Two Deferred Prosecution Agreements and a third wheel

16 Aug 2019

The lifting of reporting restrictions that once shrouded the ‘XYZ’ (now known to be Sarclad Limited (Sarclad)) Deferred Prosecution Agreement (DPA), and that which Serco Geografix Limited (SGL) recently entered into, have provided insight into the pragmatism a court will adopt when considering whether the terms of a DPA are fair, reasonable, and proportionate.

That said, the Sarclad DPA raises further uncomfortable home truths about the manner in which the 2018 Skansen case (R v Skansen Interiors Limited (unreported)) was investigated by the police, and subsequently prosecuted by the Crown Prosecution Service (CPS).

Sarclad

In entering into a DPA with the SFO in 2016, Sarclad accepted that between June 2004 and June 2012 it failed to prevent systematic bribery, which lead to contracts totalling over £17m being secured. As a result, Sarclad agreed to pay a £6.5m financial penalty, which comprised of £6.2m in disgorgement of gross profits, and a £352,000 financial penalty. Of interest, and reminiscent of the approach taken in the Mabey Engineering (Holdings) Limited case in January 2012, Sarclad’s US parent company paid £1.9m as repayment of a significant proportion of dividends that it received from Sarclad over the relevant period.

Other non-financial terms required Sarclad to fully cooperate with the SFO, and to provide a report to the SFO detailing all third party intermediary transactions. Sarclad was also to report to the SFO addressing the completion and effectiveness of its existing ABC controls every twelve months for the duration of the DPA (which have now been met).

SGL

SGL’s DPA was only the second non-bribery related DPA, and concerned three offences under the Fraud Act 2006, and two offences under the Theft Act 1968 (false accounting) arising from a scheme to mislead the Ministry of Justice as to the true extent of the profits being made between 2010 and 2013 by SGL’s parent company, Serco Limited, from its contract for the provision of electronic monitoring services.

Under the terms of the three year DPA, SGL is to pay a financial penalty of £19.2m, and the SFO’s costs of £3.7m. There was no disgorgement of benefits, or payment of compensation to the Ministry of Justice – that being addressed in a civil settlement between the parties in 2013.

The non-financial DPA terms dictate that SGL (i) fully cooperates with the SFO, and other foreign and domestic law enforcement and regulatory authorities; (ii) makes improvements to its ethics and compliance policies and procedures; and (iii) enhance and report annually on the effectiveness of its ethics and compliance programme.

A “key component” and an “important development in the use of DPAs” (per Mr Justice Davis) of the SGL DPA came with undertakings, and obligations that were accepted by Serco Group PLC (Serco Group), which were reached because of SGL’s dormant status (the company having no assets or the ability to effect any meaningful compliance changed). This was the first such undertaking called for in a DPA.

Such was the importance of Serco Group’s involvement, that Mr Justice Davis noted that it “[strengthened] the public interest in the approval of [the] DPA”. The real effect of this novel approach is that Serco Group will take responsibility for the payment of the financial penalty awarded under the DPA.

The third wheel

If we rewind back to just over a year ago, in March 2018, Southwark Crown Court heard the UK’s first contested prosecution under section 7 of the Bribery Act 2010, with the defendant raising the adequate procedures defence – another first for the UK.

Skansen Interiors Limited (Skansen) faced now proven allegations that it failed to prevent an associated person from bribing on its behalf. The result of the prosecution was a hollow victory for the CPS, with Skansen being sentenced to an absolute discharge. No award for costs, compensation or confiscation was made against what was, and remains, a dormant company.

Prior to Skansen being charged, and following the DPA Code of Practice almost to the letter, Skansen self-reported the wrongdoing, which its new CEO uncovered soon after his taking up that position. The self-report came as a result of an internal investigation, which lead to Skansen dismissing the director who sanctioned the bribe (and who was subsequently charged with bribery – later receiving a custodial sentence), and effectively becoming a different entity to what it was at the time of the offending. There was no prior offending by Skansen, which would have outweighed the public interest factors in offering a DPA. The offending was reported to the City of London Police via the Action Fraud portal.

What resulted was a concerted effort by Skansen to right previous wrongs, and importantly, to fully cooperate with the police’s investigation. During that course, and what many may call extraordinary cooperation, privileged and non-privileged documents were disclosed to the police to assist them in their investigation. However, that did not prevent the company from being charged.

Attempts to discuss the possibility of a DPA with the CPS were met with short shrift (despite an assurance being provided  by the CPS at court that an invite would be forthcoming), with the CPS focussing on Skansen’s dormant status, and the fact that the public interest test in negotiating a DPA would not be satisfied because of this fact. In addition, the CPS seemed overly focussed on the fact that prosecuting Skansen would send a “message” to others in the industry – an aim that would have been achieved through the prosecution of the individuals.

Arguments that were raised in response that Skansen’s parent company could enter into non-financial DPA terms, which would result in the parent company overseeing a compliance programme (as now seen with SGL’s DPA), were also rebuffed, without explanation. The CPS was directed to the fact that the DPA regime, at that stage (and even now) was a fluid one, such that, as seen with SGL, ‘thinking outside of the box’ would not have been an insurmountable feat.

The approach taken in the Skansen case, when compared with the previous four DPAs (as the position was at the time of Skansen’s matter) was not lost on the House of Lords in its recent post-legislative scrutiny of the Bribery Act. Comment was passed that “the suspicion lingers that [Skansen] was perhaps not fairly treated by the CPS.

Whether the CPS has learnt lessons from Skansen remains to be seen, but what is clear, is that the SFO appears to be more in tune with commercial pragmatism, and more willing to innovate when circumstances are not only right, but the public interest dictates it.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Iskander Fernandez

Iskander Fernandez

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