Summary

On 16 July 2019, three individuals were acquitted of conspiracy to corrupt and conspiracy to bribe. On the basis of the same evidence, their employer, Sarclad Limited, had previously admitted corporate criminal liability and had entered a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO), resulting in financial penalties of over £6.5million.

This is the third occasion on which the SFO has failed to secure individual convictions where the corporate has already admitted to related offences. Is Sarclad now wishing it hadn’t been so eager to admit corporate liability on the basis of the alleged acts of employees that, ultimately, could not be proved? More generally, to what extent should the SFO’s latest failure impact a corporate’s willingness to self-report and/or engage in the DPA regime in the future?

The Evidence

In the Sarclad case, the evidence for bribery offences having occurred may have appeared fairly damning when it was first discovered. We know that, for example, written evidence from Sarclad’s books reads like a thesaurus of euphemisms for bribery (“fixed commission”; “special commission”; “additional commission”; “compensation”; “special contribution”; “advance marketing expenses”; “under the table %”; “under the table cost”; “payout”) and there was even an email from one of the acquitted individuals asking for written records of illegal bribes to be produced before payment of a bribe would be made in the future.

In fact, Sir Brian Leveson, in his 2016 judgment in the context of the DPA, described the bribery at Sarclad as “prolific”, “systematic” and “grave”, while “the bribing mechanism was not particularly sophisticated or redolent of a corporate cover-up”.

Self-Reporting and the DPA

Faced with such clear evidence of bribery, Sarclad in consultation with its lawyers must have calculated in 2013 that it was in its interests to make an early self-report to the SFO, with two further self-reports as further evidence came to light. The end result was that, in addition to bearing the costs of a lengthy SFO investigation, Sarclad subsequently entered into a DPA in July 2016 and agreed to:

• admit offences of conspiracy to corrupt, contrary to s1 Prevention of Corruption Act 1906, conspiracy to bribe contrary to s1 Bribery Act 2010 and failure to prevent contrary to s7 Bribery Act 2010 (the evidence straddled the coming into force of the Bribery Act on 1 July 2011);
• pay £6.2million by way of disgorgement of gross profits and a penalty of £352,000 (which was the maximum cash available without rendering Sarclad insolvent); and
• co-operate with the SFO going forward, including ongoing reporting in respect of Sarclad’s compliance programme.

Cost benefit analysis

In electing to self-report and, later, to enter a DPA, Sarclad, presumably, calculated that (a) the evidence uncovered in its initial internal investigation was likely to come to light at some stage and was sufficient for the SFO to have a realistic prospect of securing a successful conviction in respect of Sarclad and; (b) that, ultimately, the strength of the evidence meant that it was not worth the risk of facing trial in the hope of securing an acquittal.

Does the SFO’s subsequent failure to secure convictions of the individual Sarclad employees, notwithstanding the seemingly large amount of inculpatory evidence available, signal that corporates should be less willing to roll over when faced with a potential DPA? To take this one step further, does this mean that corporates (specifically, those in the non-regulated sphere who are not otherwise constrained by reporting obligations) should think twice about self-reporting even in the face of seemingly damning evidence?

The future

To those who are more cynically inclined, the regime is in danger of starting to look like an easy money-making scheme, with the SFO relying on corporates to elect to enter a DPA (and, thereby, pay financial penalties) rather than risk putting the evidence to test at trial. Of course, there is no equivalent DPA regime for individuals and, in any event, given the potential consequences of a conviction, individuals are more likely to have the appetite to contest a criminal charge to trial.

Whatever your view, the time seems ripe for the SFO to re-visit the DPA regime in order to guard against an emerging theme of DPAs being concluded on the basis of evidence that is, ultimately, insufficient to secure any subsequent convictions.

Consult Lawyers

Sarclad supplies steel manufacturers with technology products, and does not operate in the regulated sector. Had it been a financial services firm, it would have been required to report evidence of failure in systems and controls in the prevention of bribery to the Financial Conduct Authority and/or Prudential Regulation Authority.

For firms outside the regulated sector, the options for self-reporting to the SFO and entering into a DPA are decidedly moot and merit careful discussion with experienced white collar lawyers at the earliest stage.