Opinion
27 Aug 2019 04:49pm

Updates on SFO investigations

In July 2019, the UK’s Serious Fraud Office (SFO) publicised a 2016 Deferred Prosecution Agreement (DPA) it had entered into with Sarclad Ltd (Sarclad)

SFO sign
Caption: Details of the latest Deferred Prosecution Agreement and acquittal of senior officers

Sarclad is a UK-entity which designs and manufactures products for the metal industry. In the period June 2004 to June 2012, the company was involved in the systemic payment of bribes to secure contracts in foreign jurisdictions. Sarclad made a total gross profit of £6.5m on 28 contracts which were procured in this way. Sarclad self-reported in respect of a number of suspect transactions, leading to an investigation by the SFO.

Ultimately, Sarclad accepted the charges of corruption and failure to prevent bribery, and entered into a DPA. As part of which, it agreed to pay £6,210,085 disgorgement of gross profits and a £352,000 financial penalty. Sarclad was also obliged to cooperate with the SFO, to disclose all information about the illegal conduct, and review and report on its existing internal controls, policies and procedures in relation to anti-corruption laws every 12 months for the duration of the DPA. Sarclad adhered to the terms of the DPA, which has now concluded.

The SFO also sought to prosecute three individuals linked to Sarclad, however all three were acquitted of conspiracy to corrupt and conspiracy to bribe. On the one hand, this is perhaps surprising, as the company’s illegal conduct had been accepted, and Section 14 of the Bribery Act makes it an offence for a senior officer to have consented to that activity. It is perhaps interesting to note that such systemic illegality was deemed to have taken place without the awareness of senior officers. On the other hand, this is the fourth DPA without a successful prosecution of an individual, and so represents the continuation of a trend.

SFO publishes Corporate Co-operation Guidance

On 6 August 2019, shortly after details of the Sarclad DPA were published, the SFO issued its eagerly-awaited guidance on corporate cooperation (Guidance). The Guidance details the SFO’s expectations for those companies under investigation, and which are hoping to cooperate to avoid proceeding to trial. Much of the Guidance is common sense, reflecting in large part existing industry best-practice.

It is worth noting that, although the SFO is prepared to reward cooperation in the right circumstances, the Guidance states that a company must go “above and beyond what the law requires.” That said, even “full, robust co-operation” does not guarantee any particular outcome, and the Guidance makes clear that a company’s cooperation is simply “a relevant consideration in the SFO’s charging decisions.”

The “indicators of good practice” are set out into three categories, and include:

1. Preserving and providing material

a) Preserve both digital and hard copy relevant material using a method that prevents the risk of document destruction or damage

b) Obtain and provide material promptly, on a rolling basis, and in a useful, structured way

c) Provide records that show relevant money flows.

2. Witness Accounts and Waiving Privilege

a) The existence of a valid privilege claim must be properly established and certified by independent counsel.

3. Other

a) Even when an organisation is co-operating, it may be appropriate for the SFO to use powers of compulsion to obtain relevant material.

In addition, some elements will be of particular interest to companies to ensure they do not fall foul of the Guidance. This is particularly true for cross-border investigations, where regulators may have competing expectations.

For example, the SFO requires that organisations providing witness accounts should also provide any record, notes, and/or transcripts of the interview. In other jurisdictions (including the US), this material may be protected by privilege. The SFO is unlikely to place much weight on the privilege rules of other jurisdictions. So a company may be expected to waive privilege to obtain credit for cooperation. No such requirement exists under the US Department of Justice’s policy on corporate cooperation in government investigations.

Similarly, to avoid prejudice to an investigation, the Guidance requires a company to consult with the SFO before “interviewing potential witnesses or suspects, taking personnel/HR actions or taking other over steps.” A tension could therefore exist between early self-reporting to the SFO and conducting a factual enquiry sufficient to determine that there are grounds for doing so.

Ultimately, the Guidance is likely to prove helpful to companies before and during an SFO investigation. While the SFO doubtless welcomes cooperation whatever form that might take, it is clear that no one-size-fits-all approach applies, and companies will need to consider carefully how to maximise the benefit of any cooperation.

Michelle Linderman is a partner in the International Trade Group and Gordon McAllister is counsel at law firm Crowell & Moring

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