Several officials with the U.K. government in remarks last week provided compliance officers and in-house counsel with a wealth of information on what new enforcement and regulatory priorities are on the horizon, and how companies can stay on the right side of prosecutors.
At the 35th Cambridge Symposium on Economic Crime, held from September 3rd through September 10th at Jesus College, Cambridge, United Kingdom, British government officials provided a wealth of insight to compliance officers and in-house counsel on what new enforcement and regulatory priorities are on the horizon, and how companies can stay on the right side of prosecutors.
A main theme to come from the Symposium is that “the investigation and prosecution of commercial bribery, corporate fraud, and misconduct should and will remain a priority for U.K. law enforcement,” said David Green, director of the U.K. Serious Fraud Office, said in prepared remarks.
Government officials who spoke at the symposium touted the significant prosecutions realized by both the Crown Prosecution Service (CPS) and the SFO resulting from economic crime. Over the past financial year, the SFO opened 14 new investigations, 12 involving bribery and two involving fraud, Green said.
The agency further brought charges against 25 companies and convicted 17 defendants in seven cases, a conviction rate of 89%. Examples of such cases include Airbus, Ethical Forestry Limited, Rio Tinto, in addition to Petrofac, Kellogg Brown & Root, and ABB as spin offs from Unaoil.
“An SFO case is not easily defined by reference to value, context, or location—but you know it when you see it,” Green said. He cited as examples LIBOR, Rolls-Royce, Tesco, Barclays, GSK, Airbus, BAT, Unaoil, and Petrofac.
“An SFO case is not easily defined by reference to value, context, or location—but you know it when you see it.”
David Green, Director, Serious Fraud Office
Green said many of these bribery cases share common characteristics, including:
Complexity (factual, technical, and legal);
Volume of data (Rolls-Royce involved 30 million documents);
Well-resourced suspects (corporate or human);
Cooperation or otherwise from those suspects; and
An international, sometimes global scale.
Additionally, another 43 defendants—both individuals and companies—currently face charges and await trial. These include four former executives of Barclays charged in the capital-raising case over the bank’s dealings with Qatar; three executives of retail chain Tesco charged in an accounting scandal; defendants in the Euro Interbank Offered Rate (EURIBOR) case; David Ames of the Harlequin Group; and five individuals in the Solar Energy Savings case.
The symposium also heard from Robert Buckland, the Solicitor General for England and Wales and a member of Parliament, who said the CPS Specialist Fraud Division prosecuted 6,283 cases and secured 5,452 convictions in 2016-2017. Of these convictions, 5,082 resulted from guilty pleas, which Buckland said “reflect[s] the quality of the cases that we are bringing to prosecution.”
Buckland added that the CPS is “dealing with new challenges due to significant changes in its case profile.” Fraud and forgery cases have increased 31 percent, from 14,177 in 2011 to 18,684 through 2016, “much of which involves digital technology,” he said.
Deferred prosecution agreements. SFO General Counsel Alun Milford, who also spoke at the symposium, gifted compliance officers and in-house counsel with some rare insight into when the SFO will, and will not, consider a DPA.
“This is no rubber-stamp exercise,” Milford said. “The court takes an active role in examining the agreement and, as is evident from the published rulings, scrutinizes very carefully every aspect of the application for approval.”
In the interest of justice, two factors are critical: cooperation and reform. Only cooperative companies will be offered the opportunity to strike a DPA with the SFO, Milford said. He cited the DPA with Standard Bank as an example.
In the Standard Bank case, the judge attached considerable weight to the fact that Standard Bank “immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter,” Milford said. “It was given credit for telling us about something that might otherwise have remained unknown to us. In doing so, the judge made plain that the extent of credit depended on the totality of information provided to the prosecutor.”
MILFORD ON DPAS
Below is an excerpt from Alun Milford’s speech on DPAs.
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.”
When providing a self-report, the company must ensure not to withhold material information “that would jeopardize an effective investigation and, where appropriate, prosecution of individuals involved,” Milford explained. “Cooperation involves identifying relevant witnesses, disclosing their accounts and the documents shown to them.” Standard Bank is an example to follow, because it had done all of this.
In comparison, the global bribery case into British engineering company Rolls-Royce is an example of a case in which the SFO had very little information upon which to start, because Rolls-Royce did not self-report the misconduct.
In January, Rolls-Royce reached an $800 million global resolution with U.S., U.K., and Brazilian authorities into a long-running scheme to bribe government officials in exchange for government contracts. The U.K. portion of the resolution amounted to over half a billion pounds and represents the highest ever enforcement action against a company in the United Kingdom for criminal conduct.
Rolls-Royce was “the largest single case ever taken on by the SFO, involving some 70 SFO staff and 30 million documents,” Buckland said. “The conduct spans three decades and took place across seven jurisdictions.”
In considering a DPA with Rolls-Royce, however, prosecutors took into consideration the company’s cooperation in totality. “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 cooperation,” Milford said.
Such cooperation included bringing to the SFO’s attention wrongdoing not already on the agency’s radar, “including wrongdoing in bits of its business wholly unconnected to those business areas we had initially asked for the company for information about it,” Milford added. Rolls-Royce’s level of cooperation was such that the company ultimately obtained a 50 percent discount.
Other companies should not simply expect to be so lucky. Defense counsel should not take the route of a DPA if, “by the time we come knocking, we already have a good idea of what happened,” Milford warned. “No amount of protestations of a desire to cooperate at that stage will make up the deficit.”
Nor will the SFO offer a DPA to a company that it believes will re-offend, Milford said. Mitigation efforts, including the termination of culpable senior managers, is a key element in all SFO judgments.
Another potential landmine for defense counsel was brought to bear in the Standard Bank case. In that case, the SFO’s decision to accept summary witness accounts, as opposed to transcripts, generated a lot of commentary; many people wrongly assumed that summaries would always suffice. In his remarks, Milford reiterated that these matters would be determined on a case-by-case basis.
“Indeed, in Rolls-Royce, when we sat down with the company’s lawyers to discuss cooperation, 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,” Milford explained. “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.”
More DPAs in the United Kingdom are expected now that Section 7 of the U.K. Bribery Act, which imposes strict liability on a company for failure to prevent bribery, has started to bear fruit. “We can see the teeth of this offense,” Buckland said.
Of the four DPAs obtained by the SFO, to date, three have included “failure to prevent” offenses on their indictment, as well as one guilty plea in the case of Sweett Group. Implementation of the “failure to prevent” offense “has also prompted companies to review their compliance systems and cooperate even more with law enforcement,” Buckland added.
Regulatory efforts. On the regulatory front, the U.K. government has completed its call for evidence on corporate criminal liability as part of its consideration as to whether it should further extend ‘failure to prevent’ beyond bribery to other economic crime—such as money laundering, false accounting, and fraud. “We are now considering the evidence submitted as part of that call for evidence,” Buckland said.
Under current law, to secure a criminal conviction against a company for a serious offense, prosecutors must prove that the individual who actively participated in the wrongdoing was senior enough within the company to be considered the “directing mind and will”—a legal theory also known as the “identification doctrine.”
In his remarks, Buckland said that the identification doctrine has “made it difficult to attribute criminal liability to large corporations where one cannot demonstrate the ‘controlling mind’ of the individuals involved. This has meant that it has not always been possible to bring corporate bodies to justice for the criminal acts of those who act on their behalf and for their benefit.”
“The threat of conviction is greater under ‘failure to prevent,’” Buckland added. Companies might be more likely to not only enter into a DPA, but more importantly take the actions necessary to prevent such misconduct in the first place, he said.
Furthermore, the Criminal Finances Bill, which received Royal Assent in April, means that companies now face the risk of an unlimited fine and a criminal conviction if any employee or “associated person” working on the company’s behalf facilitates tax evasion. “The introduction of the Criminal Finances Act, once fully implemented, will present additional opportunities to significantly improve our response to economic crime,” Buckland said.
Despite progress made on the enforcement and regulatory landscape over the past few months, the SFO and U.K. government have much more work to get done. “It is only through a joined-up, coordinated response based on cooperation between criminal justice partners and the private sector, across the U.K. and internationally, that we can ensure that we tackle economic crime at all levels,” Buckland concluded.