On Tuesday, 9 October 2012, the Serious Fraud Office (“SFO”) published revised policies on facilitation payments, business expenditure and corporate self-reporting (click here for link).  The SFO’s previous guidance, first issued in 2009 (see our LawNow on the SFO Guidance here), was aimed at reassuring business that the SFO would not take an overly-zealous approach to enforcement of the Bribery Act 2010 in relation to facilitation payments and corporate hospitality.  It suggested that the SFO would favour civil settlements wherever possible when corporates self-reported wrongdoing and demonstrated the right culture, and it set out the SFO’s approach to assessing the adequacy of anti-bribery procedures it expected corporates to have in place.  It even offered an opinion procedure on future enforcement action where a corporate discovered wrongdoing in a target company or group during due diligence.

The new revised policies pull back from that previous approach and confirm that the SFO will prosecute where the normal prosecution tests and requirements are met; self-reporting wrongdoing will just be one of the factors taken into account.  In its Q&A on the revisions, the SFO explains that the "revised policies make it clear that there will be no presumption in favour of civil settlements in any circumstances".  This, in a nutshell, could be said to be the SFO's new policy on self-reporting and represents a significant change in stated approach.

Aim of Revisions

The explicit aim of the revisions is to:

  • restate the SFO's primary role as an investigator and prosecutor of serious and/or complex fraud, including corruption (in keeping with the new SFO Director's recent statements as to his approach);
  • ensure there is consistency with the approach of other prosecuting bodies; and
  • take forward certain OECD recommendations (most notably in their Phase 3 review of the UK's compliance with its obligations under the OECD's 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions – we outlined some of these issues in our recent publication, The Bribery Act’s First Year, which can be found here).

Civil Recovery or Prosecution?

The Ministry of Justice's guidance on implementing adequate procedures (“MoJ Guidance”) and the Joint Guidance issued by the Director of the SFO and the Director of Public Prosecutions on prosecuting offences under the Bribery Act (as well as the Joint Guidance on Corporate Prosecutions) are essentially unaffected by these changes.  However, the SFO's previous and more tempered statements of policy and guidance on corporate self-reporting (in particular in their “Approach of the Serious Fraud Office to Dealing with Overseas Corruption”), have been replaced by a simple mantra:  

if the case falls within the SFO's remit because of its seriousness and/or complexity, and if the normal two-stage prosecution test set out in the Code for Crown Prosecutors is met (i.e. that there is sufficient evidence to provide a realistic prospect of conviction and it is in the public interest to prosecute), then the SFO will prosecute.

The upshot of this appears to be that only when the above tests are not met will the SFO consider civil recovery as an alternative to prosecution.  So it will only be where: (i) the case is not sufficiently serious or complex; (ii) there is not sufficient evidence to provide a realistic prospect of conviction; or (iii) it is not in the public interest to do so, that civil recovery will be considered.

While we note that the public interest test allows a wide degree of discretion, such that the SFO could still make similar use of civil recovery as they have until now, the fact that the SFO has gone to the effort of hardening their public attitude to corruption through these new statements of policy does not suggest that that is likely.

The fact that a corporate may have self-reported wrongdoing will no longer lead to any sort of presumption in favour of a civil outcome; rather, the fact that the corporate self-reported will - as the Joint Guidance on Corporate Prosecutions already provides - simply be a factor tending against prosecution when weighing up the various public interest considerations.  As the new statement of policy notes, “Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts."  Therefore, the explicit incentive offered to self-reporting corporates in the old guidance is no longer in place.

The new statement of policy also clarifies the level of detail the SFO will publish regarding its decisions when it does opt for civil recovery instead of (or in addition to) prosecution: "if the SFO uses its powers under proceeds of crime legislation, it will publish its reasons, the details of the illegal conduct and the details of the disposal".  However, "In cases where the SFO does not prosecute a self-reporting corporate body, the SFO reserves the right (i) to prosecute it for any unreported violations of the law; and (ii) lawfully to provide information on the reported violation to other bodies (such as foreign police forces)".  So a civil outcome in England is no guarantee that foreign prosecutions will not follow if the wrongdoing can also be prosecuted there.

Corporate Hospitality & Facilitation Payments

The only comforting statement now made by the SFO in relation to corporate hospitality and business expenditure, is that "bona fide hospitality or promotional or other legitimate business expenditure is recognised as an established and important part of doing business", although bribes disguised as business expenditure will be prosecuted.  This really adds nothing to what was already contained in the MoJ Guidance and the Joint Prosecutor Guidance.

As regards facilitation payments, the SFO has removed its previous acknowledgement that due to their endemic nature in some countries, facilitation payments would take time to eradicate, and that this would be taken into account by the SFO when appropriate.  The simple assertion in the revised guidance that “a facilitation payment is a type of bribe and should be seen as such” is further suggestive of a tougher approach.

Investigator & Prosecutor

Interestingly, the SFO notes that it "is primarily an investigator and prosecutor of serious and/or complex fraud, including corruption. It is not the role of the SFO to provide corporate bodies with advice on their future conduct."  This stands in contrast to overtures made by the SFO in the past to companies to contact them when they have questions or concerns about how to act in particular circumstances.  As mentioned above, it also indicates a pulling back from the offer in the SFO's previous self-reporting guidance of an opinion procedure in the context of issues identified during due diligence in M&A transactions.

Comment

While it is possible to read these changes to the statements of policy as being ones of form over substance – in that the requirements of sufficient seriousness and complexity would allow the SFO not to take action in relation to facilitation payments and hospitality issues in many cases, while the public interest test will always make it possible for the SFO to opt for a civil outcome if prosecution is genuinely not in the wider public interest – given the fact of the changes themselves and how much they contrast with the previous statements, the changes appear to be significant and substantial.

The new statements, while undoubtedly simple, clear and consistent with each other, seem to go out of their way to undercut the previous guidance and approaches identified by the SFO while under the directorship of Richard Alderman.  The policy objective to encourage self-reporting in return for more lenient treatment and a civil outcome, appears now to be gone.  However, the changes will not affect any existing agreements the SFO has made with corporates based on previous policy and practice – although it is not clear how this will affect companies who may have recently self-reported, but who have not yet reached any agreement with the SFO as to its approach.

The SFO’s revised approach follows earlier judicial comment criticising the SFO for the manner of its engagement with corporates (see, for example, our LawNow on the Innospec sentencing here), where Lord Justice Thomas noted that “it is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions”.  It seems likely that the new policy on self-reporting was influenced by these criticisms.  Similarly, the new language regarding facilitation payments and corporate hospitality responds to the OECD’s concerns that the UK was giving the wrong messages on these issues.

Questions and uncertainties as to how the Deferred Prosecution Agreement (“DPA”) proposals would have fitted in with the SFO’s guidance on self-reporting appear now to be redundant, as that guidance has been washed away.  Against that background, criticisms of the DPA proposals for being insufficiently attractive to encourage engagement (even when compared with the SFO’s self-reporting guidance), have lost some of their potency.  However, the final form of the DPA proposals is still uncertain: the consultation closed on 9 August 2012 and the government’s response is awaited.  It may be that any revised proposals are sufficiently improved that they can amply fill the gap left by the SFO’s retreat from engagement with the business community.