On June 30, the Justice Department and other federal and state agencies announced the long awaited settlement in the BNP case. The bank forfeited $8.8 billion and paid fines of $140 million for the “hat-trick of sanctions violations” — unlawfully offering the U.S. financial markets to three sanctioned countries: Sudan, Iran and Cuba.
There can be absolutely no doubt that individuals within BNP engaged in egregious criminal conduct over a prolonged period fully knowing that conduct was unlawful. It is a matter of fact that once discovered and when on notice of a federal investigation, individuals in BNP chose both to continue the conduct and deliberately interfere with the investigation.
Is $8.9 billion fully deserved then? Well, perhaps.
Forfeiture orders, fines and other remedies are designed to punish, deter and effect retribution — but it is legitimate to ask who is actually being punished and deterred and against whom has retribution been affected.
Well, not the prime movers. The individual corporate officers and employees of BNP who engaged in the conduct are not to face prosecution in the U.S. or elsewhere, albeit 13 are to lose their jobs as a condition of the settlement.
So then, the “legal entity” must be punished for the conduct of its staff. That amorphous thing that has independence from its officers, directors and shareholders. That must be punished, right?
Well, yes, there must be a vehicle to sanction but to what degree? Beyond the theory, and one might say behind the corporate veil, who else should suffer?
What of the stakeholders, those who have no control over the conduct of the corporation itself, but who are directly affected by what governments do to it; the thousands of employees who sit in offices light years away from the criminal conduct; the honest clients; the suppliers to the organisation and the shareholders. This, the neglected constituency, honest, hard-working, financially interested and in some cases financially dependent on it, tied up in the fortunes of the corporation — directly impacted by the punishment — but responsible for it?
Six percent of BNP, for example, is owned by its staff. Is it legitimate to ask how much this group could influence the conduct of the statistically few within BNP who engaged in the conduct and therefore the degree to which they should be punished?
Or what about 69.9% of shareholders who hold stock through institutional investors, including pension funds, but who had no control over the activities of the business.
Speaking at the NAPPA 2012 Conference, Luis A. Aguilar, an SEC commissioner, talked about the critical role that public pension funds have in the U.S. economy. At the end of 2011, state, government and government-employee retirement funds had $2.8 trillion in assets, much of it invested in the public markets and representing “a strong driver of economic activity.”
If those funds are invested in Weatherford, JP Morgan, Baker Hughes, BP or Pfizer, should the retired policeman, teacher or fireman be punished, deterred and suffer retribution when the corporation enters a settlement? Or what about the truck driver employee of KBR invested through a 401k?
Difficult questions — or perhaps not so difficult if a more nuanced approach is applied, if one looks behind the corporate veil.
What then of England — can we look there for a level of sophistication which is perhaps missing from the U.S. approach?
Alas, no. The die was cast when Lord Justice Thomas said of Innospec in respect of bribery cases:
[T]here is every reason for states to adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state…. if the penalties in one state are lower than in another, business in the state with lower penalties will not be deterred so effectively from engaging in corruption in foreign states, whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states.
If consistency is the desired outcome why restrict uniformity to fines and not borrow prison terms and conditions, forfeiture of individual assets or a different and more extreme model, the Chinese for example.
The truth is that symmetry and uniformity of sanctions across nations is logical but simplistic logic does not always produce the right answer.
But new guidelines for corporate offenders introduced in the UK for fraud, bribery and money laundering will come into force on October 2014. We too can therefore soon look forward to massive fines for corporates that err.
But there lies the fundamental issue: corporates do not err, individuals commit egregious criminal acts. Where they do, they should be sought out, prosecuted and punished. When the corporations they work for do not have appropriate management systems and controls to mitigate — rather than exclude, because such an ideal is impossible — then the corporate too should face sanction.
But that sanction needs to be nuanced, it needs to look beyond the corporate veil at the neglected constituency of stakeholders, those who have no power and no direct influence but who might be subject to significant impact. To properly search out those who have committed the crime and who should therefore be punished.
That is the foundation for a just criminal justice system. But perhaps, just perhaps, this is not about a just criminal system. Perhaps, just perhaps, it is easier to identify a link between a government’s need to raise revenue to manage fiscal deficits and exponential increases in corporate sanctions.
Bill Waite is a contributing editor of the FCPA Blog. He’s one of the founders of The Risk Advisory Group, established in 1997 with the objective of building Europe’s leading independent risk management consultancy. He serves as the group’s CEO and general counsel. He formerly practiced as a criminal barrister before joining the U.K. Serious Fraud Office in 1991 as a prosecutor. He can be contacted here.