Is financial misconduct best responded to by civil or criminal means? – YFLA end of year lecture

This was the topic of the Young Fraud Lawyers’ Association’s end of year lecture, on 23 October 2012 at 23 Essex Street.  On the panel were Barbara Dohmann QC of Blackstone Chambers, Charles Thomson from Baker & McKenzie, Jonathan Fisher QC of Devereux Chambers, David Corker, a partner at Corker Binning, and Simon Gerrish from the Financial Services Authority.

Opening the debate, Jonathan Fisher outlined his “simplistic approach”.  With individuals, if there is a criminal offence and one which is chargeable under the CPS Prosecutor Code then a criminal prosecution should follow. With companies, however, because they are a legal construct and therefore have “no soul to be damned”, it would be beneficial to consider an extension of corporate liability.  He felt we should take advantage of Deferred Prosecution Agreements (DPAs) which would offer a way of obtaining a civil penalty whilst providing a “criminal wrapping”.

Charles Thomson, head of the business crime unit at Baker & McKenzie, urged the audience to remember the objectives for punishing financial misconduct – deterrent, punishment and retribution of individuals, rehabilitation and redress to victims.  His view is that the civil/criminal decision should depend on the seriousness of the conduct alleged and the impact on victims.  He agreed that the criminal process provides a real source of deterrent but noted that it can be time consuming and costly to the FSA and the taxpayer with limited redress for victims.  The civil system may not provide as much of a deterrent but is quick, effective and there is more chance of achieving a certain outcome where the burden of proof is judged on the civil standard.  He believed that the civil process should be used mainly to provide redress and enforcement with the criminal route being reserved for the most egregious cases.

Simon Gerrish (giving his personal views rather than speaking on behalf of the FSA) agreed that criminal trials can provide uncertain results and take a long time to investigate and take to trial, and that, therefore, civil and regulatory powers may sometimes achieve better the desired outcome. He gave examples of three different types of cases encountered under the guise of financial misconduct:  in the first, a large-scale fraud, he noted that whilst criminal proceedings would punish the fraudsters, the civil law option may get the money back to the victims of the fraud quicker.  Secondly, he considered cases where the FSA is seeking to deal with corporate behaviour, e.g. endemic corruption.  He saw no reason to prosecute the corporate body unless the wrongdoing was so bad that it warranted individuals facing prosecution.  Such cases would normally be dealt with using civil powers.  Similarly, he preferred to use regulatory powers in the third type of cases, where he wants to send out a message to change perceptions or practices.

David Corker considered the special place of criminal law in the legal system: when members of a social elite are accused of a crime the impact can be enormous, but when subject to civil proceedings, the impact is less significant.  He acknowledged the importance of civil law being used to resolve disputes but argued that the sanction of imprisonment was the most powerful deterrent.  He referred to the history of the English legal system, noting how important criminal law has been to maintaining order in society by convincing the public that it could punish rich and poor alike.

David Corker suggested that the post-war dominance of a free market ideology had bestowed protection for the financial services sector from police scrutiny.  It’s only in recent years that criminal cases of financial misconduct have been regarded as mainstream crime.  The LIBOR scandal shattered the reputation of the City as ethical and showed the general public that bankers could be as avaricious as ‘normal’ criminals.

In conclusion, David Corker suggested that criminal law needs to be rejuvenated: giving the FSA more powers is not the answer; the threat of criminal prosecution must not be excluded from financial markets since it is the only deterrent to the financial elite – affecting their freedom, lives and reputation.  “It’s Libor today and another similar scandal tomorrow unless criminal law is used as a deterrent”.

Barbara Dohmann suggested that whilst as a matter of public policy it was important to have criminal routes available as a deterrent and to be used for particular cases, she said the FSA can do a lot with regulator/civil powers.  It can exclude people from the financial markets for life and can hand out unlimited levels of fines.  It can destroy people’s reputation, so that they can never work again.  She felt that there was some difficulty in taking financial misconduct cases before a jury as she said such phrases as “taken over a wall” may be difficult to explain and that therefore it is best to deal with them in a regulatory way.  She said that speed of proceedings is very important.  “The civil sword should be kept well honed so that it can be used whenever the criminal process will not get you a result quickly or certainly enough”.

Lively debate followed.  It was agreed that one of the biggest issues was failed case management and over extensive requirements of disclosure.  David Corker felt that judges need to be more robust in using their case management powers, noting that the current disclosure regime does not require “key to the warehouse” disclosure.  Charles Thomson agreed and suggested that disclosure could be lessened by greater judicial control. Jonathan Fisher believes the answer lies in financial specialist judges who can take case management seriously.

All in all a most stimulating and thought provoking event.

Corker Binning is a law firm specialising in fraud, regulatory and general criminal work of all types. Visit our website for more information about our business crime and fraud practice or call us on 0207 353 6000.