The Serious Fraud Office has entered into its second-ever Deferred Prosecution Agreement (DPA) with a corporate. Against the backdrop of the first DPA, entered into with Standard Bank late last year, this second DPA provides further guidance on what level of cooperation is necessary from a business being investigated for financial crime to secure a DPA, the application of DPAs in particularly serious instances of bribery, and the calculation of fines in complex bribery cases (Serious Fraud Office v XYZ Ltd, 11 July 2016 (full judgment not yet published).
On 8 July 2016, the UK’s second-ever Deferred Prosecution Agreement was concluded between the Serious Fraud Office (SFO) and an unnamed party for a number of bribery offences.
Related criminal proceedings are still on-going. Accordingly, to preserve anonymity, certain facts have not yet been released and the judgment authorising the DPA refers to the counterparty as “XYZ” throughout. Even so, the case offers significant additional guidance on the level of cooperation necessary to secure a DPA (particularly regarding interview notes and privilege) and the calculation of financial penalties in complex scenarios.
Background
The conduct subject to the DPA took place between June 2004 and June 2012. XYZ was a UK SME that conducted most of its business in Asia. XYZ paid bribes through agents to secure many of its contracts (the SFO found that 38% of the contracts it examined had been secured as a result of bribery). In doing so, XYZ had committed offences under the Prevention of Corruption Act 1906 (conspiracy to corrupt) and s1 and s7 of the Bribery Act 2010 (conspiracy to bribe and corporate failure to prevent bribery).
In February 2000, XYZ was taken over by ABC, a U.S. based entity. In 2011, ABC rolled out its global compliance programme to XYZ. It was during the implementation of this programme that the bribery came to light. Following initial anonymous discussions with the SFO in October 2012, a formal self-report was submitted on 31 January 2013. The SFO then conducted its own investigation into XYZ, which concluded earlier this year. On 8 July 2016, Sir Brian Leveson, at Southwark Crown Court, approved the DPA.
What was required to secure a DPA?
Following the SFO’s first DPA with Standard Bank and Sweett Group’s conviction for a corporate failure to prevent bribery, a clearer picture of the behaviour required to secure a DPA is emerging (though unspoken practical considerations such as how likely a party is to contest a prosecution may inevitably apply). The overriding factor influencing whether a DPA will be granted is whether it is in “the interests of justice” to do so. In assessing this, the court considered six factors:
1. Seriousness of the offence. In contrast to Standard Bank, XYZ’s conduct had occurred over multiple years, on numerous occasions, and included substantive bribery offences beyond the s7 corporate failure to prevent bribery. However, while the conduct was considered “grave”, the court noted that the bribery had been instigated by XYZ’s agents and there had been no attempt by XYZ at a “corporate cover-up”.
2. Self-reporting and cooperation. XYZ’s lawyers first made anonymous enquiries of the SFO on 2 October 2013. XYZ’s lawyers then confirmed to the SFO on 13 November 2013 that XYZ would be making a self-report. As per agreement with the SFO, the full self-report was submitted on 31 January 2013. Importantly, in light of this dialogue, the self-report was still viewed as sufficiently prompt even though almost five months had passed since the conduct was initially identified. XYZ provided oral summaries of witness interviews it had conducted. XYZ appears to have claimed privilege in responding to the SFO’s requests for information. Significantly, the court viewed the production of oral summaries of witness interviews and a claim of privilege as consistent with “full and genuine” cooperation. This is likely to be of comfort to corporates given recent comments by SFO and FCA officials that have indicated that corporates should produce full written accounts of interviews and judiciously consider claims to privilege in order to be viewed as fully cooperative.
3. No history of similar conduct. XYZ had not previously engaged in such conduct.
4. Attention paid to compliance. XYZ’s compliance programme was, it admitted, inadequate prior to 2011. Nonetheless, the implementation of a global compliance programme by its parent company was noted.
5. The extent to which the entity has changed. Another factor in XYZ’s favour was that, as a result of remedial action, it was now “effectively a different entity”. Contracts with implicated agents had been terminated and senior employees had been dismissed. According to Leveson P, XYZ’s parent company, ABC, had behaved in an “exemplary” fashion in dealing with the bribery it had uncovered.
6. Impact of prosecution on individuals not involved in the misconduct. The fact that a conviction would bar XYZ from public procurement tenders and almost inevitably lead to its collapse (and the loss of innocent employees’ jobs) was also a relevant consideration.
How was the financial penalty assessed?
XYZ was in financial difficulty. This created a dilemma: whether to impose a harsh fine that would almost certainly bankrupt XYZ, or a lesser fine, with the risk that such a low fine would represent an insufficient deterrent.
Ultimately, the latter approach was chosen. Normally, a party to a DPA can expect to disgorge the gross profits of its bribery and pay a financial penalty calculated as a multiple of those profits. Sentencing Council Guidelines indicate the multiplier will be between 250% and 400% in serious cases, such as this.
Counsel for XYZ submitted that a multiplier of 250% should be applied. Weighing up the various mitigating and aggravating factors, the court was clearly not inclined to agree to a multiplier this low (for comparison, Standard Bank’s fine was based on a 300% multiplier). However, given XYZ’s inability to pay a fine based on even the lowest multiplier, the point was moot.
As a result, it was agreed that XYZ’s total penalty would be limited: equivalent to a disgorgement of the gross profits (GBP 6.5 million) from the contracts procured by bribery. XYZ itself was only able to pay GBP 352,000 (this amount therefore comprised the financial penalty element). However, ABC had, crucially, agreed to provide GBP 1.9 million towards the total penalty. The remainder of the penalty will be repaid over the lifetime of the DPA.
COMMENT
While we do not yet know all the facts of the case, the SFO’s second DPA may turn out to be almost as significant as its first.
First, and notwithstanding the limited current information, investigators will be grateful for the further guidance on cooperation – particularly relating to interview notes and privilege – which XYZ’s DPA provides. Likewise, the fact that the SFO appeared receptive to being approached on an initial no-name basis, and provided time to prepare a full self-report is encouraging.
Secondly, XYZ’s DPA illustrates that even in the “most serious” cases of bribery, significant cooperation and subsequent reforms to the offending entity may make a DPA a realistic option. Thirdly, it provides a model for an innocent parent company upon discovering such conduct in a subsidiary. Finally, it illustrates the wide discretion available when determining fines in corporate criminal matters.
