London’s Southwark Crown Court recently approved only the second Deferred Prosecution Agreement (DPA) since the introduction of DPAs in 2014. Herbert Smith Freehills' London Corporate Crime and Investigations team negotiated the first DPA with the SFO, which was concluded in November 2015. The recent announcement of the UK’s second DPA indicates that DPAs are likely to be an important tool in the SFO’s armoury as it pursues corporates alleged to have committed economic or financial crimes.


In the UK, DPAs provide a means, in appropriate cases, of resolving offending by corporate entities for fraud, bribery and other economic crime. Under a DPA, a company agrees to certain conditions which are likely to include a financial penalty, compensation to victims, disgorgement of profits, payment of any reasonable costs of the prosecutor in relation to the alleged offence or the DPA itself, co-operation in any investigation related to the alleged offence, and measures to prevent future offending. The company and the SFO will also agree a public statement of facts setting out the company’s wrongdoing. In return, and provided the conditions of the DPA are met, the company will not face prosecution. DPAs are public, and must be applied for and approved by a court before coming into effect. A court will approve a DPA which it considers to be in the interests of justice, and which has fair, reasonable and proportionate terms.

SFO v XYZ - the UK’s second DPA

On 8 July, President of the Queen's Bench Division, the Rt. Hon. Sir Brian Leveson, approved a DPA concerning bribery and corruption offences alleged to have been committed by a company (XYZ) in relation to contracts to supply products to its customers overseas. The company’s identity remains anonymous due to ongoing related litigation concerning former XYZ employees. However, it is known that XYZ is a UK SME with a US registered parent company (referred to in the judgment as "ABC").

The indictment concerned activity between 2004 and 2012 in which certain of XYZ’s employees and agents were involved in the systematic offer and/or payment of bribes to secure contracts in foreign jurisdictions. The SFO undertook a two year investigation, and found that 28 of 74 contracts examined had been procured as a result of bribes.

Under the DPA, XYZ agreed to pay financial orders of GBP 6.5 million. This comprises GBP 6.2 million in disgorgement of gross profits and a GBP 352,000 financial penalty. Almost GBP 2 million of the disgorgement will be paid by XYZ’s US registered parent company, ABC, as repayment of a significant portion of the dividends that it received from XYZ (roughly GBP 6 million since ABC's acquisition of XYZ in 2000). Under the DPA, XYZ also agreed to co-operate fully with the SFO, including reporting on all third party intermediary transactions and the adequacy of its anti-bribery policies and procedures over the next twelve months (and annually until at least 2018).

Provided all terms of the DPA are met, the SFO charges will be withdrawn, with the result that XYZ will not be formally convicted of an offence. If the terms of the agreement are breached, a court may reinstate the charges leading to prosecution being pursued.

Self-reporting and co-operation

Sir Brian Leveson noted that critical to the approval of the DPA was XYZ’s co-operation with the SFO, including is 'genuinely proactive approach to the wrongdoing it uncovered'. XYZ self-reported and co-operated with the SFO’s investigation.

In August 2012, the implementation of ABC's global compliance programme flagged concerns about the way certain contracts had been conducted by XYZ. By its own admission, prior to 2012, XYZ did not have adequate compliance provisions in place. XYZ retained lawyers to conduct an internal investigation; the lawyers delivered a report to the SFO on 31 January 2013. The SFO then conducted its own investigation, lasting roughly three years, with XYZ's full co-operation. XYZ, through its lawyers, made continuing efforts to investigate and supplement the initial self-report, making two-further self-reports during the investigation (which, importantly, identified further contracts suspected of having been obtained as a result of corrupt payments).

In his preliminary judgment, Sir Brian Leveson noted that, had it not been for the self-report, the offending might otherwise have remained unknown to the SFO; there had been no suggestion of a whistle-blower or any other mechanism by which the matter might have come to the attention of the authorities.

Sir Brian Leveson also noted that co-operation included indentifying relevant witnesses and disclosing their accounts and the documents shown to them. XYZ provided oral summaries of the first accounts of interviewees, facilitated the interview of current employees, and provided timely and complete responses to requests for information and material. Notably, XYZ does not appear to have waived privilege; the director of the SFO has remarked recently that, while not essential to securing a DPA, the waiver of privilege, particularly in relation to the first accounts of witnesses, will be considered to be a strong sign of co-operation. It appears that the SFO may be satisfied with oral summaries of first accounts; however, this conclusion must be considered in the broader context of XYZ's co-operative approach.

The court said that “[the DPA] provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.”

Financial Penalty: Application of the Sentencing Council Guideline and 50% Discount

Sir Brian Leveson considered the total gross profit that XYZ had made from the tainted contracts in determining the amount to be disgorged under the terms of the DPA. The total gross profit from the contracts amounted to GBP 6,553,085, which gave an estimated net profit of GBP 2.5 million in respect of the implicated contracts. XYZ had limited means and ability to pay such a sum; the maximum amount it would be able to provide towards paying any financial obligation imposed without becoming insolvent was estimated at GBP 352,000.

XYZ's parent company, ABC, offered to provide the necessary financial support to satisfy the terms of the DPA. ABC offered its support, by way of a long term loan, notwithstanding that no contractual obligation required it to do so. Sir Brian Leveson also made clear that no legal obligation attaches to an innocent parent company requiring it to contribute towards a financial penalty imposed upon one if its subsidiaries for that subsidiary's criminal conduct. That said, ABC had received GBP 6 million in dividends from XYZ, some of which had flowed from the tainted contracts. ABC agreed to return almost GBP 2 million towards the disgorgement.

Any financial penalty under a DPA must be broadly comparable with a fine following conviction, and as such the court applied the Sentencing Council Guideline on Fraud, Bribery and Money Laundering Offences (the Guideline).

Sir Brian Leveson agreed with the SFO that this was a case of high culpability:

  • XYZ played a leading role in organised, planned unlawful activity. Senior executives representing the controlling mind of the company had knowledge of and authorised this conduct.
  • The offending was committed over a sustained period of time.
  • There was a wilful disregard of the commission of offences by employees or agents with no effort to put effective systems in place to prevent such conduct.

For offences of bribery, the appropriate figure for harm will normally be the gross profit from the contracts obtained, retained, or sought as a result of the offending. Gross profits in this case, as set out above, amounted to GBP 6,553,085.

Sir Brian Leveson considered as an aggravating factor that the corrupt activity was endemic within XYZ. In mitigation he noted that XYZ had no previous relevant conviction, and that XYZ had co-operated fully with the SFO's investigation, making early admissions voluntarily and reporting the offending to the SFO. Further, the offending was committed under a previous management team; XYZ was effectively a different entity to the one that had engaged in the corrupt activities.

On the application of the Guideline, this took the starting point for the financial penalty to just under GBP 16.4 million (applying a 250% multiplier to the gross profit figure given the level of culpability, harm and aggravating and mitigating factors). Sir Brian Leveson applied a 50% reduction to the penalty, despite the statutory maximum reduction for a guilty plea (where given at the 'first available opportunity') being set at 33%. This sizeable reduction was not based on an application of the relevant sentencing guideline or the DPA statutory provisions themselves. Rather, the justification was XYZ's self-report, which was made far in advance of the first reasonable opportunity had XYZ been charged and brought before the court; this early self-report represented significant additional mitigation. Such a discount was said to be appropriate 'not least to encourage others how to conduct themselves when confronting criminality as XYZ has.' As mentioned above, but for XYZ's self-report the criminality may not have come to the attention of the SFO. This brought the figure down to roughly GBP 8.2 million.

XYZ did not have the means to pay such a penalty. Sir Brian Leveson considered, among other things, the impact of the financial penalty on XYZ's staff, service users, customers and the local economy, and concluded that it was not in the interests of justice to pursue XYZ into insolvency. He therefore approved a financial penalty of GBP 352,000, which, with the disgorgement of GBP 6,201,085, led to a total figure equating to the gross profit on the tainted contracts. This was said to be fair, reasonable and proportionate. XYZ was allowed to pay the penalty in instalments.

On the company’s financial position, SFO Director David Green commented:

“This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation. The decision as to whether to force a company into insolvency must be balanced with the level and nature of co-operation and this case provides a clear example to corporates.

The future of DPAs in the UK

The first two UK DPAs have resulted in significant corporate financial settlements. It is expected that the use of DPAs and the prosecution of the section 7 corporate offence (the first successful prosecution was in February 2016 of Sweett Group plc), will result in an upward trend in the level of fines imposed on corporate offenders. The DPA is potentially an even more attractive option for corporates in light of the possibility of such a significant discount on any financial penalty, as approved in XYZ.

XYZ was a small company and was the subject of an indictment alleging conspiracy to bribe and to corrupt, offences requiring the application of the identification principle through the involvement of very senior employees, and for the offence of failing to prevent bribery under the Bribery Act, which may have related to both agents and employees. Along with being an interesting development in the use of DPAs in the UK, this case, once published in full, may shed further light on the way in which individuals will be treated when a settlement with a corporate is being negotiated.

FH Bertling Ltd and seven individuals charged with bribery

On 13 July 2016, the SFO also charged logistics and freight operations company F.H. Bertling Limited and seven individuals with one count of making corrupt payments, an offence under the Prevention of Corruption Act 1906.

The SFO alleges that the individuals and the company conspired together and with others to bribe an agent of the Angolan state oil company, Sonangol, to further F.H. Bertling's operations in Angola. The corrupt activity was alleged to have taken place between January 2005 and December 2006, and for this reason falls under the pre-Bribery Act legislation.