Whilst the Serious Fraud Office (“SFO”) is expected to walk the talk in response to the Bribery Act, it expects corporates to do the same when self-reporting wrongdoing. On 26 March 2014, Alun Milford, the Serious Fraud Office’s General Counsel delivered a speech on the Bribery Act and deferred prosecution agreements (“DPAs”) to the Annual Employed Bar Conference. Whilst Mr Milford has rather little to publicly say at the moment about prosecutorial developments concerning the Bribery Act, and even less on judicial interpretation of the legislation, there were a some ‘take-away’ comments that were both interesting and relevant to corporates particularly those wrestling with the issue of self-reporting and their approach to internal investigations:
- No guarantees – whilst Mr Milford made the usual declaration that the SFO cannot and will not offer guarantees to corporates who self-report (ie that such contact will automatically lead to a DPA), he was at pains to emphasise that self-reporting and a proactive cooperative approach to any subsequent investigation could be the crucial difference in avoiding a prosecution. ‘So what’ you might say? This is a mantra that has been repeated by the SFO on numerous occasions since David Green QC took over the helm. But what followed makes more interesting reading.
- Judicial scrutiny of DPAs – Mr Milford emphasised that DPAs are not entirely within the SFO’s gift; they will need to be approved by a judge. This we know. However, Mr Milford went on to make an educated assessment of the sorts of factors a judge will consider when determining whether a DPA satisfies the public interest including:
- The extent to which the company’s version of events when reporting to the SFO withstands independent scrutiny so that the judge can be satisfied about the nature and seriousness of the conduct in question. Mr Milford seems to be referring to two elements here (1) whether the corporate has been open about the extent of the wrongdoing, and (2) the gravity of the allegations.
- The conduct of the parties to the proposed DPA during the investigation ie has the corporate been genuinely proactive both in terms of self-reporting and the subsequent investigation.
- The extent to which the SFO is seeking to prosecute individuals involved in the alleged wrongdoing. This might be a critical issue in relation whether the public interest test might be satisfied. It does however force companies to realise that self-reporting will not just have consequences for themselves but also for individuals complicit in wrongdoing, particularly senior executives.
- How not to self-report – Mr Milford suggests that a self-report carries an acceptance of wrongdoing. He accepts this is why it is inherently risky – because it potentially opens the company up to a criminal prosecution. Mr Milford was critical of companies and their legal advisors who seek to dress-up initial contact with the SFO as a self-report when it is not:
- For example, a self-report after the SFO has notified the corporate of the alleged wrongdoing; in such circumstances no credit is likely to be given.
- Mr Milford put it forcefully that a company that self-reports the wrongdoing of others (ie its employees) but denies corporate responsibility has not technically self-reported – it is a report into the wrongdoing of others (typically, the SFO finds, of junior staff). And so if after an investigation the SFO decides that in fact it has enough evidence to pursue criminal proceedings against the company under Section 7 of the Bribery Act because actually the misconduct was sanctioned at the very top (or say it had an inadequate compliance programme) then the SFO might decide that the company’s denial which has forced the SFO to build the case against it is a factor weighing in favour of prosecution.
- In order for a company to avail itself of a DPA, a company must accept and anticipate that any a self-report will not be taken at face value especially as the SFO will be very cautious about the eventual judicial scrutiny of its conduct.
- Internal investigations: Mr Milford makes some useful practical suggestions in relation to international investigations:
- he calls for companies to self-report early to the SFO, indeed very early, and to agree with the SFO as to whether, and if so, on what terms they might commission a corporate investigation. The SFO’s concern is that evidence trails might be disturbed or destroyed, witnesses tipped off and primary evidence denied if the investigation is conducted haphazardly and without an eye to what the SFO will need to see. The words of the Judge in Dahdaleh will no doubt still be ringing in the SFO’s ears. Mr Milford’s suggestion does cause a difficulty for companies who will always want to first determine whether there is any truth whatsoever to an allegation of wrongdoing before self-reporting, and also ensure compliance with local employment laws vis a vis its employees. This issue requires a careful thought.
- he emphasises that data collection is very important. It should be “prompt, covert, co-ordinated and simultaneous” as well as being forensically sound. Rolling data destruction practices should be put on hold and back-up tapes preserved. Great care needs to be taken not to tip off data custodians who are suspects. The entire data collection exercise should be documented and a step by step record kept including methodology and search terms, the reasons they were chosen and the criteria for relevance. The process will need to be fully disclosed to the SFO, with supporting witness statements, to secure maximum credit.
- On the topic of questioning witnesses Mr Milford encouraged early discussion with the SFO to determine the correct approach. The concern being that failing to involve the SFO at the outset might prejudice its own subsequent investigation, and if it does this will be perceived to be a negative fact shifting the scales towards prosecution rather than away.
- This aspect led to Mr Milford pouring scorn on attempts by corporates to assert legal privilege over witness accounts that have been taken during the course of an investigation. The SFO’s position is that a claim of privilege over such material is “unhelpful” and “frankly, impossible to reconcile with an assertion of a willingness to cooperate”.
Mr Milford concludes his speech by firing a warning shot although one that is perhaps expected and follows the practice of the SFO’s cousins in the US. A company asserting privilege over part of its fact-finding exercise makes it harder for the SFO to build a case against other suspects (with a focus no doubt on employees involved in the alleged criminality). Mr Milford’s exact thoughts here are that: “I cannot see how that stance can possibly contribute to the public interest case against prosecuting the company, not least when, rather than engage constructively with us, the company chose instead to instruct lawyers to speak to witnesses before us and thereby set out to throw an impenetrable web of confidentiality all over the evidence they generated .” He added that a self-report with no acknowledgement of wrongdoing makes the aforementioned stance untenable. But in relation to privilege, Mr Milford provided some comfort to corporates and their lawyers in confirming that the SFO will not expect to see advice companies have received from their lawyers as to their legal position; but cherry-picking disclosure over parts of a corporate investigation will be deemed to be uncooperative or alternatively not genuinely proactive. Wishing to hold back material for fear of making the company vulnerable to civil claims will not be an excuse the SFO will be willing to swallow. However, the prospect of civil claims is an issue companies should carefully consider with their lawyers.
Whilst there have been few meaty developments concerning the Bribery Act, Mr Milford’s speech nevertheless provided food for thought, and further publicly crystallises the SFO’s approach to self-reporting and DPAs. But it will create some concern for companies who instinctively want to retain control of an internal investigation and who often do not want to self-report until they are entirely satisfied there is wrongdoing. This exercise can be a delicate balancing act but does not need to amount to walking a precarious tightrope if correctly handled.