Ali Sallaway, Matthew Bruce, Ben Morgan, Nicholas Williams and Ruby Hamid, Freshfields Bruckhaus Deringer (London)
This is an extract from the third edition of GIR's The Practitioner’s Guide to Global Investigations. The whole publication is available here.
9.1 To co-operate or not to co-operate?
This chapter focuses on corporate co-operation with regulatory agencies and criminal authorities: where and when co-operation is required, its outcomes and its implications. It examines the increasing expectation that corporates should co-operate with investigations, the ever-expanding definition of ‘co-operation’ and factors in favour of and against it. The chapter looks at the current practice and guidance, and recent jurisprudence, with a particular focus on the meaning and application of co-operation in the context of investigations and prosecutions by the Serious Fraud Office (SFO), given that authority’s clear stance that it will prosecute where the evidence allows unless corporates have genuinely and proactively co-operated.
Where co-operation is mandatory, the corporate has no option but to comply, or face criminal or disciplinary sanction. Examples of mandatory co-operation in the United Kingdom are:
- where there is a warrant to enter and search premises, and to seize material found therein;
- where a court issues a witness summons for a representative of the corporate to attend court, often with documents;
- where a compelled notice is issued, requiring the recipient to provide information or documents, or to attend for interview, by, for example:
- the SFO under section 2 of the Criminal Justice Act 1987;
- the Financial Conduct Authority (FCA) under section 165 of the Financial Services and Markets Act 2000 where the recipient is an authorised person, or under section 168 where the recipient is any other corporate; and
- the requirement that an authorised firm (or person) must disclose appropriately to the FCA and the Prudential Regulatory Authority (PRA) anything relating to the firm those regulators would reasonably expect notice of.
Where co-operation is voluntary, the debate becomes more interesting. A corporate might wish to co-operate with an authority for a number of reasons. Co-operation may result in a less serious outcome, for example, a regulatory as opposed to a criminal resolution, a deferred prosecution agreement (DPA), fewer charges, less serious charges, or the period of wrongdoing under investigation being reduced. Sometimes, where an enforcement agency has an interest in a corporate, it can be beneficial to co-operate with the agency to enable it to reach an early decision to take no further action, whether for evidential, jurisdictional, public interest or other reasons. Co-operation is relevant at every stage and will even assist as mitigation in respect of sentence or sanction in the event of a successful prosecution or enforcement action.
A collaborative approach may enable a corporate to manage publicity and communications in conjunction with the authority and limit reputational damage. It may also provide the opportunity to influence the course of an investigation, to avoid an overly protracted process, and to limit the cost to business that an investigation might otherwise entail. An additional benefit in the criminal sphere is the possibility of entering into a DPA, avoiding a conviction and its collateral consequences. Of course, regulatory agencies and criminal authorities will say that co-operating fully on a voluntary basis is also the right thing to do for any good corporate citizen; and while that may be true, it underestimates the myriad and sometimes competing obligations on corporates to their many stakeholders, including shareholders, employees, partners, customers and the markets generally.
9.2 The status of the corporate and other initial considerations
The status of the corporate is key. Is it a victim or witness? Is it the target or the subject of the investigation? Is it currently a witness, but circumstances indicate that it is at risk of becoming a subject? Understanding status is essential to providing proper, informed guidance.
At the outset, establishing the status of the corporate enables the evaluation of potential liability. Is the corporate exposed to risk? Can that risk be mitigated by co-operation? Is immunity a possibility? A consideration of these issues should define how the approach to the authority is made and how the relationship is managed.
If the corporate is a witness, it may be subject to mandatory co-operation requirements, such as compelled requests for information as outlined in Section 9.1. Witnesses face a lower expectation from prosecutors and regulators of voluntary co-operation, in terms of offering up documents and information beyond the scope of specific requests, primarily because additional co-operation offers fewer direct benefits than it might for a suspect. While proactive co-operation may enhance a corporate’s relationship with its regulator or enforcement body, and be consistent with its corporate governance values, a corporate may have good reasons to be circumspect in dealings with the authorities in an investigation. In particular, a corporate witness may have an ongoing commercial relationship with the corporate suspect. This is often the case for professional advisers, such as auditors, who are frequently compelled to provide information in the context of investigations into their clients. In these circumstances, the corporate witness will have to consider its obligations to its client, and also the potential for any disclosure to expose it to regulatory investigation or litigation.
Whether a witness or a suspect, co-operation without a proper understanding of the issues and underlying facts may be difficult. Accordingly, the desire or need to co-operate may trigger an internal investigation to establish the veracity of the allegation, at least on a preliminary basis. Consideration must be given to whether the regulator or criminal prosecutor would want or expect involvement in setting the scope of an internal investigation: its subject matter, its jurisdictional and chronological reach, the sequencing of steps to gather evidence and whether it is a superficial review or a deep exploration.
The corporate should be mindful of any mandatory reporting obligations that arise as its knowledge of the allegation increases. Under the Proceeds of Crime Act 2002 (POCA), ‘nominated persons’ in the ‘regulated sector’ must report to the National Crime Agency (NCA) where they have reasonable ground for suspecting that another person is engaged in money laundering. There may also be mandatory reporting or disclosure obligations that arise as matters unfold. For example, listed companies will need to consider their disclosure obligations to the market.
Other initial considerations include legal privilege – invoking it where appropriate, but being sensitive to certain authorities’ desire to review first accounts of witnesses.
Where possible, the likely strength of the evidence should be assessed as quickly as possible. Information obtained by a prosecutor during an investigation is generally admissible in criminal proceedings against the corporate. A corporate and its advisers should, therefore, have regard to the potential impact of any documents or information they voluntarily disclose being used in proceedings against them and the extent to which voluntary co-operation may undermine any defence that the corporate later wishes to mount.
9.3 Could the corporate be liable for the conduct?
Where criminal misconduct is suspected, the extent of the corporate’s involvement in, or knowledge at the time of, the alleged misconduct will be a relevant factor in whether to co-operate.
Where the allegation is confined to an individual in a junior role, the risk of investigation and prosecution of the corporate may be low on the basis that the ‘directing mind and will’ of the corporate was not engaged. The category of persons who fulfil that definition is narrow and, while the exact parameters are uncertain, it is usually confined to office-holders, board members and very senior management – those who have the authority (whether derived from the articles and memorandum of association, or similar) to act as the corporation, rather than as its servant or agent. In these circumstances, the benefits to the corporate of voluntarily co-operating with regulatory and enforcement authorities (beyond its mandatory co-operation requirements) may be outweighed by the risks. By voluntarily identifying witnesses and documents beyond the narrow scope of the investigation, the corporate may invite the authorities to look more widely into the issues than necessary or than they otherwise would.
There are, however, some circumstances in which a special rule of attribution of liability applies – where the purpose of the legislation would be defeated if the usual hurdle to establishing corporate liability were required. The public interest in the legislation in question and the policy behind it are key to this. The court will look at the language and purpose of the statute and the particular offence to determine whose criminal act or knowledge was intended to count as that of the company. This special rule tends to be applied to administrative, regulatory or quasi-regulatory offences. Illustrative examples of offences where the court has held the special rule to apply include:
- licensing offences, including sale of video to a customer of inappropriate age; the offence was committed by a company but was carried out by a member of staff;
- environmental offences, including the creation of fraudulent records, where the applicable statutory regime is a combination of offences requiring knowledge or intent and strict liability offences; and
- the requirement on a corporate to disclose its substantial holding of securities in a public issuer. The individual who failed to make the disclosure was found to bind the corporate – absent that interpretation, the obligation to disclose would be rendered unenforceable.
The Court of Appeal has rejected the argument that corporate liability could be founded on a basis other than identification, based on Lord Hoffman’s opinion in the Meridian case. It held that the identification principles in Tesco v. Nattrass still stood and that Lord Hoffman was doing no more than adapting those principles to a very specific statutory duty. The supremacy of the identification principle was also reaffirmed by the Court of Appeal in the St Regis case.
If the corporate identifies evidence to suggest that the ‘directing mind and will’ of the company was involved in the misconduct, or there is involvement at a lower level in the company and there is a concern that a special rule of attribution might apply, it should consider the benefits of self-reporting before the regulatory or prosecuting body itself comes to this conclusion.
In addition, ‘failure to prevent’ type offences (such as section 7 of the Bribery Act 2010 and Part 3 of the Criminal Finances Act 2017) will have a wider application that is not dependent on the identification principle and this should be borne in mind. In a regulatory context, the liability of a firm may also be wider. A firm will, of course, have liability for acts of its employees from a regulatory perspective. And senior executives of relevant regulated firms may be held accountable through the senior managers regime, which imposes a statutory ‘duty of responsibility’ on those holding senior management functions within such firms – leaving them liable to enforcement action if a breach occurs on their watch.
9.4 What does co-operation mean?
9.4.1 Definition and descriptions
Co-operation with authorities in criminal cases has traditionally been in the form of a guilty plea and the offer to give evidence on behalf of the prosecution. Increasingly, co-operation is a more nuanced concept: self-reporting, saving the authority’s time and resources, a willingness to cede a good deal of control of an internal investigation or hand over voluntarily relevant evidence gathered or identified, and genuine and consistent transparency are referred to by courts and authorities as key aspects of co-operation.
Case law on co-operation with the SFO is scarce; inevitably little is known publicly about settlements that result in non-prosecution and the negotiations around a self-report will be confidential. For this reason, the public statements of the Director of the SFO and senior staff can be instructive on what co-operation means to the SFO, and how to achieve it.
Under 2013 legislation, a DPA is available to a designated prosecutor as an alternative to a criminal prosecution. A court-approved DPA is a method of settling a case without a conviction, where a defendant has co-operated fully with the authority. The SFO concluded its first DPA in November 2015 with ICBC Standard Bank (Standard Bank). Since then, the SFO has used this case and its subsequent DPAs with XYZ Ltd and Rolls-Royce PLC and Rolls-Royce Energy Systems (together, Rolls-Royce) to extol the virtues of voluntary co-operation. The SFO has described Standard Bank’s conduct as ‘an object lesson in how to co-operate’ and it has referred to the ‘exemplary co-operation’ of XYZ Ltd and the ‘full and extensive’ co-operation of Rolls-Royce.
These cases, supported by public statements by the SFO, provide a map of what co-operation means in practice.
9.4.2 Genuine and continual co-operation
Authorities expect co-operation to be genuine, proactive and continual. For the FCA, a firm’s pattern of co-operation over the period leading up to the investigation, as well as during the investigation itself, is relevant. The FCA Handbook notes that:
An important consideration before an enforcement investigation and/or enforcement action is taken forward is the nature of a firm’s overall relationship with the FCA and whether, against that background, the use of enforcement tools is likely to further the FCA’s aims and objectives. So, for any similar set of facts, using enforcement tools will be less likely if a firm has built up over time a strong track record of taking its senior management responsibilities seriously and been open and communicative with the FCA.The Office of Fair Trading (OFT) is the predecessor to the Competition and Markets Authority (CMA) and adopted a similar approach with regards to cartel investigations. The OFT has stated that one condition for leniency is that ‘[t]he applicant must maintain continuous and complete co-operation throughout the investigation and until the conclusion of any action (including criminal proceedings and defending civil or criminal appeals) by the OFT arising as a result of the investigation’.Further, the Office of Financial Sanctions Implementation (OFSI) within HM Treasury, which has powers to impose potentially significant monetary penalties on companies and individuals for breaches of financial sanctions law, has noted in its guidance: ‘if we discover that parties have dealt with us in bad faith and if the case is not criminally prosecuted, we will normally impose a monetary penalty.’
In the criminal sphere, both co-operation and remorse are mitigating features for which a defendant can expect a reduction in sentence. Where a DPA is under consideration, the key public interest factor against prosecution is co-operation: considerable weight will be given to a ‘genuinely proactive approach adopted by [an organisation]’s management team when the offending is brought to their notice’. Whether a DPA is in the public interest is a focus of the court in its assessment of the proposed agreement. As such, it is unsurprising that the SFO’s expectations of continual co-operation are so high where a DPA is in play.
Co-operation will clearly be considered in the round, by reference to the company’s broader attitude towards the investigation. Companies that make incorrect or unsubstantiated arguments about the underlying nature of the misconduct run a real risk of being deemed unco-operative, a point highlighted by the conduct of Sweett Group: the company was heavily criticised by the SFO and the court for apparently attempting to deliberately mislead the SFO, by attempting to obtain a letter characterising the offending payment its subsidiaries had made as a legal finder’s fee under United Arab Emirates law. On the other hand, companies that co-operate fully with the SFO can earn significant leniency. For example, in the Rolls-Royce case, the SFO offered, and the court approved, a DPA with a significant 50 per cent discount to the monetary penalty that would otherwise have been required. This represented the one-third discount that is the equivalent of what is usually available for an early guilty plea plus an additional 16.6 per cent discount in recognition of Rolls-Royce’s ‘extraordinary cooperation’.
9.4.3 Prompt reporting to the SFO
A corporate should report to the SFO as promptly as possible, if it wishes to be considered as co-operating. How early a corporate self-reports is a factor the SFO may consider when deciding to offer a DPA. This does not mean that corporates should report all allegations of criminal behaviour as soon as they become aware of them. The corporate will need to consider and verify such allegations to a certain extent before deciding whether it is necessary and appropriate to take the serious step of reporting itself to the SFO. Reporting wrongdoing but failing to verify it, or reporting it knowing or believing it to be inaccurate, misleading or incomplete is a factor in favour of prosecution. What level of investigation is required to ‘verify’ wrongdoing is undefined. This is a judgement for the corporate to make with assistance from its advisers. The following factors should be taken into account:
- where possible, the alleged criminal conduct should be reported to the SFO before it otherwise becomes aware of it. As such, the corporate should be alert to the possibility of whistleblowers or other organisations or individuals (e.g., NGOs) approaching the SFO, and should be conscious of the implications of any other reports that the corporate may have made to other authorities in the United Kingdom or overseas;
- the corporate is entitled to conduct an ‘initial assessment’ of the allegation but as soon as reasonable grounds to suspect wrongdoing in the way the company or those associated with it conduct business are identified, they should be flagged to the SFO; and
- the extent to which a company involves the prosecutor in the early stages of an investigation is a relevant factor in assessing a company’s co-operation.
In the case of Standard Bank, the bank reported the alleged misconduct ‘within a matter of days of it coming to its attention’, and, in passing sentence on the bank, the court noted that considerable weight was to be attached to the fact that it had ‘immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter’. However, it seems likely that Standard Bank had mandatory reporting obligations under POCA given that the bank’s solicitors had reported the matter to the Serious Organised Crime Agency (which was subsequently merged into the NCA) six days before the bank reported the matter to the SFO.
In the case of XYZ, a global programme designed to improve compliance in the relevant subsidiary unearthed concerns about specific contracts; as a result, XYZ took immediate action by retaining a law firm to undertake an independent internal investigation. Within a month of commencing the investigation, the law firm had informed the SFO that a self-report might be forthcoming. Six weeks later, the lawyers met with the SFO to confirm that XYZ would be making a self-report at the conclusion of the investigation. This was supplemented by continuing assistance and two further reports. The court commended ‘the promptness of the self-report, the fully disclosed internal investigation and co-operation of XYZ’.
A corporate is unlikely to get credit from the SFO for self-reporting where there is a sense that its hand has been forced, as was the case with the Sweett Group, who apparently only reported the conduct at issue to the SFO following a tip-off from the Wall Street Journal that it was about to publish a story.
Likewise, a cartel member reporting and providing evidence of a cartel will not benefit from leniency if, for example, the CMA is already investigating the cartel, or if another cartel member reported the wrongdoing beforehand.
In the absence of a self-report, a corporate will likely need to demonstrate a much greater level of subsequent co-operation to earn a comparable degree of leniency from the SFO. In the case of Rolls-Royce, the SFO acknowledged that the initial investigation was not triggered by a self-report. Even so, the ‘extraordinary’ co-operation offered by Rolls-Royce persuaded the SFO and the court not to ‘distinguish between its assistance and that of corporates who have self-reported from the outset.’ This was largely due to the fact that what Rolls-Royce subsequently reported during the course of the investigation was ‘far more extensive (and of a different order)’ than would have otherwise been exposed without the co-operation Rolls-Royce provided.
9.4.4 Conducting an SFO-approved internal investigation
Once a self-report has been made, the SFO expects genuine and constructive co-operation. This means that, following a self-report, any internal investigation conducted by the corporate or its advisers should be done in conjunction with the SFO and with its approval. The SFO will want to have a reasonable degree of involvement in the early stages of an internal investigation – to enable it to discuss work plans and timetabling and to give directions, for example relating to data capture and processing. The SFO has made clear that it expects promises of co-operation to be backed up with actual co-operation. In the SFO’s view, this requires corporates and their advisers to be open about the scope and methodology of any internal investigation, and not to ‘rush ahead’ and complicate the SFO’s job. It was to Standard Bank’s credit that it ‘conducted a detailed internal investigation that had been sanctioned by the SFO and reported its findings’. Rolls-Royce was also commended for reporting findings of its own internal investigation ‘on a rolling basis’. Sweett Group, on the other hand, was at one point formally notified by the SFO that it was considered unco-operative because of its continuing internal inquiry into the allegations.
9.4.5 Facilitating SFO access to documents and witnesses
The SFO is particularly concerned that the ‘crime scene’ be preserved, which means properly preserving relevant documents and ensuring ‘first accounts’ from witnesses are not prejudiced. Other regulatory and enforcement authorities, including the FCA, are increasingly adopting a similar stance. A co-operating company should do all it can to assist, rather than obstruct, the SFO’s investigation and the desire to understand the scope of the wrongdoing and the potential for contagion will drive many companies in this direction in any event. In addition to providing timely and complete responses to mandatory document requests, this may include:
- proactively taking steps to preserve, and prevent destruction of, all relevant sources of documents (including backup tapes);
- alerting the SFO to pertinent information that may not otherwise come to its attention;
- providing all information that the SFO requires to assess the forensic integrity of the data-gathering process (including records of the steps taken supported by witness statements);
- providing access to any document review platform being used by the corporate; and
- providing a copy of a report of any internal investigation completed, subject to any claims to legal privilege.
In practice, the level of co-operation requested may feel uncomfortable for a corporate – particularly one not in a regulated sector – unfamiliar with regulatory oversight. Co-operation may involve providing material from overseas, or material that appears to be on the margins of relevance to the investigation, with a willing and uncomplaining attitude. For example, the assistance provided by Standard Bank included providing shared documents collected from email servers held in Africa, inboxes, hard drives and shared drives, paper files, CCTV images recorded in Africa and recordings of telephone conversations. The SFO would not have had access to much of this evidence had it not been provided voluntarily by the bank. Similarly, XYZ identified and provided relevant information that extended the investigation beyond the SFO’s original scope. Email caches were volunteered. Rolls-Royce agreed to provide the SFO with unfiltered access to its records – some 30 million documents – and permitted the SFO to conduct its own digital review to identify potentially privileged documents with any issues of privilege to be resolved by an independent counsel.
Some practitioners would argue that there should be a curb on the extent of the co-operation expected by the SFO and that corporates should do what they are legally required to do and thereafter exercise careful judgement as to the merits of co-operating further (e.g., there may be risks in identifying and providing material beyond what is sought through mandatory requests).
From a prosecutor’s perspective, achieving best evidence is a key principle in a criminal prosecution. The first account of a witness is crucial, and the circumstances in which it is obtained can be critical to the credibility and efficacy of the evidence in a trial. Discrepancies between a first account and subsequent testimony can undermine the prosecution case. As such, the SFO places particular significance on obtaining first access to witnesses, or to notes or summaries of first accounts. Many defence lawyers would take a different view, arguing that first accounts are not as helpful and reliable, and therefore not as critical, as the SFO maintains. Nonetheless, a failure to co-operate with the SFO in this regard could jeopardise the offer of a DPA. In certain circumstances, the SFO or the FCA may expect corporates not to interview witnesses before consulting with them, or they may request that a company does not interview potential witnesses before a compelled interview has been carried out or a witness statement obtained. Where a corporate is able to interview witnesses, the SFO or the FCA may wish to dictate the order in which interviews are carried out, see materials or questions to be put to witnesses and receive copies of any work-product generated following each interview.
9.4.6 Privilege and the SFO
The legal professional privilege often claimed to protect from disclosure communications generated during the course of an investigation has been an area of focus for the SFO in recent years, particularly in relation to interview notes. Public statements by the SFO make clear that it considers as a ‘significant mark of co-operation a company’s decision’ to waive privilege over notes of witness interviews. Rolls-Royce received credit for voluntarily disclosing, with limited waiver of privilege, memoranda from over 200 interviews conducted as part of its internal investigation.
Standard Bank on the other hand is understood not to have provided notes (or referred to first-account witness interviews in its internal investigation report to avoid waiving privilege). Instead, it provided oral summaries. The same was true of XYZ Ltd. However, the decision in R(AL) v. SFO demonstrates the difficulties that can arise for the SFO from this approach.
In R(AL) v. SFO, a former employee of XYZ Ltd, a defendant in related criminal proceedings, brought a claim for judicial review to challenge the SFO’s decision not to require production of witness interview notes, over which the company claimed privilege. The High Court ultimately dismissed the claim since the claimant had not exhausted all available remedies before the Crown Court. However, the Court also made plain its view that the SFO had not complied with its duty, as a prosecuting authority, to take further steps to obtain witness interview notes so that they may be disclosed in the criminal proceedings against the individual in accordance with the defendant’s right to a fair trial under Article 6 of the European Convention on Human Rights. In that case, the Court noted that it was not sufficient for the SFO to apply a ‘not obviously wrong’ test to examining a company’s claims to privilege and its ‘duty is to assess claims for privilege properly and not cursorily and superficially’.
This case follows other high-profile decisions in the English courts in relation to interview notes. For example, in the 2016 case The RBS Rights Issue Litigation, the High Court rejected a claim of legal advice privilege over memoranda of employee interviews prepared by the bank’s lawyers. ‘Client’ for the purposes of legal advice privilege was interpreted, by reference to Three Rivers District Council v. Governor of the Bank of England, to cover only those individuals authorised to seek and receive advice from the lawyers. The employees interviewed by the lawyers were not, therefore, considered to be ‘clients’ of the bank’s lawyers. Based on the evidence available to it, the court also rejected the bank’s claims that the notes in question were subject to legal advice privilege on the basis that they comprised lawyers’ working papers.
Further, in Director of the SFO v. ENRC, the SFO initially successfully challenged claims of privilege over various documents produced during ENRC’s internal investigation and subsequent engagement with the SFO. But this decision was overturned on appeal on the basis that the interview notes and other materials (including the work product of forensic accountants) were protected by litigation privilege. Notably, the Court of Appeal found that criminal proceedings were sufficiently contemplated for litigation privilege purposes at the point at which ENRC commenced an internal investigation following a whistleblower report alleging corruption in parts of its business, and they were certainly contemplated when the SFO subsequently contacted ENRC about the same matter (even though the SFO stated it was not, at that time, carrying out a criminal investigation into ENRC). On the question of legal advice privilege, the Court of Appeal clearly indicated that it considered the narrow definition of the ‘client’ as established in Three Rivers No. 5 to be outdated, and that it would have departed from that decision if it had been able to do so.
Although the decision of the Court of Appeal in SFO v. ENRC may give a company engaging with the SFO greater comfort when asserting litigation privilege over investigation documents, companies seeking a resolution will still need to consider if it is in their strategic interests to waive privilege (on a limited basis) in such documents. As a matter of principle, maintaining privilege should be a ‘neutral’ factor as far as obtaining credit for co-operation is concerned. Privilege is a fundamental right. The DPA Code of Practice recognises that there is nothing in the existence of the DPA process that alters that right. However, the Court of Appeal in ENRC did note that an examination of a company’s co-operation, for the purposes of determining whether a DPA would be in the interests of justice, ‘will consider whether the company was willing to waive any privilege attaching to documents produced during internal investigations, so that it could share those documents with the SFO’. In light of this, the SFO may, in practice, consider it to be a positive sign of co-operation if a company chooses to waive privilege in certain documents for the purposes of assisting the SFO in its investigation. On 2 October 2018, the SFO announced that it would not be seeking to appeal against the Court of Appeal’s decision.
9.5 Co-operation can lead to reduced penalties
Co-operation with authorities in criminal cases has always been rewarded with a more lenient outcome for a defendant: whether through the statutory recognition that a sentence should be reduced for a guilty plea at the earliest opportunity (the current guideline being a reduction of one-third), through the passing of a less onerous type of sentence (a non-custodial as opposed to a custodial sentence), or through a lower multiplier being used to calculate a fine for a corporate. Conversely, attempts to conceal misconduct will be taken into account and result in a more severe sentence.
Individuals who plead guilty and offer significant voluntary co-operation with a prosecutor, may be entitled to a lesser sentence under section 73 of the Serious Crime and Police Act 2005 (SOCPA). A defendant enters into an agreement with the authorities under SOCPA to provide certain assistance, the extent and nature of which is taken into account when he or she is sentenced. The assistance is often directed at obtaining evidence about other individuals, or establishing facts that advance the investigation. This approach is being used increasingly in fraud and organised crime cases. It has been used effectively by the FCA and has resulted in defendants avoiding immediate sentences of imprisonment.
The likelihood of prosecution and the likely sanction in the event of conviction are important factors in any decision voluntarily to co-operate with an investigation by a regulatory or enforcement body. This is primarily because there is no guarantee that voluntary co-operation will result in a reduced sanction or complete immunity. The corporate and its advisers should not lose sight of the fact that, where there are allegations that criminal offences or regulatory breaches have been committed, the regulatory and enforcement bodies’ primary role is to properly investigate and prosecute or otherwise sanction the offender.
The more serious the offence, the less likely it is that a DPA (as opposed to prosecution) will be considered to be in the public interest. However, in the Rolls-Royce case, the court acknowledged that, notwithstanding the gravity of the wrongdoing committed by Rolls-Royce, on the right terms it was in the interests of justice to resolve the conduct by way of a DPA rather than a trial. The legislation requires any financial penalty that forms part of a DPA (the ‘meat’ of the sentence for a company) to be broadly comparable to a fine the court would have imposed following a guilty plea. However, in SFO v. XYZ Ltd, Sir Brian Leveson, President of the Queen’s Bench Division, allowed a 50 per cent discount ‘given that the admissions are far in advance of the first reasonable opportunity’ and therefore represented additional mitigation.
Similarly, in SFO v. Rolls-Royce, a discount of 50 per cent was allowed because Rolls-Royce had demonstrated ‘extraordinary cooperation’. This discount comprised a discretionary 16.7 per cent discount in recognition of Rolls-Royce’s co-operation, in addition to the one-third discount that is normally available as part of a DPA. This discount was considered appropriate even in circumstances where Rolls-Royce was accused of corrupt practices spanning 24 years in seven countries. Rolls-Royce’s co-operation, however, was extensive, including close co-operation with the SFO over the conduct of its internal investigations, granting the SFO full prior access to documents and witnesses, consulting with the SFO over media coverage, and waiving privilege over documents connected to the internal investigation. In addition, Rolls-Royce had taken considerable steps to reform its anti-bribery corruption compliance programme. Various examples of this co-operation by Rolls-Royce were detailed by Leveson P as justification for approving the terms of the DPA, who stated he was satisfied that Rolls-Royce ‘could not have done more to have exposed its own misconduct’.
In the regulated space, co-operation can also lead to reduced penalties. Although regulated firms and individuals are required to co-operate with the FCA, the authority makes clear that proactive co-operation can benefit individuals or firms in a number of ways: this can include not pursuing enforcement action, reduced charges or lighter sanctions being sought (something which may ultimately be reflected in the final notice). The FCA’s Enforcement Guide makes clear that the settlement discount scheme allows a reduction in a financial penalty or period of suspension, restriction or condition that would otherwise be imposed, if agreement is reached at an early stage.Co-operation appears to be becoming ever more important. FCA procedure allows a firm to settle aspects of a case and achieve a discount in respect of those aspects, while continuing to contest other aspects of the case. Timetables for settlement discussions will be set for efficiency and effectiveness and the FCA will expect firms and others to give it all reasonable assistance in this regard.
In the competition context, cartel members who self-report and provide information about the cartel can benefit from the CMA’s leniency regime. To do so, they must be the first member to report the cartel and must do so before the CMA commences an investigation of its own volition. They must also fulfil certain immunity conditions, which include maintaining continuous and complete co-operation throughout the investigation and refraining from further participation in the cartel activity.
Equally, the OFSI within HM Treasury, which may impose potentially significant monetary penalties on companies and individuals for breaches of financial sanctions law, has published guidance that indicates that timely, voluntary and materially complete disclosure, made in good faith, will be a key mitigating factor when it is deciding the level of any penalty (including a potential penalty reduction of up to 50 per cent).
9.6 Other options besides co-operation
In circumstances where no regulator or enforcement body is yet involved in, or aware of, an issue, whether to co-operate at all (i.e., whether to self-report) remains a judgement call for a corporate taking into account the factors described earlier.
Once a regulator or enforcement body is on the scene, co-operation in its various forms may, as described above, afford significant advantages for a corporate. However, there is still a balance to be struck.
On the one hand, it is important that a corporate does not entirely prostrate itself where that is not warranted, that it constantly keeps under review whether the investigating or prosecuting authority has a provable case, and that it does not admit to facts or enter pleas that it has committed wrongdoing without advice. If the corporate is on reasonable grounds evidentially, it may be well advised to maintain a robust stance in the course of an investigation and even to defend the case at trial. Moreover, other factors may impact the nature and extent of the co-operation that the corporate is prepared, or able, to entertain. For example, some aspects of the voluntary co-operation that an investigative or enforcement authority might expect could be problematic for a corporate where follow-on litigation is pending or threatened, and many corporates will be unwilling to be seen to abandon current or former employees who are themselves under scrutiny and to co-operate in their investigation and prosecution.
On the other hand, where the risk of a conviction (and its potential collateral consequences) cannot be entirely excluded, a guilty plea or a DPA may be more attractive. A DPA will only be available where a corporate is deemed to have been sufficiently co-operative, and, for both pleas and DPAs, the extent of the corporate’s co-operation will impact the sentencing or the fine. However, in the bribery space at least, the outcomes of the guilty plea in the Sweett Group case and the DPA in the Standard Bank case (both involving large fines with similar percentage reductions) have led commentators to consider whether fines would have been materially different in the event of a conviction after a trial. Also, a DPA is likely to include terms requiring co-operation with ongoing prosecutions and continuing disclosure obligations in respect of relevant matters (as seen with the DPAs in the Standard Bank case, the XYZ Ltd case and the Rolls-Royce case). The extent of this ongoing duty was considered, in part, in R(AL) v. SFO. In that case the court criticised the SFO for failing to seek to use XYZ Ltd’s duty of co-operation under the terms of the DPA to require it to disclose to the SFO certain witness interview notes (XYZ Ltd had refused on the grounds that, it claimed, the notes were privileged). The court also criticised the SFO for failing to consider whether it should require a waiver of such privilege (to the extent any attached to the notes) as part of the duty of co-operation.
The position of individuals connected to alleged corporate wrongdoing is another factor practitioners consider carefully when assessing the merits of co-operation or the desirability of a DPA as opposed to a guilty plea. If the individuals whose alleged misconduct forms the basis of the case against the companies are not routinely charged or successfully prosecuted, that will become a factor corporates will have to take into account in their assessment of the overall exposure to risk.
9.7 Companies tend to co-operate for a number of reasons
With all of that said, corporates increasingly choose to co-operate with regulators and enforcement bodies, in some cases very extensively. In some cases, this is just a matter of being a good corporate citizen and maintaining integrity and credibility in the eyes of stakeholders, government and the general public. Sometimes there will be considerable stakeholder pressure (e.g., from a new board or shareholders). Sometimes there is an ongoing relationship with the investigating authority to think about.
In other cases, there may be significant strategic benefits to co-operating. Without some degree of co-operation, a corporate will have little control over, or ability to influence, a regulatory or criminal investigation. Co-operation will often mean the company has a better view of the investigation and a greater degree of communication with the investigating authority, and these may provide an opportunity to influence the course of the investigation, to offer up mitigation to adverse findings immediately and even to effect the discontinuance of an investigation. Co-operation that is thorough and genuine throughout may help resolve the issue in a non-adversarial way (such as through a DPA), while retaining some control over what, if any, admissions are made and what is said publicly by the relevant authority.
Certainly, few corporates will take lightly the financial implications of a prolonged investigation or the management time and business interruption it will entail. Nor can corporates afford to be dismissive of the impact a drawn-out process will have on the morale of employees and the risk of ‘talent flight’. For many companies and their stakeholders, gaining clarity and certainty and being able to return to focusing on their day-to-day business will be an absolute priority.
Finally, no company will relish the prospect of a criminal conviction and the reputational impact this will have; and for many companies, there may be broader implications of a criminal conviction, such as debarment from public tendering, that outweigh the narrow legal merits of challenging allegations of wrongdoing.
9.8 Multi-agency and cross-border investigations
The ways regulators and criminal prosecutors choose to co-operate with each other are numerous and varied. There is undoubtedly an increasing desire for agency co-operation on domestic and international levels.
The extent of co-operation between regulators typically only becomes apparent in the event of public resolution of any wrongdoing. For example, in the context of the 2017 Telia case, the DOJ noted the valuable assistance of law enforcement colleagues in 13 jurisdictions, including the United Kingdom, in investigating the matter. In December 2014, the US authorities fined the US division of French infrastructure giant Alstom US$772 million in respect of bribery offences, and expressly acknowledged the assistance received from authorities in Indonesia, Switzerland, the United Kingdom, Germany, Italy, Singapore, Saudi Arabia, Cyprus and Taiwan, and the World Bank during their investigation. The SFO commenced its own investigation into Alstom’s UK operations, with information from Poland, Tunisia, Hungary and Lithuania, and sought to rely on the evidence of the US conviction in the UK proceedings. This example highlights the danger that one authority will use information from another to launch an investigation of its own.
Authorities work together in a number of different ways. There are informal channels of communication, agreements or memoranda of understanding (MOU), formal information gateways and treaties for mutual legal assistance (MLA). Nevertheless, authorities may assist each other passively, such as by sharing information they have gathered during their investigations or obtaining publicly available records, or by taking a rather more active role, such as by interviewing witnesses, providing logistical support to enable foreign authorities to conduct their own witness interviews and allowing secondments.
Authorities share information, increasingly frequently and informally, on an ‘intelligence only’ basis. This has the advantage of speedily progressing an investigation by the exchange of, for example, banking, trading or company data without the delay associated with formal information channels. If the information is ultimately required for evidence in a criminal case, a formal route (i.e., a letter of request (LOR)) will be used to obtain the same information in evidential form.
9.8.2 Memoranda of understanding
Authorities commonly enter into MOU with authorities in their own or other jurisdictions where both exercise similar functions, or are concerned with the same issues (e.g., the PRA and the FCA have entered into a number of MOU with equivalent authorities in other jurisdictions). Some multi-party MOU exist, such as the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, to which over 109 parties are presently signatories. MOU are not legally binding, but declare a shared commitment and aim to provide useful guidelines enabling faster and more efficient sharing of information.
Confidentiality clauses feature in MOU and there are carve-outs where to provide the information requested would violate domestic law or interfere with ongoing domestic criminal proceedings, for example.
9.8.3 Information gateways
There exist a number of statutory powers available to investigatory, regulatory and prosecution bodies to supply and share information with each other, domestically and internationally. These are commonly known as ‘information gateways’ and have a statutory basis.
For example, Part 9 of Enterprise Act 2002 prohibits the disclosure of information received by the CMA except, for example, where it is disclosing that information to another authority for the purpose of criminal proceedings. This gateway could be used in a LIBOR or FX-type investigation involving both criminal and competition issues.
There are limitations on the transmission of information. Any information so disclosed must be used only for the relevant purpose and the CMA must not make the disclosure unless it is satisfied that it is proportionate. The CMA also must (so far as practicable) exclude from disclosure any information that is contrary to the public interest, commercial information that it believes might significantly harm the legitimate business interests of the undertaking to which it relates, or information relating to the private affairs of an individual, disclosure of which might significantly harm the individual’s interests. Where the information is being transferred overseas additional limitations apply (e.g., seriousness of offence, appropriate local protection for the privilege against self-incrimination in criminal proceedings, storage of personal data).
9.8.4 Mutual legal assistance
Mutual legal assistance (MLA) is a formal method of co-operation between countries for obtaining assistance in the investigation or prosecution of criminal offences. The nature of the assistance varies, but includes obtaining documentary evidence, conducting interviews, taking witness statements, requesting the execution of search warrants, freezing assets and producing bank documents. Authorities will resort to MLA with their counterparties to receive evidence that cannot be gained through informal (and far quicker) means of co-operation, or where formal evidence is required. For instance, while one authority may ask another to obtain a witness statement, that authority will only be able to comply if the witness voluntarily agrees to give a statement. If that consent is not forthcoming, the requesting authority must instead resort to making an MLA request to compel the witness to provide evidence.
An important limitation for requests under legal assistance treaties is that the requesting country must comply not only with its own laws but with the requested country’s laws: meaning that in practice, MLA requests can be resource-intensive to prepare and serve. However, in the United Kingdom, Unaoil’s application for judicial review shows that there is a high bar for successfully challenging MLA requests through this mechanism. Unaoil unsuccessfully applied to challenge the SFO’s MLA request to the Monaco authorities for assistance in carrying out dawn raids, interviews and seizure of materials in Monaco, arguing that the letter requesting assistance failed to disclose key information about the case. The court made clear that the duty of candour, which attaches to UK search warrants, did not apply to MLA requests and that questions around the fairness of the raids and seizures should be resolved in accordance with local law. A successful judicial review challenge therefore would likely have to show that the SFO had no reasonable grounds for suspicion at the time the MLA request was made or that there was some other breach of the Crime (International Cooperation) Act, which gives the authority the power to request assistance from international authorities.
Voluntary co-operation with an authority can result in requests for the corporate to obtain documents from overseas where it can, as a demonstration of its ongoing and genuine co-operation.
9.9 Strategies for dealing with multiple authorities
Companies should proceed on the assumption that authorities share or will share information and materials. It may be clear from the outset that an issue affecting a corporate operating in multiple jurisdictions would likely attract the attention of authorities in those countries. Alternatively, an authority may effectively be tipped off following a MLA request for assistance from a foreign authority and, on the basis of information provided pursuant to that request, commence its own investigation.
Accordingly, a coherent strategy for dealing with such attention should be formulated from the outset. The company may find it sensible to engage in an open and pragmatic dialogue with each authority regarding matters such as timetables and document requests, and be proactive in encouraging the authorities to take the same approach with each other wherever possible. Ultimately, if more than one agency has a legitimate basis on which to enforce, it is usually preferable to bring the matter to a combined resolution.
The following additional points should be considered when dealing with multi-agency investigations:
- Consider what enquiries or internal investigation should be conducted. An internal investigation will enable a company to quantify potential risk and to develop a strategy to cope with concurrent investigations. It can, however, be difficult to structure an internal investigation so that material generated is privileged in each jurisdiction involved (if privilege is even recognised). Moreover, potential exposures in one jurisdiction might mean enquiries elsewhere need to be more circumspect.
- Ensure that an appropriate employee (most likely a member of the in-house legal team) is given specific responsibility for co-ordinating the corporate’s response to the investigations. Where international authorities are involved, the corporate should consider whether to form an internal response team to include employees from all affected jurisdictions.
- When formulating a strategy for dealing with concurrent investigations, consider which authorities are likely to be more influential or proactive and consider adopting an approach that takes into account their likely priorities or concerns.
- Engage specialised legal counsel to interface with law enforcement, including, where subject to overseas investigations, instructing and seeking advice from local counsel as necessary. This is particularly important if complying with a request for information from one authority may leave employees at risk of breaching data protection laws in other jurisdictions.
- Make sure that consistent explanations and documents are given (including considering whether developing a narrative ‘script’ may be helpful) and, so far as possible, that consistent approaches are adopted across all investigations (including coordination with local counsel and any other relevant external advisers).
- Where relevant, attempt to adopt a standardised approach to privilege across all investigations (which may necessitate careful negotiation with all authorities if approaches to privilege in their jurisdictions differ considerably).
- When considering whether to enter into settlement discussions, consider whether it would be beneficial to engage with all authorities at the same time. This may not be possible in circumstances where authorities are at differing stages in their investigation timetables, but would have the benefit of managing negative impacts such as business interruption, and harm to reputation and share price, as well as removing the need for ongoing company resources to be dedicated to overseeing the concurrent investigations. Encourage a holistic approach to sanctions across multiple jurisdictions, so as to avoid multiple monitorships or duplicative reparation and, where possible, to minimise fines.
Corporates are increasingly expected to co-operate with regulatory agencies and criminal authorities, even when such co-operation is voluntary. The DPAs corporates have entered into with the SFO demonstrate this expectation.
Corporates are coming under pressure from the public, stakeholders and government to act as good corporate citizens. Maintaining credibility with capital markets can be an additional factor in a decision to co-operate.
Co-operation is relevant at every stage of an investigation, and for every outcome. It requires continual and genuine assistance, prompt reporting of wrongdoing, and access to hard copy materials, electronic data and potential witnesses.
The conduct of internal investigations, witness interviews and legal privilege are becoming fraught battlegrounds.
Corporates should expect the involvement of multiple agencies across multiple jurisdictions as the co-operation between agencies and authorities increases.
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