On 30 October 2020, court approval was given to a deferred prosecution agreement (“DPA”) between the UK Serious Fraud Office (the “SFO”) and Airline Services Ltd (“ASL”). The agreement was approved by Mrs Justice May at a public hearing at Southwark Crown Court, making this the ninth DPA secured by the SFO since the mechanism was first introduced in early 2014.
The DPA requires ASL to pay total financial orders of £2.979m and accept responsibility for three counts of failing to prevent bribery contrary to section 7 of the UK Bribery Act 2010 (“UKBA 2010”), in relation to the use of an agent (“Agent 1”) to secure contracts with Lufthansa between 2011-2013 (the “Relevant Period”).
What was the background to the approval of the DPA?
According to the judgment on 30 July 2015, ASL self-reported to the SFO following an internal investigation in 2014 into a series of ASL contracts involving the use of agents, which “incidentally threw a light upon the activities of Agent 1 in Germany”.
The SFO then conducted their own investigation and, in December 2015, the Director of the SFO authorised the opening of a criminal investigation into ASL (the “Investigation”). It was uncovered during the Investigation that three of ASL’s contracts with Lufthansa involved using Agent 1 in order to assist ASL in securing an illegal advantage in Lufthansa’s tender processes during the Relevant Period. Agent 1 was engaged to act on behalf of ASL whilst also employed by Lufthansa as project manager, responsible for managing and overseeing the company’s tendering processes.
The Investigation also identified that, whilst ASL engaged outside counsel to review its compliance program in anticipation of implementation of the UKBA 2010, it declined to adopt the measures recommended by the advisor, telling them that ASL would be adopting “a different approach”. The Court agreed with the SFO’s assessment that ASL did not have adequate procedures in place to prevent bribery, and added that ASL’s compliance programme was “woefully inadequate”.
What was the conduct covered?
Pursuant to the DPA, ASL accepted responsibility for three counts of failing to prevent bribery contrary to section 7 of the UKBA 2010. In all three counts on the indictment, the underlying criminal conduct involved ASL engaging Agent 1, and promising to pay him a 10% commission (later reduced to 5%) to assist ASL in obtaining business with individual airlines, including Lufthansa.
As discussed above, during the Relevant Period, Agent 1 was also retained by Lufthansa as a consultant project manager, and his “duties included working on Lufthansa’s Requests for Proposals (invitation to tender documents) before they were sent out to potential bidders, evaluating bid documents and making recommendations to the Decision Committee regarding the bids that came in”.
Agent 1 would therefore use his position and knowledge within Lufthansa, including “commercially sensitive information submitted by rival companies” to assist ASL “behind the scenes” in securing the contracts and, in return, would be paid a commission by ASL based on the value of the contract obtained.
How was the DPA negotiated and how did the process apply?
In December 2015 (following ALS’s self-reporting in July 2015) the SFO formally opened a criminal investigation into ASL. During the five-year process leading up to the DPA, ASL actively assisted the SFO in the Investigation, with the provision of documentary material (which included some privileged material under limited waivers) and facilitated the SFO’s interviews of ASL’s Board, senior management and employees.
What are the key terms of the DPA and were there any parallels or distinctions to be drawn with other DPAs?
Under the DPA, ASL agreed to pay a total of £2,979,685.76, comprising (i) a financial penalty of £1,238,714.31; (ii) disgorgement of profits from the corrupt contracts of £990,971.45; and (iii) a contribution to the SFO’s costs of £750,000.
In addition, ASL agreed to fully cooperate with the SFO and any other domestic or foreign law enforcement agency and regulatory authorities, including retaining all material gathered during the course of both its internal investigation the SFO’s investigation.
An interesting feature of the ASL DPA, similar to the approach taken by the SFO in the context of the Standard Bank DPA, is that the Investigation into ASL was announced at the same time as the announcement that the DPA had been agreed in principle. Prior to this, and unlike most previous DPAs, no details were made available to the public as to the SFO’s Investigation into ASL, its scope, the individuals involved or the suspected offences.
Another area of obvious departure from previous DPAs is the lack of imposition of compliance related obligations upon ASL as a requirement of the DPA, due to the fact that the company is effectively dormant and is set to be wound up after the conclusion of the DPA on 30 October 2021.
Conversely, the main point of convergence between the ASL DPA and previous DPAs (such as, for example, the Airbus, Sarclad, and Rolls-Royce DPAs) is the weight given by the SFO, and ultimately, the courts, to the degree of cooperation by the company, including self-reporting, when considering whether a DPA is in the interests of justice. In her judgment, Mrs Justice May stressed the importance of corporations self-reporting and providing full cooperation to the SFO, and highlighted that “the core purpose of the creation of DPAs was to “incentivise” the exposure and self-report of corporate wrong-doing.” Indeed, it was ASL’s full cooperation that guaranteed the 50% discount applied to the financial penalty imposed. It is worth noting that the SFO and the courts appear to be staying true to this principle, given that in the case of G4S, a discount of lower than 50% was applied on the basis that they did not fully cooperate with the SFO.
The importance of cooperation was further corroborated by the SFO’s newly issued guidance on DPAs, which, coincidently, was published in late October, shortly after the ASL DPA was agreed in principle. This new guidance emphasises the role of corporate cooperation, including self-reporting, for the purposes of DPA negotiations.
How were the interests of justice requirements met?
The court concluded that, whilst there were aggravating factors weighing in favour of prosecution, namely ASL’s egregious offending which “took place over a sustained period of time, and was repeated over three separate agreements”, ASL’s conduct since uncovering evidence of wrongdoing, in particular a “timely self-report” and “full cooperation” with the SFO, was in line with the “core purpose” of the DPAs, and therefore, ought to be given due consideration.
Mrs Justice May further stated that the fact that (i) “the offences are firmly in the past in circumstances where there is no possibility of repeat”; and (ii) ASL’s “remaining corporate shell is being maintained…solely for the purposes of agreeing, and then discharging” the company’s obligations under the DPA, were additional factors to be taken into account when considering whether the ‘interests of justice’ test was met.
How does the way the judge approached the fairness, reasonableness and proportionality assessment shed further light on this aspect of the regime and how it should be approached in practice?
In assessing whether the terms of the DPA were fair, reasonable, and proportionate, in particular in relation to the financial penalty imposed, the court also took into consideration the dormant status of ASL, its thorough cooperation with the SFO, including the undertaking to continue to cooperate with ongoing investigations into individuals, and the fact that the offences were committed under previous management.
In conducting her assessment on the fairness, reasonableness and proportionality of the terms, Mrs Justice May struck a balance between the need to impose severe penalties to corporate offending which will “fulfil the objectives of punishment and deterrence”, and the “substantial incentive toward self-reporting and cooperation where offending is detected”, including the significant reduction in the penalty which would otherwise be imposed in full upon ASL.
Indeed, if the core purpose of a DPA is to incentivise the exposure, cooperation, and self-reporting of corporate wrongdoing, then, as Leveson LJ concluded in his judgment in the Sarclad DPA, the terms of a DPA must provide “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 company is only being operated as a shell for the time being pending it meeting its financial commitments under the DPA. Does this, or the cost of the DPA, come as a surprise, and what can companies and their advisors learn from it?
Certainly, one of the novel aspects of this DPA is the fact that it has been agreed with a non-trading entity which has agreed to remain in existence solely in order to fulfil the terms of the DPA. This undoubtedly represents a departure of the stance adopted by the CPS in the Skansen Interiors Limited case, in which, at the time of Skansen’s prosecution, it was widely suggested that the CPS did not consider it to be in the public interest to enter into a DPA with a dormant company with no assets to fulfil a potential DPA (although the CPS stated that the reason why it did not enter into a DPA with Skansen was because a successful conviction would “send a message” to other corporations about the importance of having adequate procedures in place). Skansen was charged and, ultimately, convicted of a section 7 offence but had no assets at the time of conviction, and therefore, received an unconditional discharge.
It may be, however, that in the case of ASL, the judge was persuaded by the fact that ASL’s main shareholder had agreed to maintain and support ASL for the purposes of discharging its obligations under the DPA. Indeed, similar approaches were taken in the cases of Sarclad, by its parent, Heico, which effectively stood behind Sarclad for the purposes of ensuring that it could discharge the financial penalties, and indeed in the Serco DPA, where Serco’s parent company, Serco Group Plc, provided extensive formal undertakings and accepted responsibility on behalf of its subsidiary, Serco Geografix Ltd, a dormant company.
In any event, the overall message of the ASL DPA (in conjunction with the SFO’s recently published guidance on DPAs which notes the overall effect of a DPA upon a company, including the financial terms) “should be considered in all cases but will be particularly relevant where the Company is able to demonstrate substantial financial hardship. Whether the imposition of financial terms has the effect of putting the Company out of business will be relevant” for corporations considering self-reporting, but which are currently affected by severe economic conditions imposed by the COVID-19 crisis.