Tim Thompson and Gareth Minty discuss corporate entities under investigation, stressing the importance of identifying the threats to a business at an early stage and then managing them strategically
An Inspector Calls: Do You Need a Lawyer?
Spoiler alert: the authors are lawyers, so the answer is probably going to be yes.
Corporate entities are increasingly likely to come into contact with law enforcement agencies as the reach of criminal and regulatory law expands. Businesses need to be alert to the risks, have sound policies in place, back those policies with a culture of compliance and be prepared to respond to unexpected developments.
If investigators come calling you need to know who they are, how they work, what their interest is, what your obligations are, what your rights are and how best to manage the risks. "You" might be the corporate entity, a director, or an individual: critically, each position is likely to be different.
The issues raised by a criminal investigation are not routine for most businesses, or for General Counsel. Specialist advice at an early stage can have a significant impact on how things develop. This article outlines some of the issues that need to be considered if an investigation into serious financial crime starts to affect a business.
Identifying the investigator
In the UK alone there are a number of agencies with statutory powers to investigate "business crime". Sometimes more than one agency will have an interest. Agencies may work separately, collaborate or work in sequence, so that as one investigation ends they pass on to the next organisation which will approach matters from a different angle.
The agencies that are typically encountered at a corporate level are:
Significantly, those agencies have different powers and work in different ways. How they approach a business will depend on a range of factors: importantly, it may change over time and can be shaped by the response they receive. It is necessary to understand as much as possible about the agency that is making enquiries: what are its objectives, what external pressures does it face, and what does a successful outcome look like for that particular agency? And bear in mind, at all times, that one investigation may well give way to another, so any response that is given cannot simply be tailored to the immediate issues; it has to be crafted with at least one eye on the wider picture and the longer game.
The possibilities may not be limited to this jurisdiction: an agency here may be acting on the request of an overseas state or may be sharing information to decide where any potential action should be taken. Accordingly, decisions taken at every stage need to balance an array of variables, including the continued running of the business, the various legal risks in this jurisdiction and potential risks elsewhere.
Realising your business is of interest
Sometimes the first you will know of a potential investigation is when a "dawn raid" starts or an arrest is made. On other occasions, you may see public announcements about an investigation into an area of work in which you are closely involved, or the business may be asked for information or individuals may be spoken to as potential witnesses. The business may identify the need for an internal investigation and in turn need to consider whether self-reporting is required.
In the end, whatever the first signs are, it is important to seek professional advice so you can start considering your position and preparing for the range of possible developments.
For present purposes we will focus, to a large extent, on some of the powers available to the SFO, which is the lead agency in the UK when it comes to the investigation of bribery, corruption and serious fraud. Other agencies such as the CMA, the FCA and BIS have at their disposal comparable compulsory powers but those operate in different ways and we have not attempted a detailed comparison in the space available.
Interviews and linked issues
A person of interest to SFO investigators may be treated as a voluntary witness, a compelled witness or as a suspect. The business itself may be a suspect, because business entities can be prosecuted in their own right.
When an individual is being interviewed it is critical to understand whether he or she is being asked questions as a representative of the business entity or in his or her own right. This can affect a range of issues including for whom it is that any legal representative acts and who has the right to assert legal professional privilege ("LPP").
Being approached as a voluntary witness comes with the apparent reassurance that the individual in question is therefore not a suspect. However, caution is needed because that status may change as the investigation continues and what is said voluntarily could be used in evidence against the person being interviewed.
The starting point does not determine the finishing point: someone invited in as a voluntary witness may become a defendant while someone who starts as a suspect may end up as a witness or playing no part in an ongoing investigation. It is important to be alive to the range of possibilities and the use to which information obtained using different powers may be put.
The Director of the SFO has specific statutory powers (under section 2 of the Criminal Justice Act 1987 ("CJA")), including the power to compel the attendance of a witness at interview. Exercise of the power is usually communicated via a notice which is, somewhat unimaginatively, referred to as a 'section 2 notice'. The Director of the SFO may require 'the person whose affairs are to be investigated…or any other person whom he has reason to believe has relevant information to answer questions or otherwise furnish information'.
There is no right of silence in a section 2 interview, because failing to comply is a separate criminal offence, but an individual's privilege against self-incrimination is protected by rules about the use in evidence of statements made in response to a notice. Generally, such statements cannot be used in evidence against a person required to answer questions. One exception to this rule is for use in a prosecution for an offence of providing false or misleading statements in the interview. The SFO is nevertheless able to use the information for its investigatory purposes and evidence subsequently obtained as a consequence of information given in a section 2 interview will likely be admissible, even against the statement maker.
Following a High Court challenge in 2015 the SFO has released guidance for interviewees, lawyers and its staff regarding the presence of legal advisers in section 2 interviews. The High Court backed the SFO policy of deciding whether a legal adviser – or a particular adviser – would be allowed to accompany a person in a section 2 interview. Among other things the guidance indicates that the SFO will not allow the attendance of an adviser whose firm acts for another suspect. This means that an employer may not be allowed to arrange for lawyers from the same firm it instructs to accompany individuals.
There are some jurisdictions which have a formal process of designating people as suspects: that is not the case in England and Wales, so there is less obvious certainty, but the way people are treated has to reflect whether the investigator has reasonable grounds to suspect an individual or business of involvement in an offence. If someone is being treated as a suspect then that has to be made clear; he has to be reminded of his right to silence but warned of the risk of an adverse inference being drawn if something is raised later which could sensibly have been said at the time of the interview. The investigator should check that the suspect understands the caution but the realities of what is likely to happen in a trial, months or years later, call for an assessment of legal risk, not just an understanding of the words.
Even if an individual is a suspect there are still different ways in which he or she can be treated. A suspect may be dealt with under arrest or following voluntary attendance. A legal adviser will often try to persuade the investigators that the statutory grounds for arrest do not apply.
In addition to the power to compel answers and information, section 2 of the CJA also provides the Director of the SFO with the power to compel the production of documents. Unlike compelled interviews, here there is no protection for the recipient of the notice when it comes to the use to which the material can subsequently be put in any proceedings to which they are a party.
Importantly, lawyers can themselves be the subject of a notice where they are in possession of 'any specified documents which appear…to relate to any matters relevant to the investigation'. LPP provides an answer to a section 2 notice but any claim to privilege must be properly founded. A general duty of confidentiality is not enough and pre-existing documents do not acquire the protection of privilege by being referred to lawyers for advice. For these reasons, it is especially important always to look further down the line to identity what could happen at a later stage and what the consequences of any status shift would be for any documentation exchanged or created in the early, potentially more benign, stages of a case.
In the course of any criminal investigation there are various decisions open to a company, the more significant of which will include the amount of disclosure to make to an investigating agency and the extent to which there is going to be cooperation with the agency.
A corporate entity may be able to avoid prosecution by entering into a Deferred Prosecution Agreement ("DPA") with a designated prosecutor (including the Director of the SFO). The process is very much controlled by the prosecutor and the SFO has made it clear that it will only consider a DPA in cases of full cooperation. What is expected is prompt self-reporting accompanied by frank and effective disclosure.
If an investigation is under way and the SFO approaches the business, it may be too late to secure a DPA but the company needs to take advice on how to best respond to the investigation. (It is worth acknowledging here that early self-reporting can be determinative in other contexts, including the CMA regime which guarantees immunity from prosecution for the first to report cartel activity. Subsequent applications for immunity will only be granted on a discretionary basis.) The second DPA case to reach the courts has certainly made the benefits more apparent to businesses but a self-report will not ensure a DPA, and a DPA will not ensure immunity from penalties, legal consequences and further prosecutions in other jurisdictions. Also, a DPA may be a corporate solution but it does not protect individuals from action for their conduct for whom there is a different route to mitigate the risks of prosecution.
Pursuant to the Serious Organised Crime and Police Act 2005 ("SOCPA"), an individual may agree to assist an investigation and/or prosecution. Again the process is controlled by the prosecution and the power to enter into an agreement may only be exercised by certain prosecutors. There are different types of agreement provided for by SOCPA but in most cases the prosecution will want a cooperating witness to admit his own criminality because that will make for far more compelling evidence. For the individual an agreement is only likely to be attractive if conviction looks highly likely. Importantly, the "cleansing" process of admitting wrongdoing and agreeing to assist may involve a request from the prosecutor that the subject waives LPP. This can have a profound effect on the extent of material subsequently disclosed to anyone whom the assisting offender has implicated, thereby opening up to significant, public scrutiny the internal machinations that informed the decision to assist in the first place. Those who are involved in such cases should keep firmly in mind the real possibility that that which was once protected by LPP, may at a later date be revealed for all to see.
Strategic decisions need to be made from the earliest stages of any investigation, even if the initial involvement is in the limited context of a request for evidence or information. This is unfamiliar territory for most businesses and the choices are likely to be much clearer with the benefit of specialist legal advice.
Once there is a lawyer/client relationship in place, LPP will apply in the same way that it does when seeking advice in civil law matters (and with the same limitations). In this type of investigation one of the issues that is likely to arise is whether LPP may properly be claimed in relation to pre-existing material concerning the business's dealings with its lawyers. It is important to be alert to that issue from the outset. LPP carries a high level of protection and, as recent draft Law Society guidance emphasises, that makes it important that lawyers advise clients about their right to assert it but also act responsibly in doing so only when there are proper grounds for the claim. Questionable assertion of LPP will not help any discussion with the SFO.
Finely-judged decisions need to be made, particularly in view of the fact that bad decisions in the early stages of an investigation can have such serious consequences. Appearing uncooperative can cause suspicion where none was warranted or can trigger an arrest which could otherwise have been avoided.
For a suspect, saying too much can help the prosecutor with facts he might not otherwise be able to prove. That might then contribute to a prosecution that would otherwise not have been launched and even if it ends in acquittal it will have cost time, money, reputational damage and stress.
Some issues – such as a section 2 notice – cannot be ignored and have to be addressed, but simply responding, in an unthinking way, to the immediate problem may create or exacerbate other risks.
It follows therefore that access to strategic legal advice, at the earliest stage, has the capacity to open up, or keep open, options which would otherwise be closed, as well as the best chance to navigate what lies ahead. So yes, you may well need a lawyer.
The authors would like to acknowledge the assistance of their colleagues in the Business Crime Group at Mishcon De Reya LLP. The Group is headed by Alison Levitt QC, one of the UK’s leading lawyers, specialising in criminal, regulatory and related matters, who joined the Firm in 2014 to set up the group. Alison was called to the Bar by Inner Temple in 1988 and was appointed Queen’s Counsel in 2008.