On July 11, the United Kingdom’s Serious Fraud Office (SFO) entered into its second-ever deferred prosecution agreement (DPA), under section 1 of the Criminal Law Act 1977 (conspiracy to corrupt and conspiracy to bribe) and section 7 of the Bribery Act 2010 (failure of a commercial organization to prevent bribery). The counterparty to the DPA is an unnamed UK small to medium sized entity (SME), a wholly-owned subsidiary of a U.S. corporation, which generates the majority of its revenues from exports to Asian markets. The DPA did not name the entities due to ongoing related legal proceedings.

The allegations implicate conduct spanning from June 2004 through June 2012 (straddling the effective date of the Bribery Act), involving offers and payments of bribes to secure contracts in foreign jurisdictions. As part of the DPA, the SME agreed to pay a penalty of £352,000 and to disgorge £6,201,085 in gross profits, £1,953,085 of which will be contributed by the U.S. parent company as repayment of a portion of the dividends it received from the SME. The DPA also requires the SME’s continued cooperation and reporting of ongoing compliance efforts.

In its judgment accepting the DPA, the Crown Court addressed the issue of whether to allow the SME – a wholly-owned subsidiary of modest resources – to become insolvent or, in the alternative, to mitigate the financial penalties knowing that the SME could only survive a substantial payment with the support of its parent company. Significantly, the Crown Court sought to avoid encouraging a parent company to establish a subsidiary “as a vehicle through which corrupt payment may be made,” and then summarily dumping the subsidiary when facing criminal repercussions, emphasizing that such a scenario would likely result in the parent company facing prosecution under section 7 of the Bribery Act.

The judgment states that while the SME’s compliance programs were wholly inadequate during the relevant period, the U.S. parent company implemented its global compliance program in the SME in late 2011, through which, in mid-2012, concerns came to light regarding the manner in which a number of contracts were obtained. In mitigating the financial penalties to allow the SME to continue its operations, the Crown Court made clear that there was no allegation that the U.S. parent company knowingly profited from the criminal activities of the SME, nor that it should have known of such activities. The judgment states that the U.S. parent company acted promptly and appropriately when such matters came to light, underscoring the value of self-reporting and cooperation.