Academic journal article Business Law International

The UK's Second Deferred Prosecution Agreement – Implications for Parent Companies and Lessons for the Future

Academic journal article Business Law International

The UK's Second Deferred Prosecution Agreement – Implications for Parent Companies and Lessons for the Future

Article excerpt

On 11July 2016, the Crown Court sitting at Southwark gave judgment in the Serious Fraud Office's (SFO) second deferred prosecution agreement (DPA) in the case of SFO v XY ZLtd. The first DPA had come some months earlier in November 2015, in ajudgment in the case of SFO v Standard Bank, delivered in the same court by the same judge, Sir Brian Leveson, President of the Queen's Bench Division of the High Court. The fact that he presided over both cases is no coincidence. Because of his seniority, he has been handed the task of developing the UK jurisprudence on DPAs and, again, because of his seniority his pronouncements on how the relevant statute law is to be applied in the context of DPAs is as authoritative as it is possible to be. In simple terms, through Sir Brian Leveson P, the law is being shaped in such a way that advisers and their clients can now begin to make decisions with some degree of certainty. To that extent, the judgment is greatly to be welcomed as a signpost to the future of how DPAs will be scrutinised by the courts, and, importantly, what sort of outcomes in terms of financial penalty are likely.

The company that entered this DPA is currently anonymised as XYZ because there is still a trial outstanding of individuals who are former senior managers of the business. For the same reason the parent of XY Z, a US corporation, is similarly anonymised as ABC. XY Z is a UK SME operating in the Asian markets. It was acquired by ABC in February 2000 and has been a wholly owned subsidiary since then. Between 2004 and 2014 XYZ, through a small number of senior managers, was involved in systematic bribery, through overseas agents, to obtain business. The practice was, as described by the court, 'part of XYZ's established business conduct' and within XYZ it was 'an accepted way of doing business'.

ABC was a concerned and responsible parent. It provided financial support for marketing, product development and strategic planning. It also provided XYZ with supply chain and global sourcing resources and cost-saving services. It created and implemented a group-wide compliance programme. The flow was not all one way. XY Z paid nearly ?6m to ABC as dividends and ?2.3m in management fees.

The way the bribes were paid through agents was deliberately concealed within XY Z's documentation, with the payments that constituted the bribes being misdescribed to disguise their true nature. It was accepted by the court that XY Z successfully concealed the systematic use of bribery to obtain contracts from both their auditors and from ABC.

The contracts obtained through bribery were said to total 28 in all. They produced revenue of ?17.24m with gross profit of ?6.5m. The bribes were discovered after ABC brought XY Z within its global compliance programme in late 2011 and reviews of business practices and contract documentation as part of the implementation exposed a number of contracts that were questionable. ABC instructed lawyers to carry out an investigation in September 2012 and on 2 October 2012 those lawyers approached the SFO to self-report what had been discovered to date. The lawyers continued their investigation and reported their findings to the SFO on 31 January 2013, following which the SFO opened its own investigation in April 2013.

The outcome of the SFO investigation was such that it was satisfied that there was sufficient evidence to bring a prosecution against XY Z for offences under both the Bribery Act 2010 and the Prevention of Corruption Act 1906 in respect of contracts obtained before July 2011 when the Bribery Act came into force.

The SFO, having concluded its investigation, invited XY Z to enter a DPA, and the invitation was accepted. Under the terms of the statute creating DPAs, the Crime and Courts Act 2013, they can only come into existence at the invitation of the SFO. Unlike in the US, they are available only to corporate offenders, not individuals, and they only come into effect once a court has declared that it is in the interests ofjustice for there to be a DPA, as opposed to a prosecution, and that the terms proposed, including financial penalty, are fair, reasonable and proportionate. …

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