The UK’s Serious Fraud Office has an unenviable task: tackling fraud and money laundering and related activities, in all their various forms.
Whilst attempting to tackle these white collar crimes, the Serious Fraud Office (SFO) has come under great criticism for recent failed cases, and its own activities. The cessation of a case against a firm accused of bribery for a fine in excess of £6m once again brought the Office under unfavorable scrutiny.
In details released to the media, the UK subsidiary of an (unnamed) US company recently agreed to pay in excess of £6m for bribery and corruption offences. This is the second deferred prosecution agreement (DPA) that the much criticised SFO has arrived at with a company under investigation for fraud related offences. The deal struck between the unnamed company (identified due to ongoing legal proceedings only as ‘a UK SME’) and the SFO was formally approved in a court hearing by Lord Justice Leveson.
The charges against the company include alleged conspiracy to corrupt – contrary to Section 1 of the Criminal Law Act (1977) – conspiracy to bribe – also contrary to Section 1 of the same Act – and failure to prevent bribery – contrary to Section 7 of the Bribery Act (2010). These and other charges are all in connection with contracts to supply products to customers in a several overseas countries.
Further details released of the case and the DPA indicate that allegedly the company’s employees and agents were involved in systematically offering (or paying) bribes to secure contracts overseas. These offences happened between 2004 and 2012. In 2011, the parent company started a global program of compliance and similar checks; that is when the alleged fraud first came out into the open, with questions raised over how some foreign contracts were obtained. With concerns raised internally, a law firm was hired by the SME to conduct an independent internal investigation. In turn, the law firm passed the results of its findings to the SFO, which began a two year investigation into the alleged activities of the UK company in February 2013. When sufficient evidence had been gathered, the SME was taken to court by the SFO on fraud charges.
In line with the DPA earlier this year, legal proceedings concerning the alleged offences wereimmediately suspended. In return, the the company will pay financial orders of £6,553,085. This includes a £6,201,085 payment of gross profits, and a financial penalty of £352,000. Of the main payment, £1,953,085 will be paid by the US registered parent company, as a reflection of the dividends received by them from the UK subsidiary.
What helped in the negotiations towards the settlement was the fact that the company had effectively self – reported the misconduct, and investigated the alleged fraud itself, involving an external party and the relevant authorities at an early stage.
Indeed, following the settlement being formally approved in Southwark Crown Court, Lord Justice Leveson said of the settlement that ‘[this conclusion] provides 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.’
SFO Director David Green attempted to silence critics of the deal by saying of the case that it said ‘raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation.’
The SFO has been greatly criticised in recent years, after a string of high profile fraud cases that either resulted in no prosecutions, or cases that revealed glaring errors or issues with the SFO. Fraud and money laundering are never easy cases to prosecute; such cases are inherently complicated, and regularly involve money changing hands globally, shell companies, and more often a degree of legality and legitimacy. The relevant laws and regulations do not make things easy for the British authorities, with unclear definitions of various offences, and a lot of latitude in how various laws can be interpreted. Further, communication between the various government investigative agencies is rarely effective; the sand can be said of communication between the financial and legal sectors involving suspected fraud.
Although that issue of communication is being addressed (with some success), the fact remains that fraud by its very nature is a hard area to prosecute successfully. As such, quite often an agreement similar to a deferred prosecution agreement can be the only way to see justice done. Instead of risking a lengthy and expensive trial, which could very well result in no convictions, it could be argued that a DPA does see justice done, in that the alleged perpetrators of fraud and money laundering in effect admit to their guilt. Although there are no jail terms or stiff fines handed down, a fine is handed down, and a degree of guilt is reached at.
Admittedly, though, there are many who would see such agreements as a miscarriage of justice. The case is dropped, the charges dropped, and the party at fault walks away free, and with only a fine to pay in reparation for their wrongdoing. Morally and ethically, such agreements remain questionable.
Although not ideal – a DPA or similar does make the fraudsters suffer, and sees them make at least some reparation for their crimes. The question is though, whether it is better to see justice done with a trial that could result in no prosecutions – or whether such a deal and indirect acknowledgment of guilt is better for justice.￼
This case and settlement with the unnamed UK based US subsidiary company is the second of its kind. Whatever the morals and merits of such agreements – rest assured it will not be the last. With the Serious Fraud Office under increased pressure and scrutiny to tackle and successfully prosecute fraud and money laundering in all its various guises – DPA’s are a welcome method the Office can use to resolve complex and uncertain fraud cases.
The final word goes to Christopher David, legal counsel in WilmerHale’s white collar crime team. Commenting on the case, he said of the judgement that it ‘may well give comfort to lawyers and companies that the DPA regime is going to provide a meaningful alternative to a guilty plea in cases of corporate misconduct – not least because the penalty has been carefully designed to remove the benefit of the criminality but not force the company into insolvency.’ Further, Mr David noted that the case‘does… reinforce the SFO’s stated view that companies that self-report and provide full co-operation will be see this co-operation recognised by a favourable resolution’.