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11 July 2016

SFO v XYZ – the second DPA approved

Categories: Blog, Financial Crime,

Peter Bowles Oct 2018 web

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

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Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

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Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

By Sangeeta Bedi

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

This DPA has been a very long time coming. The SFO has been negotiating with the company’s lawyers for many, many months. There has been a crucial interim hearing from which major change to the financial impact of the DPA resulted. Not much can be said about the full history of the case and the facts due to reporting restrictions imposed, due to related criminal proceedings, but there are some important points of interest arising from the Redacted Approved Judgment released Friday afternoon by Leveson LJ, the President of the Queens Bench Division who also determined the application made for the first DPA, the Standard Bank case in November last year.

Some of those points of interest are: the fact that criminal proceedings against individuals are to follow; the offences for which prosecution is deferred are conspiracy to corrupt and bribe as well as failure to prevent bribery; the extent of the co-operation by the company in the self-reporting process and the extent of privilege claims, the ability of the subsidiary to pay any penalty and why the parent company was persuaded to pay up when it did not have to do so; the relatively small fine and disgorgement ordered and the assessment of the public interest.

This is the first DPA where there will be prosecutions of individuals. Two were charged earlier this year and await trial. For that reason the judgment remains heavily redacted.

The offences which are the subject of deferred prosecution are conspiracies to corrupt and to bribe under the old and the new Acts as well as failure to prevent bribery under the Bribery Act 2010. The offending spans the period 2004 to 2012.

The company self reported to the SFO as long ago as 2012. A lengthy period of co-operation ensued and then a detailed SFO independent investigation involving multiple interviews and substantial document review. The company disclosed oral summaries of witness first accounts and made “proper” claims for privilege over material and information sought by the SFO during the investigation.

This is a case where the parent company which was innocent of any knowledge of wrongdoing (but had innocently received substantial dividends) could perfectly lawfully have taken no part in the criminal process leading to this DPA. The subsidiary, XYZ, could have been left to either negotiate its own DPA or it could have submitted to plea negotiations with the prosecutor and been sentenced after the trial of the related individuals.

The case highlights the question of how far a holding company can be held responsible for paying the criminal penalties that a prosecutor wants to impose for the acts of its subsidiary. In this case a much larger parent had a small UK subsidiary which was alleged to have engaged in corrupt conduct unknown to its parent. XYZ had limited assets and could not pay a large fine. Here the court has approved a pragmatic solution to the problem and the DPA as finally approved by the Court has set out why an innocent holding company should pay up in these circumstances.

XYZ was made the subject of disgorgement over 5 years of gross profits of over £6 million, a financial penalty of £352,000 and past and future co-operation with the SFO in the future relating to this case, a review and maintenance of its compliance programme. The DPA will last for a term of 5 years.

The parent company has agreed to provide financial support to enable XYZ to comply with the terms of the DPA through a long term loan. The parent also returned to XYZ nearly £2 million in dividends innocently received. The judgment makes it plain that there is no obligation on an innocent parent company to do this in these circumstances nor is there any obligation to support a subsidiary in the financial obligations involved in satisfying a DPA.

Why then did the parent do this? The answer seems to lie partly in the adverse perception of even innocent receipt of the proceeds of crime which the court in an earlier hearing pointed out to its counsel and partly in the interests of the parent in maintaining the ability to trade in the market in which XYZ operates, avoiding a debarment risk for XYZ which would have flowed from prosecution and the exceptional nature of this case where there was, it would seem, a great deal of motivation on the part of the SFO to secure an acceptable DPA despite the overall penalty and financial disgorgement being quite low in comparison to the scale of the offending. No costs were awarded to the SFO due to XYZ being so impecunious and no compensation was ordered.

The court made it plain that the parent had behaved in an exemplary way and showed the “highest standards of corporate integrity” but the DPA judgment has this to say about individual wrongdoers involved in wholesale corporate corruption and bribery. They can “expect severe punishment and, absent exceptional circumstances such as obtain in this case, corporations set up or operated [corruptly] are unlikely to survive”.

There is much more to learn from the DPA in this case and it will shape the practice of investigations and the negotiation of future DPA’s in significant ways.

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