On 26 April 2021, the prosecution by the Serious Fraud Office (the “SFO“) of fraud charges against two former directors of Serco Geografix Limited (“Serco“) collapsed. The SFO offered no evidence against the defendants, and the presiding judge directed the jury to return verdicts of not guilty. This happened after it became apparent that the SFO had failed to disclose to the defendants certain relevant materials, rendering it unsafe for the prosecution to proceed. The SFO’s statement on the matter confirmed that it was “considering how best to undertake an assessment to prevent this from happening in the future”.
The conclusion of this prosecution is an example of the challenges with disclosure in complex fraud cases such as this, which will typically involve the production of hundreds of thousands of documents. However, the case also provides some interesting lessons for corporates and their directors when considering whether to enter into Deferred Prosecution Agreement (“DPA“) negotiations with prosecuting authorities.
The Serco DPA and the trial of former Serco executives
On 4 July 2019, Judge William Davis approved a DPA between Serco and the SFO . For more detail concerning this DPA, please read our blog here. In summary it suffices to say that Serco, which was engaged by the Ministry of Justice (“MoJ“) for the supply of electronic monitoring services in the criminal justice system between 2005-2013, took responsibility for the following offences as part of the DPA:
- falsifying accounting records to overstate revenue earned and costs incurred in the performance of the services (charges 1-4); and
- falsifying its Annual Report and Financial Statements for the year ending 31 December 2011 by reporting an additional £7.5m of purported revenue (charge 5).
In addition to accepting the facts underlying these allegations, and in return for the deferral of the prosecution of the above charges until 2022, the DPA required Serco to:
- pay a fine of £19.2m;
- pay the SFO’s costs of £3.7m;
- agree to a public statement of facts with the SFO, setting out Serco’s wrongdoing; and
- cooperate in the SFO’s investigation into individuals at Serco involved in the submitted to a number of ongoing reporting obligations over the course of the DPA.
After the Serco DPA the SFO’s investigation into two former directors of Serco, Nicholas Woods and Simon Marshall, continued. In late 2019 the SFO charged those individuals with fraud by false representation in relation to representations Serco made to the MoJ between 2011 and 2013. The SFO additionally charged Woods with false accounting.
At the commencement of the trial, 9 years after the conduct underlying the charges began, and 7 years after the SFO commenced its investigation into Serco, disclosure failings came to light. This followed the defendants applying for specific disclosure of documents which the SFO had not disclosed. The judge refused an application made by the SFO for the adjournment of the trial while the disclosure issues were rectified, on the basis that it would be unfair to the defendants to be subjected to an additional trial after the lead up to trial had already taken many years. The defendants were subsequently acquitted.
The High Court has now authorised nine DPAs, but none of them have resulted in a conviction of individuals stemming from the same events (although we note that three former executives of G4S Care and Justice Services have been charged and are awaiting trial in respect of the events underpinning the G4S Care and Justice DPA).
The circumstances behind each DPA are different and highly fact-sensitive, and so no one factor can explain the absence of individual convictions. However, a few observations can be made in respect of the collapse of the former Serco executives’ trial:
- Procedural failings such as in relation to disclosure can affect substantive outcomes in cases. This is especially the case in criminal litigation, where sufficient delay could constitute an abuse of process at common law and may even result in a judge ordering a permanent stay on a prosecution.
- The prosecutor’s obligation to provide disclosure in the context of complex fraud cases, such as this case, continues to be a problematic and often highly resource intensive process, involving hundreds of thousands of documents or more. That the SFO disclosed so many documents in this case only for the trial to collapse over insufficient disclosure demonstrates this, and shows the importance in criminal prosecutions of the prosecutors complying with their disclosure obligations.
- There may be a tension between the statement of facts agreed between a corporate and the prosecutor as part of a DPA on the one hand, and the indictments subsequently preferred in respect of individuals on the other. While this was not the reason for the Serco executives’ trial collapsing, Mrs Justice Tipples, who was sitting for the trial, reportedly expressed misgivings about how the SFO’s indictment could be sustained against the individuals, in light of the agreed statement of facts. The DPA process itself may therefore undermine the prosecutions of individuals as regards the same underlying circumstances. Furthermore, a party to a DPA is quite unlikely to be motivated to challenge the content of the agreed statements of facts (indeed, quite the reverse) in order to rectify any inconsistency.
- The trial’s collapse will, perhaps, serve to reignite the debate over whether DPAs are an appropriate means of penalising corporates in circumstances where the SFO has not obtained convictions against individuals in respect of the same events. However, it is worth noting in this context that a major benefit of DPAs from the SFO’s perspective is that they can lead to corporates taking responsibility for wrongdoing (albeit through an agreed statement of facts rather than an admission of guilt) without the SFO having to expend the resources necessary to bring a case to trial and establish the criminality to the requisite standard of proof. Given that difference in the DPA process DPAs may remain the best way for the SFO to obtain penalties against corporates whilst at the same time working to ensure organisational/systemic change.