US criminal proceedings are often said to cause greater hardship to the defendant, a possible greater risk of unfairness and, if convicted, the likelihood of a harsher sentence than prosecution in the UK. This is not an issue that has figured high on the radar screens of UK business leaders – until now. Two factors have changed that.

Firstly, orders made by the Secretary of State under the UK Extradition Act 2003 mean it is now significantly easier for the US authorities to obtain extradition of individuals of any nationality located in the UK to face criminal prosecution. In particular, a request by the US to the UK authorities need no longer be supported by evidence to show a prima facie case.

Secondly, post-Enron there is a greatly increased appetite in the US for bearing down on alleged corporate misconduct affecting US markets. For example:

. there are new offences and increased penalties in the US for corporate mis-conduct – most notably under the Sarbanes-Oxley Act 2002;

. through the US intra-agency Corporate Fraud Task Force and greater cooperation with agencies in other jurisdictions, the US Department of Justice (DOJ) has become significantly more effective at bringing prosecutions;

. there have been explicit statements by US law enforcement agencies that they wish to target overseas companies and executives; and

. the number of US prosecutions of foreign nationals for white-collar crime has increased significantly.

In this article we outline the new USUK extradition regime, give examples of key US criminal offences that may be relevant to white-collar extradition and suggest some practical steps.

US jurisdiction and the new US-UK extradition regime

If an executive happens to be physically located in the US, then plainly US law enforcement agencies in principle can charge and prosecute him. However, if an executive is outside the US, then a prosecution can only be brought if he voluntarily submits to US jurisdiction or is extradited.

In 2003, a new US-UK Extradition Treaty was negotiated in the wake of the 2001 terrorist attacks in the US. The UK ratified the new treaty the same year and implemented the substance into UK law under the Extradition Act 2003 and by orders of the Secretary of State. However, the US has not yet reciprocated – although the US Senate Foreign Relations Committee has recently approved the treaty.

There has been much controversy over suggestions that the current USUK extradition arrangements are not balanced. This is the result both of delay in US ratification and the fact that under the treaty a request by the US to the UK authorities need no longer be supported by evidence to show a prima facie case, while any request by the UK to the US must be supported by information showing probable cause.

However, what is relevant to UK-based executives is not so much any imbalance, but rather that the removal of the requirement for prima facie evidence makes it much easier for US authorities to obtain extradition.

The key criterion for extradition from the UK to the US is now 'dual criminality'. That is, the alleged conduct on which the extradition request is based must be punishable under the laws of both countries by imprisonment for a period of not less than one year. It is irrelevant whether the laws of the two states place the offence within the same category of offences or describe the offence by the same terminology.

If 'dual criminality' applies, there is a number of specific grounds on which extradition requests must be refused. The court will decide whether any of those arise in a particular case.

Key US criminal statutes relevant to extradition

Many US criminal statutes may satisfy the 'dual criminality' test and so, in principle, be relevant to UK-based executives, but there are a handful of key white-collar offences. Most involve fraud, typically requiring false representation of material fact made with knowledge of its falsity and with the intent to deceive, and on which an action is taken in justifiable reliance.

. Mail and wire fraud statutes are directed at frauds which involve mail or wires, such as telephone, facsimile, internet and other electronic communications.

. Transmission of funds to or from the US with the intent of promoting an unlawful activity or with the knowledge that the funds represent the proceeds of unlawful activity is in general terms prohibited under anti-money laundering statutes. Foreign nationals are included within the scope of US anti-money laundering legislation if part of the transaction occurs in the US and involves funds or monetary instruments exceeding $10,000 (£5,400).

. Conspiracy involves a confederacy between two or more persons to commit, by their joint efforts, a criminal act. Sarbanes-Oxley increased the penalties for certain conspiracy offences and added new crimes designed to catch those attempting or conspiring to commit mail or wire fraud, or securities fraud.

. Insider trading statutes target both corporate insiders that breach their duty to shareholders and corporate outsiders that trade on non-public information. The term 'insider trading' refers to transactions in shares of publicly-held corporations by persons with inside or advance information on which trading is based.

. Obstructing an investigation is an offence, and covers altering, concealing or destroying documents, or attempting to obstruct justice. Indeed, the acts of individuals in response to a criminal investigation can overshadow the original targeted criminal activity.

. Violation of US securities laws may be a criminal offence. Individual officers or directors can be criminally liable for failure to comply with the provisions of the Securities Act 1933 or the Securities Exchange Act 1934 if that violation is 'wilful'. Sarbanes-Oxley created a new securities fraud offence prohibiting knowingly executing a scheme to defraud in connection with any security. However, the new provision remains largely untested in the courts.

. Violation of US antitrust laws may also give rise to criminal liability. As a general matter, corporate officers or directors may be held personally liable for knowing participation in an anti-trust violation, such as price fixing or attempted monopolisation.

. The Racketeer Influenced and Corrupt Organisations Act is designed to target organised criminal activity and to preserve marketplace integrity by prosecuting persons who participate or conspire to participate in racketeering, where it can be shown that they have engaged in at least two criminal acts from a list of specified offences, including wire and mail fraud, money laundering, and obstruction of justice.

. The Foreign Corrupt Practices Act (FCP) criminalises the making of corrupt payments to foreign officials in order to gain an 'improper advantage' in obtaining or retaining business. The FCP Act was expanded in 1998 to grant the DOJ jurisdiction over claims involving bribery within the territory of the US by foreign companies or people.

Practical steps

The most obvious practical step is for companies to seek to ensure that activities which may have a nexus with the US are in compliance with US criminal law. This should involve the operation of effective compliance policies and systems. However, since executives are exposed to extradition from the UK to the US only if the 'dual criminality' test is satisfied, this should not necessitate significant change to satisfactory existing UK compliance regimes.

Other steps are less practical and less effective.

. Companies might seek to ensure that their activities fall outside the scope of US criminal law. For example, they might avoid a public listing in the US. However, it is likely to be commercially and practically impossible for many larger companies to avoid business activities in the US.

. Companies might structure themselves such that all US-related business is conducted through a subsidiary vehicle and that the subsidiary has systems specifically to ensure compliance with US law. By that means the parent and its executives may obtain some insulation from US criminal law (and indeed from US civil liability). However, it is unlikely to be possible or practical for such exposure to be eliminated; parent companies are likely to need to undertake transactions in the US from time to time.

. Companies and executives might seek to ensure that they are outside the jurisdiction of US law enforcement agencies. For example, companies might avoid locating in the US and executives might avoid travel to the US. For practical purposes, this is likely to be difficult and commercially unattractive. In any event, executives will remain exposed to US jurisdiction if they are located in or travel to countries with extradition arrangements with the US.

As ever, the bottom line is to under-stand the legal regime in which a company operates and to comply with it.

Justin Williams is a managing associate at Linklaters in London; James Warnot is a partner and Ivan Morales and Robert Bell associates at Linklaters in New York.