UK’s second Deferred Prosecution Agreement


On Friday 8 July 2016, the second UK Deferred Prosecution Agreement (DPA) between the Serious Fraud Office (SFO) and a company anonymised as XYZ Limited (XYZ) was approved by the High Court. A redacted approved judgment was made available and the company has not been named, in all likelihood, because the individuals involved are being prosecuted and their later trial should not be prejudiced.  In conjunction with the first DPA for Standard Bank in 2015, this case gives essential guidance on the new DPA regime.

The importance and form of voluntary cooperation

The key themes of engagement and co-operation chime with the judgment in Standard Bank.  

Taking immediate action following the discovery of improper conduct again had considerable weight in gaining judicial approval for the DPA.  With XYZ a law firm was retained within a week after concerns came to light and the SFO was orally informed less than a month later that a self-report may be made by an “unidentified party”.  The SFO was not made aware of the identity of the company for another five weeks or so.  Similarly, with Standard Bank, a law firm was instructed within a week and the concerns were reported to the SFO within 30 days.  The XYZ case therefore suggests that there is an acknowledgement on the part of the SFO that a firm will need to have some handle on the matter before making itself and the issue known to the SFO. No adverse comment was made about the first anonymous “self-report” and may have some value. Equally a period of investigation of ten weeks from discovery may be considered an appropriate period before self-reporting.  The key is the effective use of whatever time is taken.

After the notifications to the SFO were made, both XYZ and Standard Bank agreed to conduct internal investigations with the direction of the SFO in order to report back to the SFO within a period of around three months.  The openness of the information provided thereafter was seen as fundamental to the DPA outcomes.  Both companies provided oral summaries of first accounts of interviews, facilitated interviews with current employees and provided timely and complete responses to requests for information and material, save for those subject to proper claims of legal professional privilege.   Further self-reports came out of the subsequent XYZ investigation phase. It is worth emphasising that the cooperation by XYZ was described as “exemplary”. No criticism was made of the company (nor indeed Standard Bank) in providing only oral summaries of first accounts rather than the first accounts themselves. Both companies were able to carry out their own initial internal investigation to understand the extent and facts of the wrongdoing without losing credit.

Parental responsibility

The financial penalties against XYZ include:

  1. disgorgement of gross profits of £6.2m; and
  2. a fine of £352,000.

£1.9m of the disgorgement will be contributed by the company’s US parent in repayment of dividends innocently received.  The judgment makes it plain that there is no obligation on an innocent parent company to support a subsidiary in the financial obligations involved in satisfying a DPA and it therefore seems that XYZ’s US parent has chosen to support XYZ for reputational reasons.  The precedent may create additional reputational pressure for parent companies finding themselves faced with a similar situation in the future.  In the words of the judgment, “a parent company receiving financial benefits arising from the unlawful conduct of a subsidiary (albeit unknown) must understand how this will be perceived.”  There may also have been good commercial reasons for the parent disgorging profit. Had the SFO not accepted lower fines for a DPA and prosecuted instead, the company would have been debarred from continuing to operate in the markets.

Mitigation and financial hardship

In the Standard Bank DPA, the gross profit was US$ 8.4m multiplied by 300% (the upper end of medium culpability) but reduced by a third due to the self-reporting and full cooperation with the SFO.  In XYZ’s case the court applied an uplift of 250% to the gross profit of £6.5m, arriving at £16.4m, but reduced it by 50% because it considered that XYZ’s admissions were made “far in advance of the first reasonable opportunity” to do so.  The court also justified such a discount “not least to encourage others how to conduct themselves when confronting criminality as XYZ has”.  One interpretation would be that the court was giving an additional discount (over the usual 30% for an early admission) for a DPA. There has been pressure to include a higher discount for DPAs than for an early plea of guilty in a prosecution and this may be behind the decision in this case.

The court further reduced XYZ’s fine to £352,000 because this was calculated to be the maximum amount that the company would be able to pay without risking insolvency.  For the same reason, costs were not awarded to the SFO whereas Standard Bank had to pay around £300,000 towards the SFO’s costs.   

In reaching the reduced fine the court found it “relevant (as a measure of the commitment to improve and the extent of co-operation) that XYZ (with the financial assistance of ABC by way of further loan) has spent some £3.8 million in fees arising from the responsible steps it has taken through its own investigation, self-reporting, co-operating with the SFO and completing what might be described as a thorough ‘self-cleansing’ process”.  For companies (and their parents) in this situation this is notable as it acknowledges the importance of committing to a proper response upon discovery of an issue.  The SFO’s DPA Code of Practice for Prosecutors explicitly recognises as public interest factors against prosecution: (1) a genuinely proactive approach adopted by the management team when the offending is brought to their notice, including taking remedial actions; and (2) the existence of a proactive corporate compliance programme at the time of reporting.  

First DPA for offences of substantive bribery

Both XYZ and Standard Bank were considered to have failed to have adequate procedures to prevent bribery under section 7 of the Bribery Act 2010.  The potential draft indictment against XYZ however also related to offences of conspiracy to corrupt and bribe (under the old and new legislation).   This was because the bribes were known to and authorised by senior executives who could be shown to represent the company’s controlling mind.  It was taken as a significant factor in the court’s approval of the DPA that since identifying the misconduct the senior employees involved in the conduct were dismissed, seven suspect agents were terminated and bids for two suspect potential contracts were withdrawn.  The court concluded that XYZ was a culturally different company to that which committed the offences.  

The SFO’s press release and final redacted judgment is available here.

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