SFO publishes guidance on deferred prosecution agreements

Introduction

On 23 October 2020, the Serious Fraud Office (“SFO”) published internal guidance (the “Guidance”) on its approach to deferred prosecution agreements (“DPAs”).

Background

DPAs are court approved agreements between a corporate and the SFO or CPS, which suspend prosecution of corporate economic crimes for a defined period, subject to certain agreed conditions. These conditions usually require the corporate to pay a financial penalty (and/or compensation and disgorgement of profits earned from the wrongdoing, as well as legal costs), to cooperate with investigations into and prosecution of others (including culpable employees) and to introduce new or improve existing compliance programmes. If complied with, then the corporate can avoid a prosecution altogether for the matters covered by the DPA.

DPAs were introduced in 2014 by the Crime and Courts Act 2013 (the “CCA”). Over the past six years DPAs have been applied by the SFO on eight occasions (with another anticipated imminently). Major companies such as Rolls Royce PLC, Tesco Stores Limited and Airbus SE have agreed DPAs with the SFO.

The offences covered by the DPAs have to date focused on bribery (in particular the section 7 Bribery Act 2010 corporate offence of failing to prevent bribery by associated persons) and fraud under the Fraud Act 2006.

The CCA, along with the DPA Code of Practice (“DPA Code”) contain:

• detailed provisions as to what tests must be satisfied before a DPA can be offered by the prosecutor and approved by the court;

• rules on disclosure and the use of documents provided during the negotiation process;

• what terms should be included in the DPA;

• other requirements that must be considered prior to, during and following the negotiation and approval of the DPA.

The Guidance

The Guidance is available in full on the SFO’s website here.

The Guidance essentially pulls together into one place the rules and requirements from the CCA and the DPA Code, and supplements it with relevant information from the Sentencing Council’s Guideline on Corporate Offenders: fraud, bribery and money laundering, the Criminal Procedure Rules and case law.

While the Guidance is predominantly a restatement of existing requirements, it does contain some additional points that appear to reflect the SFO’s experience of DPAs over the last six years and provide further insight into how the SFO may approach matters that are not expressly set out within the existing statutory framework.

Below we focus only on the key points where the SFO has provided additional insight that goes beyond what is already set out in the relevant legislation and DPA Code.

Parallel investigations

The cross-border nature of complex economic crime means that often there will be more than one country investigating events arising from the same facts. The Guidance provides SFO staff with relevant legal and practical considerations where a DPA is a potential enforcement outcome, but there are parallel investigations by overseas and/or other UK agencies.

Considerations include: (i) ensuring there is early communication with the other agencies in respect of investigative activity and interactions with the company on matters such as evidence and legal professional privilege; (ii) the laws on disclosure of material and potential impact; (iii) ensuring the terms of negotiation allow for communication and information sharing with other agencies; (iv) whether the company has taken a consistent position in dealings with other agencies on admission of facts and liability; (v) coordination of court listing dates to ensure simultaneous approval of resolutions (which is critical in terms of confidentiality and to achieve full national/global coverage in respect of the conduct being resolved); (vi) ensuring liaison between respective press offices; and (vii) awareness of the requirements for market announcements in different jurisdictions.

Comment: The SFO has investigated issues involving multiple jurisdictions many times. This guidance is likely to reflect the SFO’s learnings from the several DPAs where there have been global settlements. One recent example is the Airbus DPA, which formed part of one of the biggest global resolutions for bribery offences and included €3.6bn in financial penalties. That global settlement involved authorities in the UK, France and the US. Our previous Law-Now article on the Airbus DPA is available here.

Invitation to enter DPA negotiations

The Guidance reiterates that no corporate is entitled to a DPA and whether an invitation is appropriate is a matter for the Director of the SFO. This is nothing new, but the Guidance does stress that careful consideration should be given to whom the invitation should be addressed (e.g. the company at the centre of the allegations or its parent company). The Guidance says that ordinarily the addressee should be the company involved, but in some instances (for example, where the parent company has been the contact with the SFO or if the parent company may be required to give undertakings in respect of any DPA) the parent company may be an appropriate addressee.

Comment: This guidance may reflect the SFO’s experience in respect of recent DPAs (Serco Geografix Limited and G4S Care and Justice Services (UK) Limited) where the prosecutor secured parent company guarantees and undertakings in respect of compliance improvements – a trend we expect to continue.(Our previous Law-Nows on the Serco Geografix and G4S DPAs settlements can be found here and here.)

Disclosure strategy and declarations

The disclosure requirements in the Criminal Procedure and Investigations Act 1996 (as amended) do not apply to DPA negotiations and so the DPA Code provides a disclosure obligation specifically for these circumstances. In short, this requires that the SFO provides disclosure to the company sufficient to ensure that the company has enough information to play an informed part in the negotiations. The DPA Code provides an example of disclosure that ought to be made, such as any information that might undermine the factual basis of conclusions drawn by the company from material it has disclosed. Part of the purpose of these requirements is to ensure that there is no suggestion of the company being tricked or misled into agreeing a DPA.

While the Guidance states that the SFO is required to disclose certain information in its possession to the company negotiating the DPA, it also notes that it would usually agree with the company prior to negotiations that the SFO would not be expected to provide it with material originating from the company as part of that disclosure – thereby limiting any disclosure to information obtained by the SFO from sources that are inaccessible to the company (e.g. an overseas authority).

The Guidance mentions that where a company becomes a party to civil proceedings, it will be for the civil judge to balance any objections to onward disclosure of material provided for the purpose of DPA negotiations against the ordinary rules of disclosure. This issue arose in the wake of the Tesco DPA, where Tesco was ordered by the High Court to disclose SFO documents (mainly s.2 interview transcripts – i.e. compelled interviews) during civil proceedings brought against Tesco by its shareholders.

The Guidance explains that prior to an application to the court to review and approve the DPA, the prosecutor must make a written declaration to the court that: (i) the investigator looking into the offence has certified that to the investigator’s knowledge no information supplied is inaccurate, misleading or incomplete; and (ii) the prosecutor has complied with its obligations to disclose material to the defendant. In order to do this, the Guidance confirms that there must be a review within the SFO (by the prosecutor and principal investigator/disclosure officer), the details of which must be documented and the outcome communicated to the negotiating company.

Comment: Disclosure has been an issue under the media spotlight in recent years, particularly in respect of criminal prosecutions. While most criticism has been aimed at the CPS, the SFO has not gone unscathed and has been criticised by the court for its previous approach to disclosure in the context of DPAs, particularly in relation to subsequent prosecutions of individuals involved in the same issues.

In R (on the application of AL) v the SFO [2018] EWHC 856 (available here), individuals charged in connection with offences relating to the Sarclad DPA judicially reviewed the SFO’s decision not to insist on disclosure by the company of first accounts given by interviewees in the company’s internal investigation. The individuals argued the SFO should have insisted on disclosure of these documents from the company, so that the SFO could review and disclose them in the individual prosecutions. Instead, the SFO relied on verbal summaries of the interviews provided by the company’s lawyers. While the court ultimately decided it was not the right forum for the challenge, it was highly critical of the SFO’s approach.

The Guidance seeks to clarify expectations in respect of disclosure and ensure its staff take a reasoned and documented approach to disclosure, which may seek to address any future concerns raised about alleged deficiencies.

Statement of facts

As part of the DPA process, the parties must agree a statement of facts to be published alongside the DPA and DPA judgments. The Guidance confirms that the statement of facts, because it is a public document, must be accurate, concise and drafted in a way that is accessible to all.

Historically statements of fact have mentioned third parties (such as individuals involved in the alleged offending, agents or other third parties who may have been involved or the recipient of a bribe, for example), either by name or by job title/role, which could lead to the identification of the individual. The Guidance notes that consideration must be given to the necessity for and impact of the identities of third parties being published, particularly where this could prejudice future prosecutions of those individuals. The Guidance suggests that in some cases it will be appropriate to anonymise the statement of facts or delay its publication. Reporting restrictions may also be considered.

Comment: This will be welcomed by those who have long voiced concerns about the unfairness of naming individuals in statements of facts before individuals have been tried in respect of their alleged offending. There have been high-profile and troubling examples of individuals named in DPAs as responsible for offending who were later acquitted at trial. While the Guidance does not prevent the parties agreeing to publish a statement of facts that includes references to third parties, it will hopefully prompt those involved to carefully consider whether it is necessary to do so. It may also prompt the SFO to reconsider the level of detail required and included in a statement of facts to meet the requirements of the DPA process.

Comment

The SFO’s approach in respect of DPAs is evolving as it becomes more experienced in the use of DPAs. This evolution and growing transparency in approach should be welcomed by both practitioners and those companies who may need to consider a DPA negotiation process.

However, the Guidance leaves some important issues unaddressed.In particular, it does not address the level of detail necessary to be included in a statement of facts (with all the difficulties and inconsistencies this can create where individuals are later prosecuted).

It also does not cover the weight that prosecutors should attach to the potential harm caused to the corporate or third parties if a DPA is not agreed and a prosecution is pursued instead.A number of the recent DPA judgments have considered the additional damage that could be done to the company in terms of debarment from competing for public contracts if the company were prosecuted rather than allowed to conclude a DPA.As noted in the G4S DPA judgment, this advantage may be illusory.

The appropriateness of treating submission to the jurisdiction of the UK as a factor in favour of a DPA (as in the recent Airbus case) is, to say the least, questionable.It would have been helpful to have seen more in the Guidance on the approach to the jurisdictional requirements to prosecute a company that is not UK incorporated.However, as Airbus is currently the only example of such a case, perhaps the SFO considers more experience is necessary before going into print on this contentious issue.