SFO suffers further blow as Sarclad Ltd DPA revealed
On 16 July 2019, Michael Sorby, Adrian Leek, and David Justice, three former executives of Sarclad Ltd (“Sarclad”), were acquitted of conspiracy to corrupt and conspiracy to bribe by a jury at Southwark Crown Court. The Serious Fraud Office (the “SFO”) had alleged that the three men were guilty of conspiring with various agents to agree bribes relating to 27 overseas contracts for Sarclad.
Following the acquittal and the removal of reporting restrictions, the SFO revealed on 16 July 2019 that a Deferred Prosecution Agreement (“DPA”) had previously been agreed with Sarclad in July 2016 which had otherwise been referred to as a DPA with “XYZ Ltd”.
The Sarclad DPA
The Sarclad DPA related to the use of bribes to secure Sarclad contracts between June 2004 and June 2012. The contracts that were the subject of the DPA had a total value of over £17m. Sarclad accepted the charges of corruption and failure to prevent bribery, and, under the terms of the DPA, agreed to pay financial orders of £6,553,085, comprised of a £6,201,085 disgorgement of gross profits and a £352,000 financial penalty. Sarclad’s US registered parent company also paid £1,953,085, which represented repayment of a significant proportion of the dividends that it received over the indictment period.
Sarclad further agreed to fully cooperate with the SFO. This involved providing the SFO with a report every year for the duration of the DPA, in which the Company identified all of its third party intermediary transactions, and set out the measures it had made in implementing, and measuring the effectiveness of, its anti-bribery and compliance programme. The terms of the DPA have now been met and the DPA has concluded.
The corporate appetite for a DPA
DPAs were introduced in February 2014 under the provisions of Schedule 17 of the Crime and Courts Act 2013. In essence, they are an agreement reached between a prosecutor and an organisation to suspend a prosecution for a defined period, provided that the organisation meets certain requirements. Crucial to their legitimacy, the agreements must be reached under the supervision of a judge. Since 2014, the SFO has entered into five DPAs (Standard Bank, 2015; Sarclad 2016; Rolls Royce 2017; Tesco 2017; and Serco Geografix Ltd in 2019).
DPAs were intended to achieve a satisfactory resolution in cases where corporates were under lengthy investigations for complex fraud, bribery and other economic crime. Through reaching an agreement, lengthy trials at the public expense would be avoided in situations where a DPA was ‘in the interests of justice’, and the terms were ‘fair, reasonable, and proportionate’.
Crucially for organisations under investigation, rather than risk lengthy and expensive litigation and adverse media attention, DPAs have allowed organisations the opportunity to make reparation to the SFO for criminal behaviour without the collateral damage of a conviction.
A worrying trend for the SFO
The acquittals of the Sarclad executives represents the latest high profile case in which the SFO has entered into a DPA with a corporation, but has then subsequently been unable to prosecute successfully its senior executives. In fact, five years on from when DPAs were first introduced, the SFO has failed to prosecute successfully a single individual in relation to any of these DPAs.
Following the SFO agreeing a DPA with Rolls Royce in January 2017, in February 2019, the SFO announced that it was abandoning its case against former executives of Rolls-Royce, despite the judge, Sir Brian Leveson, who approved the DPA, identifying that the relevant conduct amounted to “egregious criminality over decades”. The SFO has since failed to provide any substantive explanation for its decision.
More recently, the SFO’s case against three former Tesco executives collapsed when a judge ruled that the evidence against them was “so weak” that they had no case to answer. This followed an agreement in April 2017 by which the SFO and Tesco agreed a DPA resulting in Tesco accepting responsibility for false accounting practices and agreeing to pay a £129m fine.
The SFO’s approach and its implications
Whilst it is likely that the SFO will continue to view DPAs as a key tool in their fight against economic crime, and whilst the standard of proof needed for the SFO to secure a DPA is lower than if the case were to be prosecuted, this latest series of acquittals of senior executives raises a number of questions.
Firstly, the latest case of acquittals should lead the SFO, an accountable public body, to take stock of its use of DPAs to date and to consider why, following agreement on DPAs with organisations, and the extensive, timely, and costly evidence gathering exercise that forms part of this process, they are then failing to convict individual defendants in these circumstances. It is striking that evidence which has been put before a court to persuade a judge that a DPA should be approved, is subsequently failing to stand up before a jury when the SFO seeks to prosecute senior executives from the same company.
Certainly it may be the case that the new ‘failure to prevent’ offences will provide the SFO with a route around successfully prosecuting a company’s directing mind to secure a corporate conviction. The ‘failure to prevent’ model has already been adopted in Section 7 of the Bribery Act 2010, and through the creation of two offences for failure to prevent tax evasion – (sections 45 and 46 Criminal Finances Act 2017) with further ongoing consultation taking place to consider whether further ‘failure to prevent’ offences should be adopted. Specifically in March 2019, the House of Lords Bribery Act Committee called for a decision as to whether to introduce a ‘failure to prevent’ fraud offence, whilst the Treasury Committee also requested that the Government review its approach to economic crime and introduce a new offence for the ‘failure to prevent economic crime’.
Aside from ‘failure to prevent’ offences, corporate criminal liability can only be attributed through the application of the ‘identification principle’. That is to say that a company can only be convicted of a criminal offence through the ‘acts and state of mind’ of an individual who represents the company’s ‘directing mind’. Whether the identification principle is, however, fit for purpose remains open to debate.
Opponents of the principle argue that in today’s world of global business, with complex organisation structures for large multinational corporations, it is extremely difficult for prosecuting authorities to identify and to prove who represents the directing mind and will of a company. Indeed in December 2018 the SFO Director, Lisa Osofsky, stated to the Justice Select Committee that her agency was “hamstrung” by the identification principle, given that the ‘controlling mind’ of a company must be in the dock if a corporate is to be prosecuted successfully.
Whilst there is some justification for criticisms of the current system, the identification principle remains the basis of corporate criminal liability. As such, situations will continue to arise whereby the evidence used to conclude a DPA may subsequently prove insufficient to prosecute successfully senior executives, thereby giving rise to further intellectual debate regarding the validity of the current system.
Secondly, the trend identified above may lead companies under investigation to scrutinise more thoroughly the evidence against them and to contest the cases in court, rather than admitting to criminality and agreeing to a DPA at an earlier stage of the investigation.
The SFO’s recent failures to prosecute successfully individuals who represent a corporate’s directing mind should lead companies to examine the quality of evidence the SFO produce against their specific directing mind(s) in greater detail. Companies should consider how that evidence would appear before a jury in court, and the subsequent likelihood of the company being convicted on the strength of that particular evidence at trial.
Thirdly, the acquittal of the Sarclad executives also serves to further fuel the argument around DPAs creating a two-tiered system of justice when it comes to prosecuting white-collar crime. Unlike in the US where DPAs are available to organisations and individuals, in the UK they are only available to organisations. Such circumstances therefore give rise to whether it is justifiable for organisations to defer prosecutions against the organisation in exchange for the organisation cooperating with investigations, but which ultimately may lead to the organisation’s employees being dragged through a criminal trial.
In instances where individuals are acquitted and a DPA, agreed by the corporate organisation on the basis of individual wrongdoing, is then published with the individual’s names and actions contained within, can it be said that the current system adequately protects the reputations and future prosperity of individuals who have been found not guilty following the full criminal process? The answer is arguably no. If this trend of SFO failings continues to develop, it may be that Parliament needs to reconsider the use of DPAs, and specifically whether they should also be open to individual defendants under investigation for the same offence that the corporation for which they worked is also under investigation.
In light of the recent acquittals of senior executives in the Sarclad case, it is perhaps a good time for reflection on the current usage and scope of DPAs.