Yesterday morning the Serious Fraud Office (SFO) agreed the fifth ever deferred prosecution agreement (DPA) in the UK. It was approved by Mr Justice Davis at Southwark Crown Court. This will no doubt be seen as a welcome victory by the SFO, which has suffered setbacks in other high profile prosecutions recently.
The SFO's investigation related to fraudulent conduct by Serco Geografix Limited (Serco) whereby it fraudulently "cooked its books" to retain additional profit from government contracts to provide "tagging" services to the Ministry of Justice.
Under the terms of the DPA, Serco was fined £19.2 million as well being ordered to pay the SFO's legal costs of more than £3.7 million. The DPA will remain in place for three years, during which time Serco must fully cooperate with all law-enforcement and regulatory agencies and will commit to enhancing the effectiveness of its ethics and compliance programme.
Considering the judgment of Mr Justice Davis, there are some very interesting points to note about this DPA:
Serco self-reported to the SFO and, having done so, demonstrated "substantial cooperation" with its investigation. In particular, it was noted in the judgment that Serco instructed an independent law firm to conduct a full review of the company and provide its findings to the SFO. Furthermore, there was a waiver of privilege in respect of some accounting material. Waiving privilege is something we have previously noted Lisa Osofsky calling for firms to do if they want to increase their chances of securing a DPA. It is therefore very interesting to see that approach being used effectively in practice here and this case provides more useful examples of the conduct required to obtain a DPA.
A unique aspect of this DPA – and one that sets a very interesting precedent for the future approach to any such agreement – is that Serco itself is a dormant company without assets or the ability to effect any meaningful compliance changes. Instead its ultimate parent company, Serco Group PLC, will bear the burden of this DPA. This means that for the three years for which the DPA is in effect, Serco Group PLC will be implementing group-wide compliance changes and engaging regularly with the SFO, including co-operating fully with any and all further investigations and prosecutions in relation to this matter.
Mr Justice Davies noted in his judgement that it is a feature of modern corporate structures that subsidiaries may be convicted for or admit criminal wrongdoing, "yet it will be the parent company which necessarily must engage in any compliance programme and co-operate with law enforcement agencies".
This was also an interesting example of the issues with the "identification principle" in UK law, which has been noted recently in calls for changes to the UK law of corporate liability. In this case, the SFO was able to show that the "directing mind and will" of Serco had committed crimes and therefore the company could be prosecuted but no "directing mind" of its immediate parent company – Serco Limited – could be shown to have be involved in the same way, despite that company being the beneficiary of the fraud. The extent of the investigation and prosecution has therefore been limited, in part, by this legal principle.
We will continue to watch with interest to see what further prosecutions may be undertaken in relation to this case as prosecuting individuals has proved a difficult area in relation to other DPAs. A charging decision will be taken by 18 December 2019.
It was particularly interesting to see Mr Justice Davies explicitly state in his judgment that cynicism about the DPA regime is “not well-founded“. This DPA therefore appears to be just the latest instalment of what the judiciary expects to be a long running trend of UK corporate criminal enforcement by the SFO.
“[DPA] approval will only be given where there is the clearest possible demonstration of integrity on the part of the company concerned once the criminal activity has become apparent. This [requires] early self-reporting to the authorities, full co-operation with the investigation, a willingness to learn lessons and an acceptance of an appropriate penalty. The willingness to learn lessons must be shown via real, substantial, and continuing remedial measures. All of that has been demonstrated by Serco Group PLC in this case.