Since taking the reins, Serious Fraud Office director Nick Ephgrave’s to-do list has included: adopting new technologies; speeding up investigations; implementing disclosure improvements; and pushing for financial incentives for whistleblowers that go beyond the limited schemes introduced by the Competition and Markets Authority and HM Revenue & Customs.
While the US Department of Justice (DOJ) seems to be in reverse gear following the re-election of Donald Trump, the SFO has been keen to promote its new anti-corruption taskforce (alongside prosecutors in France and Switzerland), and three international bribery investigations in the last six months. The SFO recognises that it needs to improve its perceived credibility and become a more effective law enforcement agency, especially in light of past failures, government pressure and the opportunities offered by recent reforms to the corporate criminal liability regime, including the expanded identification doctrine and the new failure to prevent fraud offence.
The new SFO Corporate Guidance will, the agency hopes, help with all of the above in increasing self-reports and settlements.
The guidance offers an expectation to be invited ‘to negotiate’ a deferred prosecution agreement (DPA) rather than face prosecution (unless in exceptional circumstances), where the corporate suspects wrongdoing and cooperates fully with investigators. It is an invitation to negotiate which, if it results in an agreed DPA, would then require (some would argue) the formality of being ‘rubber-stamped’ by the court.
The guidance is carefully drafted. No guarantees are given. Hints that the ‘stick’ of significant punishment will hit those who do not self-report and/or cooperate are woven between helpful and pragmatic ‘considerations’. For example, the guidance accepts that a corporate will likely want to carry out enquiries before reporting to the SFO and that it will not prohibit corporates from conducting their own interviews without reference to and the offering up of those witnesses to be interviewed first by the SFO. From our experience, corporates have become much better at conducting initial interviews, potentially as a result of the improvements made by internal compliance teams following the introduction of the UK Bribery Act and subsequent legislation. The SFO now seems more prepared not to insist on having the first opportunity to interview witnesses. This should give corporates some comfort that any initial engagement with the ‘suspects’ and witnesses will not prejudice their ability ‘to negotiate’ with the SFO.
Further, the guidance reiterates that the SFO accepts that the principle of legal professional privilege can be preserved – although the clear message is that it would be beneficial for privilege to be waived.
The overarching aim is to incentivise early self-reporting of corporate misconduct. However, although there is greater clarity, this still leaves grey areas that will trouble in-house lawyers and external counsel.
One example is what constitutes ‘prompt’ reporting. The SFO notes that organisations should report ‘soon after learning’ of direct evidence of misconduct, and before an internal investigation is ‘fully complete’. But when is ‘soon after learning’? And when does the balance tip in favour of self-reporting to the SFO?
When launching the guidance, Ephgrave suggested that corporates should stop their internal investigation and report as soon as they have a ‘reasonable suspicion’ of wrongdoing. Is this when the suspicion becomes ‘more than merely fanciful’, as applies in respect of proceeds of crime and money laundering? Advising whether the tipping point to self-report has been reached will probably still be one of the hardest pieces of advice to give.
What the guidance does not set out is the specific financial and non-financial advantages of a negotiated DPA. Past performance may be indicative of the approach the SFO may take to DPA negotiations, but this does not give the comfort that many directors would desire in assessing the risk of self-reporting. The US system remains more transparent about the financial incentives available and draws a sharper distinction between self-reporting and cooperation.
On 12 May, the DOJ unveiled its new plan for white-collar crime and corporate enforcement. This includes a more clearly defined path to seeking a declination (a decision by the DOJ not to prosecute a company for criminal conduct, despite evidence of wrongdoing). However, corporates that do not meet all of the requirements for a declination have more certainty about the form of resolution they will face. Specifically, companies that self-report misconduct in good faith, cooperate, and remediate, but do not meet all of the voluntary self-disclosure requirements will generally receive a non-prosecution agreement with a term of fewer than three years, no independent compliance monitor, and a penalty reduction of 75% off the low end of the US Sentencing Guidelines fine range. The same is true where aggravating factors preclude a declination but the company has voluntarily self-disclosed, cooperated and remediated. There is no such clarity in the SFO guidance.
While some of the guidance seems like a rehash of previous statements and guidance, following a recent reduction in the number of completed DPAs it was important for the SFO to do something which might encourage corporates to have faith in self-reporting and potentially enter into a DPA.
Whether the guidance will provide such a kickstart is doubtful, but Ephgrave and the agency are to be credited for a step in the right direction.
Ian Hargreaves is a partner at Quillon Law LLP, London
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