Heightened activity of the Serious Fraud Office ("SFO") makes it more important than ever for companies to monitor their compliance with the law. However, should organisations that discover signs of misconduct self-report, or stay quiet in the hope that the whistle will not be blown? David Green, director of SFO, suggested that self-reporting is “the right thing to do.” However, there is no general legal duty to report, and the SFO’s new regime does not ensure immunity from prosecution; so why would organisations do the “right thing”? The central consideration will be to weigh the benefits and risks of reporting against the risks and consequences of the SFO finding out about the misconduct on its own. Where the balance lies is far less clear under the new regime than it was previously.
The SFO’s original policy was to deal with self-reported cases through civil settlements “wherever possible”; this was as close to a non-prosecution promise as the SFO would go. However, that approach was criticised by Mr Green. The SFO's revised policy now makes it clear that self-reporting is “no guarantee that a prosecution will not follow”. It remains to be seen what will happen in practice.
So, as matters stand, what are the benefits of coming clean under the new regime?
- First, self-reporting can still reduce the prospects of prosecution. In deciding whether to prosecute, the SFO applies the Full Code Test which includes asking whether prosecution would be in the public interest. The Joint Guidance on Corporate Prosecutions specifies that self-reporting can be an important factor when considering the public interest, provided that the report is a proactive, full and genuine self-report. Mr Green suggested that the main question is whether the report tells the SFO something it did not already know and does so in an “open-handed, unspun way” – although such reports open up the possibility of civil recovery or entering into a Deferred Prosecution Agreement, even if there is no prosecution.
- Even where prosecution cannot be avoided, self-reporting is likely to reduce the consequences that may otherwise ensue, as well as reputational damage and shareholder dissatisfaction.
- Self-reporting ensures valuable certainty which will often be preferred to the unquantifiable risk of the misconduct being discovered by the SFO.
- Organisations will avoid the additional risk of any suggestion of burying information relating to the misconduct, which would result in problems under sections 327-9 of the Proceeds of Crime Act.
Whether one should self-report will therefore depend on the facts of each case. However, corporations need to remember that if they want to self-report they need to do so quickly. Delay will significantly decrease the impact of self-reporting on the public interest test, possibly removing the biggest benefit of coming clean.
At the same time, the chances of misconduct being found out cannot be ignored, and taking action to suppress it is clearly a very serious matter. Moreover, the risks are likely to increase with time as the SFO is strengthening its intelligence unit and the UK Home Office is considering introducing “financial incentives to support whistle blowing in cases of fraud, bribery and corruption”.