Risk & Economy » Fraud » SFO: friend or foe?

Last week’s announcement by the UK Serious Fraud Office (SFO) that it will shortly publish further guidance to clarify its rules on self-reporting of fraud and corruption offences will doubtless have come as welcome news in many corporate boardrooms and the offices of their legal advisors, given the present level of uncertainty as to what a company can hope to achieve if it chooses to self-report.

The ultimate aim of avoiding a full-blown criminal prosecution and agreeing instead to what is known as a “deferred prosecution agreement” (DPA), involving payment of a fine, disgorgement of profits and ongoing monitoring to prevent future transgressions.

It can be an attractive one for companies accused of criminal wrongdoing, but the messages coming from the SFO as to what a company has to do in order to qualify for a DPA have been mixed in recent years and there has been a marked difference in attitude under each of the SFO’s last three directors.

The era of Richard Alderman was marked by an inclusive approach to self-reporting, whereby the SFO was very keen to encourage early dialogue and companies were effectively promised leniency if they cooperated and relieved the SFO of a long and costly criminal investigation.

In contrast, the appointment of Sir David Green QC in 2012 heralded a more prosecutorial mind-set, with companies being told that nothing short of offering full scrutiny of all of their activities, alongside a full waiver of legal privilege, would suffice.

Nuanced approach

The current director, Lisa Osofsky (a former US prosecutor with the Department of Justice and FBI, who has brought her experience of implementing US-style DPAs to the role), has opted for a more nuanced approach, having gradually moved away from the tough rhetoric that characterised the tenure of her predecessor.

At the same she is continuing to emphasise that the SFO will not tolerate companies hiding behind the cloak of legal privilege in order to avoid proper scrutiny of their wrongdoing.

The SFO’s track record since the introduction of DPAs in the UK in 2014 has been a mixed bag, with some DPAs (such as those entered into with Tesco and Rolls-Royce) receiving negative publicity after the SFO failed to convict (in the case of Tesco).

In some cases it decided not to prosecute at all (in the case of Rolls-Royce) the individuals who supposedly engaged in the fraudulent and/or corrupt activities, despite DPAs having been granted to both companies.

The current state of English law on corporate criminal liability, which means that a prosecutor must prove that a sufficiently senior executive was aware of the criminal activity in order to secure a conviction of the company itself.

Recent decisions of the English courts (such as that of the Court of Appeal in the well-publicised ENRC case) that strengthen legal privilege in the context of internal investigations at the SFO’s expense, is such that DPAs continue to be an attractive tool for the SFO.

The fundamental question is how attractive they are to companies, and what the price-tag might be in terms of very public scrutiny and damage to corporate reputations. Whether DPAs will continue to be used more widely in the UK, therefore, will partly depend on companies having a clear understanding of what benefits they stand to receive if they agree to hand over the keys to the SFO after they self-report and on the SFO securing convictions against those companies (and the individuals within those companies) who fail to disclose fraudulent and corrupt activities at an early stage.