Being civil

When the phrase ‘white collar crime’ was coined in the middle of the last century, the new practice area was really nothing more than good old fashioned criminal litigation for affluent clients and businesses. But in the past 50 years, the subject matter has increasingly taken a civil turn, so much so that it can now be fairly stated as an aspect of commercial litigation.

There are two identifiable trends that have caused this state of affairs. First, various legislative initiatives that have resulted in an increased homogeneity between the criminal and civil procedures. Second, political initiatives that target criminals using the civil law and conversely regulate trade and industry using the criminal law. Criminal cases now involve civil, or at least quasi-civil, procedures and the relevant civil litigation has become quasi-criminal, particularly in relation to the regulation of banks and industry.

Several recent proposals and initiatives provide further cogent evidence of these trends.

For an example of civil law tackling white collar crime (and indeed other crime), consider the Proceeds of Crime Bill, which will introduce a civil recovery regime in the High Court. This right of action will enable the newly-appointed Director of the Criminal Assets Recovery Agency to bring a civil action to retrieve property obtained “through unlawful conduct”, without any need for a criminal conviction, or even a finding of guilt in relation to a particular crime, as a pre-requisite. The bill also introduces a regime of taxation of criminals’ profits.

For an example of new criminal offences that will assist the regulation of industry, consider the recently-published Hammond and Penrose report for the Office of Fair Trading (OFT), ‘Proposed Criminalisation of Cartels in the UK’, which recommends effective ways in which the OFT can work with the Serious Fraud Office (SFO) to bring criminal cases to prevent serious breaches of competition law.

As an example of the increased uniformity between criminal process and civil process, take the recommendation of the ‘Auld Review’. It was suggested that trial by jury be abolished in relation to serious fraud cases and replaced by a tribunal comprising a judge and two lay members.

Other developments that may further ‘decriminalise’ the criminal process include the introduction of criminal negligence in relation to money laundering within the regulated sector (Proceeds of Crime Bill), and the attack by the Law Commission on the importance of the concept of dishonesty in fraud cases (Consultation Paper 155).

In R (McCann) Crown Court in Manchester, the Lord Chief Justice, Lord Woolf, made a comment, albeit in relation to a case involving general crime, but even more apposite to white collar crime, that illustrates how far down this road we have travelled. He said: “What are criminal, as opposed to civil, proceedings is a matter which can be difficult to determine. There is no one overriding test within our domestic law for determining whether proceedings are civil or criminal.”

Such a statement might have seemed ridiculous only 50 or 60 years ago when criminal law involved the bringing of criminal charges in the Crown Court. This was before a jury, by the same prosecutor as in other cases, and following an investigation conducted by the police along the same lines as any other criminal investigation. Civil proceedings were brought by private individuals in relation to private wrongs. Regulation of banks amounted to no more than a nod or a word from the Bank of England, and regulation of financial services companies was practically non-existent.

The introduction of alternative ways of doing things has been entirely piecemeal. In 1944, the Inland Revenue broke the mould when it introduced the system that later became known as Hansard, enabling people to avoid prosecution by payment of overdue tax and penalties. In 1948, civil courts dealing with winding-ups were provided with powers to disqualify directors in limited circumstances and the quasi-criminal regime of Company Director’s Disqualification was born. In the late 1950s, the recognition that the common law relating to theft and fraud could not deal with increasingly sophisticated City fraud, led to the Prevention of Fraud (Investments) Act 1958.

These were very small beginnings and it was an explosion of initiatives in the 1980s and thereafter that created our current systems. In 1985, the Roskill Committee made recommendations that led to the Criminal Justice Act 1987 and its quasi-civil procedures for fraud cases, such as the service of case statements (pleadings) and the establishment of a specialist agency, the SFO, with special administrative, or civil, powers of investigation. Roskill also recommended the abolition of juries, and surely it is only a matter of time before that last cornerstone of the truly criminal regime is removed. Other authorities targeting fraud also developed civil regimes where appropriate, where the primary purpose is obtaining income or compensation, not punishment. HM Customs, for example, developed a civil penalties regime and last year added a Hansard-type procedure to its toolkit.

The civil courts also started to borrow the tools of criminal litigation, and Mareva Injunctions and Anton Piller Orders became increasingly refined and then used as a matter of course.

The recognition of the need for better regulation led to the end of regulation by a gentlemen’s agreement and the beginning of effective regulation of banking and financial services – initially by self regulating organisations and then by full independent regulation by the Financial Services Authority (FSA), looking for all the world like the SFO’s big brother.

The FSA’s powers of prosecution and enforcement reveal the new regime to be quasi-criminal in nature. Curiously, the autonomous concept of a criminal charge under the European Convention on Human Rights (ECHR) has ensured, with the introduction of the Human Rights Act, that any ‘civil’ regimes that might be characterised under the ECHR as ‘criminal’ regimes, such as the new market abuse provisions, must go the whole hog and exhibit all the characteristics of criminal regimes found in Articles 6(2) and 6(3), with the result that the respective criminal and civil regimes become even less distinguishable.

The establishment of specialist agencies (FSA, the Department of Trade and Industry, Special Compliance Office of Inland Revenue, HM Customs, Criminal Assets Recovery Agency) with compulsory powers to conduct administrative investigations rather than just criminal investigations has also proved important. It means that the agencies retain the ability to choose the outcome for much longer. The agencies can conduct full investigations before deciding whether to pursue criminal or civil remedies, or a combination of both. Given this choice, and the fact that the criminal and civil processes are now so similar, there is little to choose between them in terms of cost or aggravation. It is certainly arguable that those who can afford to make restitution may be given that opportunity and only those who cannot will be prosecuted.

The consequence of all this is that the practice of white collar crime has changed forever. It is no longer enough merely to understand criminal procedure, no matter how well. The firms that will be successful in this new environment are those that can operate equally comfortably in each of these areas. This can be achieved in two ways. First, they can build blended teams of criminal and civil lawyers, which appears to be the preferred route for larger firms such as Dechert, DLA, Irwin Mitchell and progressive barristers chambers such as Matrix, or ensure that there are leading practitioners within the firm who can glide equally comfortably between the criminal and civil worlds and therefore advise their teams accordingly, such as Keith Oliver of Peters & Peters.

The new proposals will result in an even greater need to recruit civil lawyers to white collar crime practices. There is no future for those firms that treat white collar crime in the same way as other crime.

Adam Cowell is a partner at Irwin Mitchell