Second UK DPA Betrays a Commercial Approach by the SFO Despite the Tough “Prosecute First” Rhetoric
The Flexible Interests of Justice
The second DPA case, SFO v XYZ Ltd, involved a modestly resourced SME, which had committed offences of bribery and corruption on a prolific scale. Out of 74 contracts which were examined, 28 were said to be “implicated” i.e. there was evidence that suggested each contract was procured as a result of bribes. The offending took place over the period 2004-2013 and a net profit of approximately £2.5 million was estimated in respect of the implicated contracts.
The court approved a DPA with a duration of between three and five years, with £6,553,085 in total financial penalties (made up of £6,201,085 disgorgement of gross profits and a £352,000 financial penalty).
In deciding whether a DPA was appropriate, the Court attached a considerable amount of weight to the company’s cooperation in self-reporting to the SFO and the manner in which it adopted a “…genuinely proactive approach to the wrongdoing it uncovered”. Leveson LJ noted that when concern came to light, the company took immediate action and retained a law firm to undertake an independent, internal investigation. Following this written self-report, the law firm continued to supplement the information provided to the SFO and two further substantive self-reports were made. Importantly “…the SFO’s independent investigation effectively confirmed what was stated in the report”. Further mitigating factors for the company were the fact that the bribing mechanism was not particularly sophisticated and the fact that the agents offering the bribes were not under any pressure from XYZ.
The judgment shows that the interests of justice can depend on a range of factors, extending beyond the gravity of the offence in question. Leveson LJ paid note to the challenging economic climate in the industry in question and the harmful effect that punitive insolvency would have had on the workers, suppliers and wider community, including all members of the “public”, for the purposes of the public interest test. This speaks to comments in the original Consultation Paper for DPAs to the effect that a system that was too punitive, leading to the collapse of companies, would be patently contrary to the UK’s economic interests.
Broadening the Spectrum: Opening the Floodgates?
With SFO v XYZ, the spectrum of offences for which DPAs are realistic has broadened since December 2015, when the SFO obtained its first DPA against Standard Bank. In Standard Bank, the Bank were found to have failed to prevent bribery, contrary to section 7 of the Bribery Act 2010 – an important factor in the interests of justice test being that the UK entity itself was not complicit in the bribery itself. The case of XYZ demonstrates that, contrary to the expectations of many, DPAs will not be restricted to cases involving the section 7 offence. They may be available in cases where the recipient company has been actively involved in serious substantive offences of bribery.
Many will question whether, in light of the restrictions of corporate criminal law which require that a “directing mind” of the company is guilty of an offence before the company may be proved guilty, it is ever in the interests of justice for a substantive offence of this gravity to receive a DPA in the UK. The distinction with the US, where DPAs are far more prevalent, is obvious: corporate criminal liability is based on vicarious liability. In the case of XYZ, the conduct was serious, and the bribery systemic, occurring over a period of eight years. Where should the prosecution draw the line and when will an offence of this nature be classed as “too grave” so as to be satisfied by a DPA?
Before jumping to the assumption that all substantive offences could potentially fall within scope of a DPA, it should be noted that Leveson LJ said the case of XYZ should be considered exceptional. He went further, stating that nothing within his judgment should be taken as indicating that the courts have anything but a stern view in relation to this type of criminality, and that severe punishment can be expected.
With that in mind XYZ is unlikely to result in an opening of the floodgates to a tide of DPAs. Companies will, no doubt, continue to be reticent about self-reporting with such little precedent and the resultant uncertainty. Once a company has raised the flag to a Prosecutor it clearly cannot put it down, and it must live with the consequences: civil recovery, DPA or prosecution. However, XYZ does suggest that the SFO is willing to take a more commercial approach than the “prosecutor first and foremost” rhetoric would tend to suggest.
Carrot or Stick?
If the core purpose of DPAs is to incentivise the exposure, cooperation, and self-reporting of corporate wrongdoing then a US-style commercial approach to the use of DPAs may be significant in combatting corruption at its roots, rather than pursuing costly, lengthy and punitive prosecution by default. Setting a more cooperative tone and creating an environment that is encouraging to disclosure of corporate criminality promptly upon discovery, is likely to be more the route most conducive to improving corporate attitudes to combatting bribery and corruption and to ensuring that valuable resources are deployed on investigating and prosecuting the most serious cases. This view is further reinforced in the XYZ judgment as follows:
“There is no doubt that XYZ’s conduct was very serious both in terms of type and scale so that it is not straightforward that a proposed DPA is in principle in the interest of justice. However, it is important to send a clear message, reflecting a policy choice in bringing DPAs into the law of England and Wales, that a company’s shareholders, customers and employees (as well as all those with whom it deals) are far better served by self-reporting and putting in place effective compliance structures. When it does so, that openness must be rewarded and be seen to be worthwhile”.
Whether in agreement with the increased use of DPAs in principle or not; for the time being one can view SFO v XYZ as providing increased clarity on the range of offences that may fall within the scope of a DPA. Whether the DPA “carrot” encourages more companies to come forward seeking to avoid the “stick” of prosecution remains to be seen: many will take the view that the carrot on offer under the DPA regime is not yet sweet (or certain) enough.
The DPA Two-Stage Test
Discretionary by nature, DPAs were formulated by the Crime and Courts Act 2013 as an alternative to prosecution, in response to alleged criminal conduct. In order to enter a DPA the prosecutor must first apply a two-stage test.
Firstly, the Prosecutor must be satisfied the Evidential Stage is passed. In practice this means: either the evidential stage of the Full Code Test in the Code for Crown Prosecutors is satisfied; or there is reasonable suspicion based upon admissible evidence that the offence was committed, and there is a realistic prospect of conviction in accordance with the Full Code Test.
Secondly, the Prosecutor must be satisfied that the Public Interest Stage is passed. This involves considering whether the public interest would be properly served by the prosecutor not charging the company in question with an offence but, instead, entering into a DPA with that company.
For the purposes of the second limb, it is generally accepted that the more serious the offence, the more likely it is that prosecution will be required in the public interest. When assessing the “seriousness” of the offence for these purposes, a range of factors are taken into account including: value of gain or loss, risk of harm to the public, shareholders, employees, creditors and to the stability of financial markets and trade.
It should be borne in mind that on passing the above test, an invitation by the Prosecutor to enter DPA discussions is no guarantee that an agreed DPA will be achieved at the conclusion of those discussions. Indeed, the judicial scrutiny written into the UK DPA regime means that, even once an agreement is reached with the Prosecutor, the DPA may not ultimately be approved by the Court.
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