revenue was deemed to be a fundamental right of equal value to the rule of legal professional privilege. It was argued that the economic well-being of the country meant that there was justification for favouring the latter in favour of the former.
Then there was also the Criminal Justice and Police Act 2001, Section 50, which gave investigators conducting a raid the power to seize legally privileged material from the premises if they could argue that it would not be reasonably practicable to determine that it was privileged during the raid itself.
“If you take the Morgan Grenfell decision together with this legislation, legal privilege is becoming increasingly difficult,” Corker argues. “I wouldn’t say that it’s being undermined completely, but it’s being eroded at the edges, and that worries me.”
And it is this drip-drip erosion of privilege that will be most carefully guarded against and vociferously protested, because once it is gone, it is not coming back.