Serious Fraud Office
Alun Milford on Deferred Prosecution Agreements
Alun Milford, General Counsel, yesterday gave a speech at the Cambridge Symposium on Economic Crime 2017, Jesus College, Cambridge.
We are asked to consider today the question of old threats and new guises. At its heart, those threats are mankind’s capacity for dishonesty and corruption; the dark side of human nature. Over the centuries we’ve seen different responses to those threats, including, as Barry Rider informed us last year, the decision to close down the convent which once stood here because of the poor conduct of its nuns, which could properly be described as both dishonest and corrupt, and to replace it with this magnificent college.
Nowadays, things are different. Across the world we have developed systems of domestic law, courts to hear cases and public authorities to investigate and prosecute. These structures are underpinned by treaties, binding in international law, which both oblige States to provide mechanisms for the supply of mutual legal assistance and criminalise certain types of conduct, including corruption.
We are only in the seventeenth year of this century and so far in this jurisdiction we have seen radical reforms of our criminal laws on fraud, bribery and money laundering, and the adoption of sentencing guidelines to assist judges in dealing with those who break those criminal laws. Our confiscation regime has been overhauled and civil recovery has been introduced into our legal system as, in a few months’ time, will Unexplained Wealth Orders. We have seen the creation of a whole new basis for corporate criminal liability for bribery and for the facilitation of tax evasion. We also now have Deferred Prosecution Agreements (DPAs) as an option for dealing with certain co-operative and reformed corporate offenders. In the time available to me I thought I’d dwell on this particular response to the old threat, now in a modern, corporate guise.
Our DPA regime is based on the American model but differs significantly from it in the requirement for judicial confirmation that the entry into a DPA in the particular case is in the interests of justice and that the proposed agreement’s terms are fair, reasonable and proportionate. The court’s reasons for its decision must be published, subject always to a power to delay publication where it might affect a fair trial of individuals. We’ve now secured four DPAs and judgments have been published in three of them. What do they tell us?
First, this is no rubber stamp exercise. The court takes an active role in examining the agreement and, as is evident from the published rulings, scrutinises very carefully every aspect of the application for approval.
Secondly, whilst the first consideration will always be the seriousness of the offending the court is considering, cases in which the criminality was of the most serious kind remain in principle eligible for a disposal by way of DPA. We saw that in the Rolls-Royce case where the judge commented that his first reaction had been that if the company was not to be prosecuted “in the context of such egregious criminality over decades, involving countries around the world, making truly vast corrupt payments and, consequently, even greater profits then it is difficult to see that any company would be prosecuted.”
Thirdly, when considering the interests of justice two factors are critical: co-operation and reform.
From the Director down, we have been clear and consistent that only co-operative companies will ever be offered the opportunity of entering into a DPA with us. Since we have started exercising our powers under the Act, we have the court’s endorsement of that approach. In Standard Bank, the judge spoke of the considerable weight which must be attached to the fact that the bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter. It was given credit for telling us about something that might otherwise have remained unknown to us, and in doing so the judge made plain that the extent of credit depended on the totality of information provided to the prosecutor. Specifically, he added, the organisation must ensure in its provision of material as part of the self-report that it does not withhold material that would jeopardise an effective investigation and, where appropriate, prosecution of individuals involved. Co-operation involves identifying relevant witnesses, disclosing their accounts and the documents shown to them. Standard Bank had done all these things and its self-report had been full. On that basis the judge found that this self-reporting and co-operation militated very much in favour of finding that a DPA was likely to be in the interests of justice.
The theme was continued in XYZ. There, the judge found that the promptness of the self-report, the fully disclosed internal investigation and co-operation of the company was of particular importance in assessing the interests of justice. As he put it, “Openness must be rewarded and seen to be worthwhile.”
This brings me to Rolls-Royce. Famously – because some commentators have dwelt on this aspect of the case – the case did not come to us by the company, through its lawyers, picking the phone and arranging an appointment to tell us about a problem it had discovered of which we were entirely unaware. This has led to some commentary along the lines that the ground had shifted and it was now possible to get a DPA offer by doing nothing, waiting for a phone call from the SFO and then going through the motions. If that is what those commentators really think then they will have some explaining to do to their clients when the offers of DPA negotiations do not arrive.
Our view was that we should judge the company’s co-operation in the round. True, the absence of a self-report meant that it started at a disadvantage, but for a number of years thereafter it had provided us with a consistently high degree of co-operation, involving bringing to our attention wrong-doing we had hitherto been unaware of, including wrong-doing in bits of its business wholly unconnected to those business areas we had initially asked for the company for information about it. In approving that approach, the judge made clear that the fact that an investigation had not been triggered by a self-report would usually be highly relevant in the determination of the interests of justice test. He was only prepared to accede to our submission that this was not a case in which he should distinguish between this company and those who self-reported at the outset because what was reported was far more extensive and of a different order to what may have been exposed without the co-operation that the company provided.
Let me emphasise this point. This was not a case in which we had much information to start with. There was a lot therefore that we could, and did, learn from the company. Lawyers advising corporates should not expect to go down the DPA route if, by the time we come knocking, we already have a good idea of what happened. No amount of protestations of a desire to co-operate at that stage will make up the deficit. Nor will the deficit be made up by a Damascene conversion to the merits of cooperation as we approach a charging decision. To paraphrase the judge in XYZ, if we’ve had to investigate the case without the benefit of openness from the client, then the client has nothing to be rewarded for.
Another aspect of the decided DPA cases which has generated a lot of commentary was our decision in Standard Bank to accept summary witness accounts, as opposed to transcripts. The assumption was that summaries would always be good enough, to which we responded, more than once, that these things would fall to be determined on a case-by-case basis. Indeed in Rolls-Royce when we sat down with the company’s lawyers to discuss co-operation, we accepted an arrangement whereby we received interview memoranda for those interviews that had already been conducted but that, going forward, any interviews the company conducted would be audio recorded at our request. That is an expectation I can readily see us having in other cases too. It is not the case that summaries will always be good enough.
What then of reform? Put bluntly, we are not interested in offering a DPA to a company that we think is likely to re-offend, and I don’t think that the court would be either. Reform, including the removal of senior managers who are either implicated in or who should have been aware of the criminality the court is considering, has been a key element in all of the judgments it has handed down. It’s clear why it should be so. Deferred Prosecution Agreements are pragmatic devices aimed first at incentivising openness leading to the uncovering of financial crimes and secondly at allowing companies to account to a court for those crimes in a way that does not also punish its innocent employees, suppliers and the local community in which it operates. That second rationale only comes into play if the company can show us and the court that it will not create new victims of crime. That’s why, in XYZ, the fuller version of the judge’s comment on openness was, “…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 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.”
Latest News from
Serious Fraud Office
Tell-Tale Signs: Your Role in Preventing Money Laundering by Flagging it Up04/01/2018 15:10:00
Serious and organised crime costs the UK an estimated £24bn a year and money laundering not only allows criminals to hide the proceeds of their crimes, but helps fund further criminal activity.
‘Phoenix’ companies fraudster sentenced to additional three years14/12/2017 15:05:00
Christopher Woodhead, the creator of ‘phoenix’ companies used to steal more than £433,000 from customers, had his default prison sentence of three years activated by the court today for failure to pay a £428,089.16 confiscation order.
Two further individuals charged in SFO’s Unaoil investigation01/12/2017 16:05:00
Yesterday the Serious Fraud Office has charged two further individuals in relation to the Unaoil investigation.
Two charged in SFO’s Unaoil investigation17/11/2017 17:02:00
Yesterday the Serious Fraud Office charged two individuals in relation to the Unaoil investigation.
Guilty pleas in the United States arising from investigations into Rolls-Royce’s former Energy Division09/11/2017 09:15:00
Three ex-employees of Rolls-Royce’s former Energy division, James Finley, Keith Barnett and Louis Zuurhout, have pleaded guilty to bribery and corruption offences in the United States District Court for the Southern District of Ohio Eastern Division.