SFO co-operation: When to hand yourself in

Calum Macdonald

‘Pick your horse and ride it’. That was the message from the Serious Fraud Office (SFO) the other week. However, for UK-based companies thinking of calling in the prosecutor, when to do so and, indeed, the benefits of doing so are currently unclear.

 

 

An all or nothing choice?

Speaking on behalf of the SFO at the Annual Anti-Bribery and Corruption Conference, Ben Morgan (Joint Head of Bribery and Corruption) examined if, when and how to cooperate with the SFO. In short, early self-reporting and full cooperation are expected from those seeking a Deferred Prosecution Agreement (DPA).

Since February 2014, the SFO has had the power to enter into DPAs with companies. In his speech, Morgan flagged that pro-actively alerting the SFO to potential wrongdoing would be an extremely important element in securing a DPA: if a company fails to approach the SFO before it becomes the subject of an investigation, prosecution should be the default position.

In light of the recent Yates Memorandum in the United States, there may be signs that the US Department of Justice (DOJ) and the SFO are becoming more aligned on the level of cooperation expected. As US colleagues have flagged, the most significant aspect of the Yates Memorandum is likely to be the apparent change in DOJ policy to expect full cooperation for a company to be eligible for any form of leniency. The SFO’s evident frustration at companies that offered partial cooperation but still hoped to benefit from a DPA echoed this sentiment.

 


More risks, less reward?

Unfortunately, when and how to cooperate with the SFO is arguably an even more difficult decision than with the DOJ for several reasons:

 

  1. We are still waiting for the first DPAs to be concluded with the SFO (it has previously stated we can expect to see these by the end of 2015). In the absence of a clear track record of credit for SFO cooperation, it is understandable that companies are wary of providing potentially incriminating or privileged information without a clear idea of what the benefits are likely to be.
  2. DPAs in the UK are subject to judicial oversight (as in the US). English courts have previously been strongly critical of SFO settlement agreements (see for example R v Innospec) and it remains to be seen how actively they will scrutinise the terms of DPAs and how high they will set the bar to qualify for one.
  3. Unlike in the US, a UK company may, generally speaking, only be found criminally liable where the individual offender can be said to have been a ‘directing mind and will of the company’ (the identification principle) (though note this is not the case with the Bribery Act 2010 corporate offence of failing to prevent bribery). The Director of the SFO, David Green QC has previously described this as the biggest obstacle to successful corporate prosecutions. The difficulty of proving this mental element may mean companies see less incentive to enter into a DPA.
  4. There is concern that once the SFO has been brought in, a company will lose visibility and control of any internal investigation. A High Court case from earlier this year offers guidance that the SFO may exclude company lawyers from attending employee interviews where it believes there is a real risk of prejudice to its investigation. Bearing in mind that the SFO may also request the first opportunity to interview relevant individuals, companies may understandably worry they will be left in the dark or be reliant on employees’ accounts of interviews if they seek cooperation too early.

 

558296087When to pick your horse

These sources of uncertainty are clearly unwelcome. Nonetheless, given the reputational and practical consequences of a long investigation and potential criminal trial, cooperation with the SFO may be the preferred starting point in certain cases. The key question will therefore be when to approach the SFO.

An important and sometimes determinative consideration on timing is where a suspicious activity report (SAR) needs to be filed with the National Crime Agency. That may end up driving the decision of when to report to the SFO as the NCA are likely to disclose SARs to the SFO when the SAR discloses conduct which may fall within the SFO’s jurisdiction.

While stressing that it would depend on each case, Morgan noted the answer was likely to be ‘a lot sooner than you think’. Yet early self-reporting must be balanced against appearing to ‘confess first, ask questions later’. Companies will naturally want to carry out initial enquiries, not least so they can provide the SFO with a meaningful account of potential misconduct.

In this context, it was interesting to note the Scottish Crown Office’s recent settlement with Brand-Rex Limited. Under a different cooperation regime, a company self-reported a failure to prevent bribery under s.7 of the Bribery Act 2010 in exchange for a civil settlement with the Scottish authorities. The self-report occurred following an extensive internal review involving external counsel and forensic accountants.

We await the first DPAs to see if the SFO takes a pragmatic approach to timing and gives due credit to internal investigations which are sufficiently independent and robust. More generally, it is to be hoped that the first DPAs will provide some clarity for companies seeking to cooperate as well as illustrating whether the SFO truly views cooperation as an ‘all or nothing’ choice.

 

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