For the first time, the UK has proposed a specific and detailed sentencing regime for corporations involved in bribery, fraud and other economic crimes. Of course, individual executives who commit crimes of dishonesty can generally expect prison time. Corporates can’t be locked up, but they can be fined and/or have other penalties applied.

Up to now, some may have thought that the risk of a fine was worth running, given the high rewards of fraud or corruption. The UK Sentencing Council (made up mainly of judges and some lay-people) clearly wants to prevent this sort of cost/benefit approach. Its interim report and consultation paper (which covers sentencing for various economic crimes such as fraud, cheating the revenue and others) can be found here. Those who wish to read it and respond to the consultation questions can do so, the closing date being 4 October 2013.

The Council recommends a system where the fine for a corporate is calculated by establishing the benefit to be gained, or expected to be gained, and then doubling, or tripling or quadrupling that number, depending on the culpability of the company. So if DodgyCo has gained (or stood to gain) £100 million of business from a long-term, organised scheme to pay bribes to public officials, it might have to pay a fine of 300 percent of the gain, i.e., £300 million. It may well also be required to put in place detailed ABAC procedures, subject itself to compliance monitoring, make specific recompense to victims and, worst of all for some, find itself barred from certain types of public tendering.

What if the company can argue that the complexity of the transactions and the uncertainties of pricing or costs mean that the benefits of the wrongdoing cannot be calculated? This will not daunt the court, which can estimate the amount “likely to be achieved in all the circumstances.” If even that is too difficult, the court may be able to take a figure of 10 percent of the worldwide revenue derived from the relevant product or business area during the period of the offending. The 10 percent number seems somewhat arbitrary, and it may change. However, the key message is that the courts do not wish to get bogged down in the finer elements of economic theory and are likely to take a robust approach to calculating fines.

Although a company can’t be locked up, it can be closed down. Very large penalties can have a disastrous effect on cash-flows, balance-sheets and reputations. What if the £300 million fine is likely to sink DodgyCo forthwith? Many innocent employees might lose their jobs and creditors may face big losses. The report says “The Council intends that any fine must be substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law. Whether the fine would have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence.” It’s hard to argue with this. Many honest companies go to the wall because of factors beyond their control. It would be strange if a court accepted, as a matter of principle, that a dishonest company could never be fined so much that its survival was at risk. That said, it’s clear from the report, and from earlier cases, that the courts will have the wider effects of sentencing in mind.