The UK’s Serious Fraud Office released in summer 2019 guidance on precisely what it expects from organisations seeking to enter into deferred prosecution agreements with the agency. Neil Hodge examines the SFO’s guidance and the extent to which it’ll influence whether companies give up evidence.

Back in 2014 the United Kingdom brought in measures aimed at persuading companies to give up evidence – as well as executives and other individuals – in exchange for immunity from prosecution. In summer 2019, in a bid to encourage more organisations to come forward, the Serious Fraud Office (SFO), the country’s anti-corruption agency, released guidance for the first time ever that lets corporates know exactly what it expects from them to be considered for leniency.

Published in August as part of its ‘operational handbook’, the SFO says in its five page Corporate Co-Operation Guidance note that co-operation means ‘providing assistance that goes above and beyond what the law requires’. This definition includes identifying suspected wrongdoing and criminal conduct, naming the people responsible, reporting suspicions to the SFO ‘within a reasonable time’, and preserving available evidence in a variety of paper and digital formats and providing it promptly.

The SFO wants companies to identify potential witnesses, provide contact details of current and former employees (and quickly), provide industry knowledge (especially regarding context and common practices), and identify potential defences that are particular to the market or industry at issue.

 

 

‘Genuine co-operation’, says the agency, ‘is inconsistent with: protecting specific individuals or unjustifiably blaming others; putting subjects on notice and creating a danger of tampering with evidence or testimony; silence about selected issues; and tactical delay or information overloads.’

The SFO is also quick to say that ‘co-operation – even full, robust co-operation – does not guarantee any particular outcome’, a stance that could be (and may already have been) counter-productive. Several lawyers suggest such a position may have prevented companies from going down the deferred prosecution agreement [DPA] route, and instead prompted them to take their chances in court.

While the guidance may seem draconian to some, lawyers point out that the SFO stopped short of proposing controversial measures that would have asked companies to hand over confidential evidence protected by legal privilege. This is a proposal the SFO has been pushing rigorously under former director David Green and latterly by new director, Lisa Osofsky, since she took office in August 2019.

Instead, the SFO has said that companies should have privileged evidence ‘certified’ by independent counsel in order to retain it. Simon Airey, litigation and regulatory partner at Paul Hastings, says that the requirement to obtain independent certification of a claim to legal professional privilege is an ‘inconvenience’ that ‘in many instances will add significantly to cost’. He adds though that it ‘will not be a relevant consideration for companies that hope to obtain maximum credit for co-operation by waiving privilege’.

In one respect, says Airey, this requirement ‘is consistent with existing law that a claim to privilege must be properly established but no doubt reflects the fact that unmeritorious claims have been made in the past’. Unfortunately, he adds, ‘this requirement effectively tars all companies with the same brush’. A better approach, he says, might have been to insist on a detailed explanation of the claim to privilege from a lawyer, followed by a process of independent certification in cases of dispute. This requirement effectively puts the burden and the cost onto the company in all cases, says Airey.

 

 

It is the first time the fraud agency has formally set out expectations integral to DPAs, United States-style corporate plea deals introduced in the UK in 2014 as a way of securing faster punishments against companies. Under the arrangement, companies that self-report wrongdoing can avoid prosecution by agreeing to overhaul their businesses’ compliance measures, pay a fine and be subject to a monitoring programme.

In the five years since they came into being, just five companies have accepted criminal responsibility through DPAs – and no senior executives have been convicted in relation to any of those cases. This is ‘a record that may lead some to question if cooperation is the right thing to do,’ says Matthew Bruce, a partner at Freshfields.

During DPAs companies surrender evidence the SFO can use to prosecute high-ranking individuals involved. But such outcomes are never certain. Despite reaching a DPA with Tesco, a judge threw out the agency’s prosecution of three former executives. Meanwhile, the SFO’s £500m agreement with Rolls-Royce in January 2017 was followed two years later by its decision not to bring charges against any of the company’s former employees. In July, the SFO lost a case against three former executives of metals company Sarclad, which signed a DPA in 2016.

Several lawyers say that the list of requirements to attain leniency is long and comprehensive, and at long last provides a template of what the SFO actually wants companies to do if they want to be considered for leniency. While ‘the guidance doesn't cover everything’, says Bruce, ‘this clear shopping list of things the SFO likes to see is a step in the right direction after many years of companies having to glean pointers from speeches as to what the SFO wants to see from a cooperating company.’

However, some lawyers add that the list of criteria is perhaps more indicative of the areas where the SFO has struggled to find the appropriate quality of evidence needed to prosecute cases successfully in the past. Richard Reichman, a partner specialising in corporate crime, financial crime and regulatory investigations at law firm BCL Solicitors, says that the note provides ‘much greater detail regarding what is expected of corporates than what they can expect from the SFO in return.’

Neil Swift, a partner at Peters & Peters Solicitors, says that ‘superficially, the guidance is a check list of best practice in conducting an internal investigation’. Most of it, he says, represents a ‘statement of the obvious’, such as retaining and preserving the integrity of documents and digital material.

 

 

According to Swift, the SFO’s guidance ‘spells out what the SFO thinks the picture of cooperation looks like, as well as what it does not’. But he adds that it remains ‘highly subjective’. ‘One person’s reasonable time before reporting is another’s tactical delay, while one person’s prompt provision of comprehensive evidence is another’s information overload,’ says Swift. ‘Notwithstanding the provision of guidance, as the guidance itself states, each case will turn on its own facts, so the position remains – one company’s genuine cooperation is another’s obstruction.’ 

There are other contentious areas within the guidance. Swift adds that the cooperation guidance also appears to require the company to take steps which bypass procedural safeguards for individuals – in particular, the requirement to make arrangements for employees and agents to travel to the UK for interview by the SFO. As an investigative agency, the SFO has available to it the ability to obtain European Investigation Orders, mutual legal assistance and extradition. Swift believes that such powers may pose problems. ‘Incentivising the company to apply leverage to such individuals risks prejudicing the rights and procedural safeguards which might be available to them,’ he says.

Indeed, the part of the guidance relating to how to deal with individuals is perhaps the most problematic. ‘On the one hand’, says Swift, ‘the SFO considers cooperation to include being consulted before – and presumably agreeing to – interviews with suspects and individuals. However, where obligations are owed to other regulators, to stakeholders, or to the market, the company might need to act in a way which contradicts the SFO’s desire’. 

Jessica Parker, Co-Chair of the IBA Business Crime Committee and a partner at Corker Binning, agrees that the guidance is ‘not remarkably different from established best practice’. ‘The guidance appears directed at ensuring where the corporate has commissioned an investigation itself, it is done in such a way that the product of that investigation can be relied upon in future proceedings,’ says Parker. ‘In the past the SFO has come unstuck where over-reliance on a privately conducted investigation did not stand up to judicial scrutiny.’

Yet lawyers have pinpointed one big problem with the SFO’s cooperation guidance: will companies think it is worthwhile? Marco Bollini, Vice Chair of the IBA Corporate Counsel Forum, says that from a practical point of view, ‘a checklist is not going to affect whether a company decides to cooperate with a regulator or not. That decision will come down to what the company’s policies are and to what is the easiest course of action for the company in question and whether it is effective to cooperate at the earliest opportunity rather than contest the case. Nor does the mere compliance with a checklist mean that a company automatically escapes prosecution – the SFO makes that clear.’

 

 

Several lawyers have suggested that some companies put in a position of either playing ball or playing hardball with the SFO may put the decision down to cost considerations of a fine or weighing up their chances in court. Specifically, a DPA can attract a 50 per cent discount, while waiting to be charged and pleading guilty at court allows a 30 per cent reduction.

The SFO’s recent track record could be a persuader. One lawyer, who declined to be named, is aware of one company that did not proceed with DPA discussions because the size of the penalty was too big and – to date – has faced no sanction.

‘Lawyers argue that some businesses that have agreed to a DPA may not have been convicted if they had rejected the invitation to enter into DPA discussions and been prosecuted,’ says Parker. ‘In English law, for many offences the company will only be guilty if the person or persons who are the “directing mind and will” of the corporate are guilty. To date, the SFO has failed to convict any person who fulfils that role: for example, in the cases of Tesco and Sarclad, all of the individuals whose conduct had been the lynchpin of the DPA were acquitted. With this track record, should businesses go through the DPA process or focus on remediating and moving on?’

Swift says that since the SFO has so far failed to secure the conviction of any of the allegedly culpable individuals, companies may wish to weigh up the pros and cons of cooperating. ‘Given that corporate liability arises solely as a result of the conduct of those individuals, those advising companies discovering misconduct and considering self-reporting should give very serious consideration to the strength of the evidence and the ability of the SFO to secure a conviction when considering whether or not to try and do a deal,’ he says.

Some experts believe that the SFO guidance acts as a threshold to focus only on the most serious examples of bribery and corruption cases. Claire Shaw, a consultant solicitor at Keystone Law, criticises the SFO guidance for focusing on ‘high-end’ financial crime, where the risks of prosecution (and reward of leniency) are greater, rather than producing guidance as to what to do if companies find low to medium-level wrongdoing. ‘In those cases, if you investigate, take action, remediate and move on, why would you want to involve yourself in such hugely costly cooperation? The balance would only favour cooperation if you were confident that the organisation itself would be likely to be prosecuted – and convicted – on the evidence you have uncovered,’ she says.