The value of self-reporting
SFO v XYZ demonstrates that the approval of a deferred prosecution agreement is not merely a rubber-stamping exercise, explain John Bramhall and Jonathan Brogden
In July 2016, the English court approved the second deferred prosecution agreement (DPA) in Serious Fraud Office v XYZ Limited.
The judgment provides
valuable guidance on the
new DPA regime.
A DPA is a court-approved agreement pursuant to which prosecutors agree to suspend prosecution of a company for bribery, fraud, and other defined economic crimes in return for
the company’s compliance with specific terms. Those terms may include paying a financial penalty, disgorging profits, implementing a compliance programme, cooperating with related investigations, and paying costs.
Between June 2004 and June 2012, XYZ, a UK-registered SME and wholly owned subsidiary of ABC, a US-registered corporation, was involved in the systematic offer and payment of bribes to secure contracts in foreign jurisdictions. XYZ made an estimated net profit of £2.5m from the wrongdoing.
In August 2012, ABC’s compliance programme queried how certain contracts had
been secured by XYZ. The company appointed lawyers
in September 2012 to undertake an independent internal investigation. The lawyers met with the SFO in November 2012 and delivered a written self-report to the SFO on 31 January 2013. Subsequently, the SFO opened a criminal investigation and conducted interviews,
while XYZ, through its lawyers, continued to investigate the matter and provided the
SFO with further reports and documentation. By the end
of 2014, the entirety of the wrongdoing had been identified. Bribery charges were drafted
and in November 2015, the
SFO invited XYZ to negotiate
When approving the first
DPA in SFO v Standard Bank, the court made clear that approval
of a DPA was not a rubber-stamping exercise and that it would scrutinise all applications carefully. While the conduct in XYZ was very serious and on an entirely different scale to that
in Standard Bank (which had involved a single instance of bribery), the court was willing
to approve the DPA.
Swift action by XYZ following the discovery of improper conduct and cooperation
with the prosecutor was
given considerable weight by
the court. It instructed lawyers
to investigate within a week of the wrongdoing coming to light and concerns were thereafter flagged to the SFO within a
XYZ conducted investigations under SFO direction and it was open and cooperative in the information it provided. It was also now a culturally different entity to that which committed the offences. The people involved had been dismissed, relationships with the agents involved had been terminated, and bids for two potentially tainted contracts had been withdrawn. The SFO’s investigation concluded that none of XYZ’s current employees and directors faced criminal charges.
The financial viability of XYZ was also relevant. Conviction would see XYZ debarred from participating in public contract tenders. The court therefore accepted that if the DPA was
not approved, XYZ would in
all likelihood be wound up, harming workers, suppliers,
and the wider community.
XYZ agreed to the disgorgement of gross profits (£6.2m) and payment of a fine (£352,000). No compensation
was payable as no victims were identified. In calculating gross profits, the court applied an
uplift of 250 per cent to XYZ’s gross profit of £6.5m and then applied a discount of 50 per cent because XYZ had made early admissions and to encourage other corporations to conduct themselves as XYZ had done when confronting criminality.
The fine was reduced to £352,000 because of court concern about the solvency of XYZ and because it appreciated XYZ had proactively responded to the wrongdoing and had
spent £3.8m in fees as part
of its own investigation, self-reporting, cooperating
with the SFO, and through its
own ‘thorough self-cleansing’ process. No costs were
awarded to the SFO.
XYZ’s conduct was very
serious. Had it not investigated swiftly, self-reported, and cooperated fully with the SFO,
a criminal prosecution would have probably followed.
Corporations that discover bribery have a difficult decision
to make. The decision to grasp the nettle and self-report has, since the advent of the DPA regime, offered an alternative
to criminal prosecution. Corporations are now being strongly encouraged to adopt
a proactive approach at the earliest opportunity in return
for having a greater say in the outcome and managing reputational risk.
This is not, though, a mere rubber-stamping exercise.
The corporation will need to convince the SFO that a DPA
is an appropriate outcome
and the court will be an active gatekeeper for the approval
of DPAs. The swift instruction
of lawyers, prompt internal investigations, self-reporting to and cooperation with the SFO, and implementation of new compliance structures are likely to help support a finding that a DPA is in the interest of justice.
John Bramhall is a partner at DAC Beachcroft and immediate past president of the London Solicitors Litigation Association. Jonathan Brogden is a partner at DAC Beachcroft and an LSLA member www.lsla.co.uk