Bribery Act & Proceeds of Crime - Written by on Tuesday, July 19, 2016 5:54 - 0 Comments

Opinion: SFO’s second DPA – A moderate step in the right direction. Could do better.

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AAEAAQAAAAAAAAIGAAAAJGJiNGNhYTNiLTRkYjQtNDRhZC05ZGY2LTVmZDg2ZWU0NDk0MABy Laura Dunseath, Senior Associate, Pinsent Masons LLP

Judicial approval was given on 8 July to the SFO’s second deferred prosecution agreement which is against a UK SME (with a US parent) known for now as XYZ Ltd. The SME cannot currently be named to protect related proceedings.

Since the SFO’s declaration that the Standard Bank DPA, which was approved last November, set the benchmark for all future agreements, DPAs were in very real danger of becoming unfit for purpose and an over-hyped white elephant.

The XYZ DPA has achieved a very welcome step back in the right direction, but it still does not go far enough to truly accomplish the Government’s stated aims of incentivizing companies to self-report and co-operate with the authorities.

Speaking about the latest DPA David Green said:

SFO Director David Green CB QC said:

“This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfill the terms of a DPA but demonstrates exemplary co-operation. 

“The decision as to whether to force a company into insolvency must be balanced with the level and nature of co-operation and this case provides a clear example to corporates. The judgment sets out the considerations in detail and endorses the approach we took. As with the first DPA with Standard Bank, the judgment provides clear and helpful guidance.”

Lord Justice Leveson said:

“[This conclusion] provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.”

The Standard Bank DPA revealed a highly commendable, but exceptional response by the bank upon the issues coming to light, including a self-report made to the SFO at near lightening speed. In fact Standard Bank’s reaction was so impressive that the Joint Head of the Anti-Corruption Division of the SFO, Ben Morgan even praised the bank’s lawyers for having “the courage to innovate where others will now follow”.

However despite their laudable reaction, the terms which were imposed on Standard Bank were disappointingly severe, particularly the fine which was calculated using a multiplier of 300% from a range of 250 – 400%, and a discount of only 33% which is on a par with the discount usually  applied to a guilty plea at the first opportunity.

Unfortunately for the SFO, the Standard Bank DPA was closely followed in February 2016 by the sentence of Sweett Group plc for a guilty plea to failing to prevent bribery contrary to section 7 of the Bribery Act.

Whilst Sweett ultimately ended up with a criminal conviction, they nonetheless benefitted from the following key advantages:

  • their financial penalty was proportionately lower since it was calculated using a 250% multiplier along with the 33% discount; and
  • the proceeding against them were concluded at the sentencing hearing, and they are not subject to any on-going conditions such as the monitoring of their compliance programme or cooperation with on-going proceedings.

The net effect of the intimidatingly high bar and dishearteningly low reward set by the Standard Bank DPA, particularly when compared with the Sweett outcome, led companies to wonder whether DPAs were actually more hassle than they were worth.

In the XYZ Ltd DPA, the SFO appear to have sought to redress the balance and offer some advantage beyond the avoidance of criminal conviction, such as:

  • The internal reaction of XYZ to the revelation of corruption issues, whilst still praiseworthy was of a more achievable standard than that of Standard Bank;
  • The fine was calculated using the 250% multiplier and a discount of 50% was applied rather than 33% in recognition of the fact that further discount should be given when a defendant not only pleads guilty, but brought the matter to the attention of the authorities in the first place.
  • The financial status of the company and the impact that the fine would have on its future ability to trade was fully considered, and the fine was accordingly reduced to prevent the company being forced into insolvency.

Whilst the XYZ DPA represents a clear signal from the SFO and the Courts that a need for greater financial incentives is understood, a discount of more than just 50% should be offered against a backdrop of a genuine self-report and full cooperation in order to encourage more companies that it really is preferable to come forward to the SFO as soon as an issue comes to light rather than to ‘sit it out’ in the hopes of avoiding detection.

That said, it is clear that there is an acceptance by the SFO and the courts that there needs to be a bigger carrot when it comes to DPA’s.  As we recently reported the Judge in both Standard Bank and XYZ trailed the prospect of bigger carrots for Self Reporting companies at a recent conference.

As we reported then in a lengthy speech Sir Brian Leveson said that it was entirely open to those negotiating DPA’s with the SFO to argue that their client(s) are entitled to much more than a 1/3 discount.  He went further adding that it could properly be argued to affect the financial quantum of any penalty.

Sir Brian said he was not seeking in any way to step in between the SFO and any company negotiating with it and went on to say that he saw the argument as valid and was entirely comfortable that those negotiating should seek a further discount on the basis that the Self Report (and admission) would take place long before any guilty plea at the first opportunity in court.

Answering a question Sir Brian also confirmed that a company under new management could still qualify for a DPA even if before the new brooms enter the scene there has been a history of non co-operation.

These comments turned out to be prescient given Sir Brian’s judgement in XYZ a few days later.

Going forward those dealing with the SFO in DPA negotiations would be well advised to follow Sir Brian’s advice and argue that their client is entitled to much more than a 1/3 discount.

We would argue that they should be entitled to much more than an extra 17% on top of the standard discount for a guilty plea too.

 

 

 

 

 

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