Serco fined £19.2M over electronic tagging scandal

On Thursday, the SFO will apply for final approval of the DPA before Justice William Davis at Southwark Crown Court. If approved, the DPA will result in a payment by SGL of £19.2 million (U.S. $24.2 million) and payment of the SFO’s costs (£3.7 million, or U.S. $4.7 million). Compensation to the Ministry of Justice (MoJ) has already been paid by Serco as part of a £70 million (U.S. $88 million) civil settlement in 2013.

As part of the settlement, Serco Group assumes certain obligations, including ongoing cooperation with the SFO and further strengthening of its group-wide ethics and compliance functions, as well as annual reporting on its group-wide assurance program. Separately, Serco has agreed the annual report will be provided to the Cabinet Office.

“In entering the DPA, SGL has taken responsibility for three offenses of fraud and two of false accounting arising from a scheme to dishonestly mislead the MoJ as to the true extent of the profits being made between 2010 and 2013 by SGL’s parent company, Serco Limited (SL), from its contract for the provision of electronic monitoring services,” the SFO said. “The scheme was designed to prevent the MoJ from obtaining information to which it was entitled and from using this to decrease SL’s revenues under that contract.”

The SFO said it has agreed in principle to this resolution based on several factors, including SGL’s prompt and voluntary self-disclosure of the conduct giving rise to the above charges, its substantial cooperation with the SFO’s investigation, and its significant remedial efforts, achieved through company-wide efforts undertaken by Serco Group.

Such remedial efforts include:

• Prompt and complete disgorgement and compensation paid to the MoJ;
• Implementation of a multi-year, group-wide corporate renewal program;
• A complete change of senior management; and
• The agreement of Serco Group, despite not being a party to the DPA, to guarantee SGL’s performance of its obligations under the DPA and to commit to substantial cooperation, self-reporting, and compliance-related obligations of its own.

As part of its group-wide corporate renewal program, Serco said the program “included over 80 actions and initiatives and included rewriting our system of management control, as well as strengthening our bidding, contract management, internal audit and management assurance processes.”

Serco reported the matters that are the subject of the DPA to the SFO in late November 2013. This followed the launch in October 2013 of an investigation into Serco and its employees concerning the electronic monitoring contract, which initially focused on the question of whether SL had improperly invoiced and been paid by the MoJ for electronically monitoring subjects where no actual monitoring of those subjects had taken place. These matters are not the subject of the DPA, and no criminal charges are to be brought against Serco based upon them.

“SGL engaged in a concerted effort to lie to the Ministry of Justice in order to profit unlawfully at the expense of U.K. taxpayers,” SFO Director Lisa Osofsky said. “The SFO will pursue those who engage in this sort of criminal conduct so that they are held to account.”

DPA details

The prospective DPA concerns only the potential criminal liability of SGL. It does not address whether any liability of any sort attaches to any current or former employee or agent of SGL, SL, or Serco Group. The investigation into individuals concerning SL’s electronic monitoring contract continues.

If the DPA is approved, SGL would be credited for payments made pursuant to Serco Limited’s 2013 settlement agreement with the MoJ, which fully offset the compensation (£12.8 million, or U.S. $16.2 million) SGL otherwise would be obligated to pay. This payment also represents disgorgement of Serco’s profits.

The term of the DPA is three years, during which time SGL agrees to:

• Fully cooperate with the SFO and any other law enforcement and regulatory authorities and agencies;
• Promptly report any evidence or allegation of serious or complex fraud by itself, its parent entities or affiliates, or its officers, directors, employees, or agents that would satisfy the SFO’s criteria for case acceptance; and
• Enhance and report annually on the effectiveness of its ethics and compliance program.

The DPA will be accompanied by an undertaking by SGL’s ultimate parent entity, Serco Group, to both guarantee SGL’s performance of its obligations under the DPA and to engage at a group-wide level for the term of the DPA in cooperation, self-reporting, and ethics and compliance program enhancements of a type largely identical to those agreed to by SGL.

“Those of us who now run the business are mortified, embarrassed, and angry that, in a period between six and nine years ago, Serco understated the level of profitability of its electronic monitoring contract in its reports to the Ministry of Justice,” said Serco Group Chief Executive Rupert Soames in a statement. “Serco apologized unreservedly at the time, and we do so again. Nobody who sat on the board of Serco Group, or who was part of the executive management team at the time these offenses were committed, works for the group today.”

“Over the last six years we have worked extremely hard to regain the trust and confidence of government, implementing in its entirety a Corporate Renewal Program, which was approved by government and which has helped us to transform our corporate culture, processes, and governance,” Soames added. “The management and culture of Serco, and the transparency with which we conduct our affairs, have changed beyond all recognition, and we are pleased that this has been acknowledged by both the SFO and by the government.”