International - Written by on Friday, September 16, 2011 4:12 - 1 Comment

Opinion: Certainty – why we should applaud the SFO’s desire to create certainty for corporates

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The SFO has received criticism in some of its attempts to bring closure to investigations.

Yet, for corporates and their stakeholders closure and finality is a necessary step.

In the United States this is a recognised phenomenom with the use of the Deferred Prosecution Agreement.

In July the Director of the SFO in evidence to the International Development Committee, Financial Crime and Development had this to say about the present UK system:

“In my view, the corporations want certainty before the criminal justice system starts, and that is a legitimate request. On the other hand, we have to ensure that what we do has public and judicial support. My view is that that can be obtained only through having a judicial ruling before the agreement can be reached and charges are brought. If for one moment I take as an example the scenario of the BAE case, agreement was reached at about half-past 10 on a Thursday night, after lengthy negotiations. In the United States, the Department of Justice was going to go into court at about nine o’clock their time, two o’clock our time, to announce a settlement relating to eastern and central Europe and Saudi Arabia. That would have an impact on our case. My view has always been that if I had had the opportunity to take my agreement to a judge on the Friday morning it would have been a far better system.” [our emphasis]

Why is certainty important?

Corporates want certainty on two counts.

First, corporates need to know that the amount of any settlement agreed with a prosecutor will be the amount ordered by a court.

Second, corporates need to know that any penalty agreed (and paid) will be the full extent of the penalty imposed on the corporate and its stakeholders, for example innocent employees and shareholders, in relation to investigated matters.

In summary, after a lengthy investigation in cases where the SFO takes the view that settlement is appropriate corporates must have the certainty that a line has been drawn under the matter(s) investigated at the time of the settlement.

Without this level of certainty there is a risk that doubts will remain.

Those doubts are likely to disadvantage the corporate with resulting damage on its ability to compete under the cloud of uncertainty.  In turn there will likely be knock on adverse consequences on company valuation/share price.

There would be no sense in this.

At present a corporate lacks complete certainty until the penalty is ordered by the court.

The US learnt this lesson the hard way after Arthur Andersen collapsed following its indictment and conviction in the US (Andersen subsequently overturned the guilty verdict on appeal – but by then it was too late).

In our view, far from being undesirable, the SFO’s efforts to draw a line under the various corporate investigations is critically important.  However, the existing system does require an overhaul to remove the doubts which can be thrown up between the SFO agreeing a deal in principle and, in the case of a prosecution, the courts handing down the corporate’s sentence.

We support the SFO’s desire to bring the judiciary into the negotiations at an earlier stage in order to achieve this degree of certainty.  This outcome is possible in the US albeit through a slightly different process.

Consistency of approach is of course everything.  In addition to bringing in the judiciary earlier on in the settlement process the SFO also have a role to play in providing certainty.

We shall follow the developing policies and importantly the actions of the SFO with interest to see if they continue to assist boards in obtaining certainty.

Failure would lead to an undesirable enforcement arbitrage between jurisdictions.  Something which is of no benefit to UK PLC.

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