The Serious Fraud Office and Deferred Prosecution Agreements – What Lies Ahead?

20 April 2018

David Green QC is stepping down as Director of the Serious Fraud Office (SFO) this month, after six years in the job. The name of his successor remains undisclosed to date. Whoever that may be, he or she stands to inherit a complex legacy, which includes the increasing popularity of US-style Deferred Prosecution Agreements (DPAs).

The SFO has had a bumpy ride in its 30-year history. Mr Green’s appointment followed the controversial decision to terminate the investigation into bribery and corruption allegations at BAE Systems in relation to a multi-billion dollar arms deal with Saudi Arabia. Mr Green also inherited a botched investigation into the collapse of Icelandic bank Kaupthing: the badly mishandled dawn raids led to the SFO being sued by the Tchenguiz brothers and scathing judicial criticism.

It remains to be seen in which direction the SFO will be steered by its incoming director. During Green’s tenure, the only four DPAs that have ever been entered into in the UK were judicially approved in relation to Standard Bank, Rolls-Royce, Tesco and XYZ, a company whose anonymity is currently preserved on legal grounds. The financial penalty flowing from the Rolls-Royce DPA was the most significant at just under £500m.

The rationale behind DPAs is for corporates to avoid the uncertainties and reputational damage of a criminal prosecution and conviction (which may give rise to debarment from public tenders in certain circumstances) while encouraging self-reporting and cooperation by the potential targets of regulatory investigations. DPAs are resolved more quickly and cheaply than lengthy criminal trials and provide a corporate with the opportunity for PR control by virtue of the agreed statement of facts. Moreover, there is a financial incentive on both sides: the penalty is reduced for the corporate in line with guilty plea credit guidelines, and the Treasury is able to recoup the profit from the wrongdoing.

This system has been compared to having a “probation officer” for corporate entities – if the hefty financial penalty is not enough to deter, the threat of prosecution further down the line certainly will be. In addition, DPAs require signatories to remediate their alleged failings by the expiry of the agreement’s term and can impose other obligations, such as cooperation with overseas prosecution agencies and with any prosecution of individual employees in the UK.

Ultimately, however, the public interest against prosecution must outweigh those factors in favour of it. Whilst the SFO has described the stance the company takes once it becomes aware of the issue as a key factor in determining whether it will be offered a DPA or be subject to criminal prosecution, it should be noted that Rolls-Royce did not self-report, and only obtained a DPA (and a 50% reduction in financial penalty) on account of its “extraordinary” co-operation with the SFO. The large reduction afforded to Rolls-Royce in circumstances where the unlawful activity only came to light as a result of public statements made by a whistle-blower has been criticised as undermining the motivation for companies to self-report, particularly as there is no guarantee that a DPA will be offered and the company might be bringing to the attention of the SFO wrongdoing that would otherwise never have been discovered.

 

For his part, Mr Green has expressed his hope that the DPA system will continue for those firms that self-report and cooperate with the SFO.

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