Dealing with a tougher enforcement approach at the SFO

A confession to make

fraud handcuffs

Dealing with a tougher enforcement approach at the SFO

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Dealing with a tougher enforcement approach at the SFO

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The question of how to respond to a discovery of wrongdoing – such as the news that there may have been corruption somewhere in the business – has become more complicated for UK companies, following recent changes at the Serious Fraud Office (SFO). A perceived shift in the SFO’s attitude towards a more prosecution-oriented approach is resulting in increased uncertainty and confusion among corporates as to the outcome of any self-report of misconduct. There has been little public evidence so far that self-reporting results in a better deal for the company, so should they self-report or not?

During Richard Alderman’s tenure as director of the SFO, from 2008 until April 2012, while the decision may still not have been an easy one, there was at least a consistent message from the SFO: if you self-report we will go easy on you. Alderman broadcast this message at every opportunity – to industry, to lawyers and to the media. Not everyone thought this approach was right or represented good justice; not everyone believed him; but everyone understood the message.

Alongside Alderman’s roadshow, other indicators were consistent with this message. Observers of the SFO sensed a conflation of events that would lead to a sea-change in the approach and attitude to corporate criminal liability in the UK.

Edward Garnier, the Solicitor General until he was reshuffled out in September 2012, engaged on a parallel roadshow around the City in which he spelt out his vision for Deferred Prosecution Agreements (DPAs), originally a US legal construct (about which more below) designed for precisely those companies that had heeded Alderman’s call to self-report.

Within the same period, the Bribery Act 2009 came into force (in July 2011), creating a much greater prospect of more companies being prosecuted for criminal offences relating to bribery. Section 7 of the Act creates an offence which a company may commit if an act of bribery takes place of which the company is a beneficiary and it did not have in place adequate procedures to prevent such conduct.

Finally, the recession and squeeze on public spending, which resulted in a reduction of more than a third in the SFO’s budget, created a very practical reason why the future could not follow the pattern of the past: the SFO simply did not have the resources to carry out lengthy investigations and prosecutions as it had before.

The cases from this period appeared to confirm that the approach was working. Between 2008 and 2012 four companies in separate cases were prosecuted and pleaded guilty to a range of offences receiving fines ranging from £500,000 to $12.7 million (although all of these cases related to investigations started in the pre-Alderman era). Perhaps more significantly, a number of civil settlements (agreements between the SFO and a company that result in sanction but fall short of prosecution) were agreed between the SFO and various companies, resulting in civil recoveries of over £30 million. In every case there was either self-reporting or a high degree of co-operation by the company concerned and in every case where there was a civil settlement, the SFO made reference to this as being a factor relevant to the decision to dispose of the case by this route.

There were other factors as well: the SFO whistleblowing line was set up in 2011 (and received 350 calls in its first full quarter of operation), and many companies discovering evidence of corporate criminal wrongdoing made the decision to self-report to the SFO. In all, over the four-year period during which Alderman was director, around 20 companies self-reported.

And then there was David Green.

Director of the SFO since April 2012, Green has been clear in his assessment of the Alderman era. He recently told the Parliamentary Justice Committee: “I think there was historically a perception that the SFO was more willing to do a deal than to prosecute…What I have done is restate the purpose of the SFO, I think it got a bit blurred over time.” He has been critical of many aspects of the organisation that he inherited and clear in his focus for the future. “I would like the SFO to have a hard-edged, tough reputation. It should be something that is feared,” he said in a recent interview.

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