On April 24, the Serious Fraud Office (SFO) published guidance on corporate cooperation and enforcement in relation to corporate criminal offending. The guidance seeks to persuade companies to report suspected corporate wrongdoing with the prospect of a Deferred Prosecution Agreement (DPA). However, the guidance falls short of offering a guarantee that self-reporting will even lead to DPA negotiations as opposed to a concluded DPA, and the DPAs reached to date suggest that subsequent exemplary or maximum cooperation is more impactful than the initial decision of whether or not to self-report.
A qualified guarantee
The new guidance states: “Each case will turn on its own facts, but a factor which always weighs heavily in favour of a DPA over prosecution is a prompt self-report. If a corporate self-reports promptly to the SFO and co-operates fully we will invite it to negotiate a DPA rather than prosecute unless exceptional circumstances apply”.
On the day the guidance was released, SFO Director, Nick Ephgrave, described this as “as good as a cast iron guarantee […] no ifs, buts or maybes”. However, the wording of the guidance is considerably weaker, containing several implicit ifs, buts and maybes, and companies will not act in reliance on the Director’s public statements in preference to the published guidance.
Unavoidably, the SFO will assess each case on its merits, rather than against a checklist that companies could use to ensure they are invited to negotiate a DPA. Part of that assessment will be how promptly the company self-reported. The guidance does not define “prompt” other than as being “within a reasonable time of [the suspected offending] coming to light”, which is no clearer.
While the guidance recognises that prompt reporting may follow the start of an internal investigation, the SFO does not “expect a corporate to fully investigate the matter before self-reporting”. Prompt reporting therefore occurs at some point between the start and end of an internal investigation, meaning companies risk either reporting before the facts are properly assessed or after the SFO considers a suspicion ought to have crystallised.
Self-reporting neither sufficient, nor necessary
While the guidance is clear that self-reporting will not guarantee DPA negotiations, it also acknowledges that failure to self-report will not necessarily preclude an invitation to commence DPA negotiations: “We will consider inviting to DPA negotiations a corporate that has not self-reported if it has provided exemplary co-operation with our investigation”.
The Airbus and Rolls-Royce DPAs show that the SFO has previously been willing to overlook a failure to voluntarily self-report where subsequent cooperation with the SFO’s investigation has been “extraordinary”, or provided “to the fullest extent possible”. In those cases, indicators of such cooperation included:
Confirming the existence of wrongdoing and identifying red flags to the SFO;
Providing extensive and detailed presentations to the SFO;
Replacing key management personnel;
Deferring internal interviews pending interviews to be conducted by the SFO;
Disclosing potentially privileged material (on a limited waiver basis);
Providing material requested by the SFO without requiring the SFO to use its powers of compulsion; and
Consulting the SFO in respect of media coverage.
The new guidance includes a similar shopping list, much of which has been included in previous iterations of SFO guidance. If a company needs to cooperate “fully” to come close to a guarantee of DPA negotiations, it will presumably need to exhibit the levels of cooperation seen in Airbus and Rolls-Royce and described in the guidance. However, if that degree of cooperation will result in a reasonable expectation of DPA negotiations in any event, it follows that the marginal utility of the self-reporting is low.
A more radical position would be for the SFO to say that under no circumstances will companies be offered a DPA unless they self-report. However, this would tie the SFO’s hands in cases where a prosecution is not in the public interest despite the absence of a self-report and would risk companies taking an uncooperative stance as the investigation progressed, as they would then have nothing to lose, potentially resulting in evidential challenges for a successful prosecution.
Pressure on privilege
One of the more noteworthy aspects of the guidance is the SFO’s approach towards materials benefitting from Legal Professional Privilege (LPP). The guidance states: “A corporate which maintains a valid claim of legal professional privilege over relevant material will not be penalised for doing so. However, we consider a waiver of LPP to be a significant co-operative act and it can help expedite matters”.
This echoes the Rolls-Royce DPA, in which the company’s willingness, on a limited basis, to waive any claim to LPP over interview memoranda and certain other corporate material was an important signal of its cooperative stance.
This presents a difficult knot for corporates and their advisors to untangle. On the one hand, corporates have a legal right to withhold material that is subject to LPP, which cannot be diluted by the guidance. On the other, waiving that right is a “significant cooperative act”. Only companies that cooperate “fully” can avail themselves of the qualified offer presented by the guidance. The SFO should confirm explicitly that full cooperation does not entail a waiver of LPP.
Uncooperative conduct versus exceptional circumstances
Although the guidance does not define “exceptional circumstances” directly, it does provide examples of the kind of behaviour the SFO considers “uncooperative”. These are:
A corporate “forum shopping” by unreasonably reporting offending to another jurisdiction for strategic reasons;
Seeking to exploit differences between international law enforcement agencies or legal systems;
Attempts to obfuscate the involvement of individuals, minimise and/or withhold the full extent of the suspected offending;
Tactically delaying the provision of information or material; and
Seeking to overload the SFO’s investigation by providing unnecessarily large amounts of material that may hinder its effectiveness.
Even if these actions do not amount to “exceptional circumstances”, they are barriers to “full” cooperation, which therefore equally justify the SFO’s decision to decline to invite a company to DPA negotiations. This may present corporates that wish to be open with significant challenges. Modern corporate crime often has a cross-border aspect and there may be multiple international enforcement agencies with jurisdiction to prosecute. The expectation suggested by the guidance is that corporates should report wrongdoing to the SFO in preference to agencies in third countries. If the third country agency were to adopt a similar position, this would put the corporate in an impossible situation and, in extreme cases, they may conclude that they would be no worse off globally if they did not self-report.
Conclusion: stick or twist
For most companies, the decision of whether or not to self-report is not taken solely by reference to anticipated DPA negotiations. Listed companies will consider the impact on their shareholders, regulated entities will take into account obligations to report suspicions of money laundering and to deal with regulators in an open and cooperative way, and company boards will also consider what the court in the Amec Foster Wheeler DPA called the “moral duty” to report suspected crimes to the authorities. The SFO guidance, and all its ambiguities, is unlikely, for many companies, to be a decisive factor when weighing the decision to self-report. While Mr Ephgrave has told companies that “the gamble of keeping this to yourself has never been riskier", in truth, the odds remain unchanged.
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