Thu, Jul 14, 2016

Serious Fraud Office's Second DPA Highlights Lessons for Global Organizations and Their Subsidiaries

London, UK – The Serious Fraud Office’s second Deferred Prosecution Agreement, approved last week, reinforces the necessity for parent companies and their subsidiaries to ensure robust implementation of appropriate compliance mechanisms, and to instil strong corporate leadership in the ongoing struggle against bribery and corruption. It also demonstrates the value of self-reporting and co-operation with prosecuting authorities in a timely manner.

The suspended charges relate to events between June 2004 and June 2012, during which time a number of the offending company’s employees and agents were involved in the systematic offer and/or payment of bribes to secure contracts in foreign jurisdictions. The SFO undertook a two-year investigation, concluding that “of the 74 contracts examined, 28 were found to have been procured as a result of bribes.

The judgement requires the company to pay financial penalties of £6.5 million, of which £1.9 million will be covered by its U.S. parent company as a repayment of dividends received from the SME during the indictment period.

The concerns were originally brought to light due to the roll-out of a global compliance programme by the parent company in 2011. This enhanced compliance programme identified concerns within the SME in regard to the way in which a number of contracts had been won. The SME took immediate action and initiated an internal investigation. This resulted in a report being made to the SFO on January 31, 2013, which prompted the start of the SFO investigation.

As a result of the “level and nature of [the company’s] co-operation,” the SFO did not seek the maximum financial orders and costs available to it; additionally, the SFO did not press for the costs of the investigation to be recovered, which it had the legal right to do. This indicates a clear benefit of not only diagnosing the problem as early as possible, but also acting quickly to investigate and remediate in a timely manner. In this case, the maximum amounts of financial penalties available to the Court could have caused the financial insolvency of the company, resulting in debarment of the parent company from participating in public contracts.

The proactive approach to investigating internally and reporting thus had a clear positive effect on the future of the organisation and its employees. The court noted that the “implementation of a suitable compliance programme” together with the “exemplary co-operation” by the UK SME and its parent company was what persuaded the court to defer the prosecution, subject to the company complying with the terms of the DPA.

Although the SFO does not give case-by-case advice to companies regarding the nature of an appropriate compliance programme, companies can refer to SFO guidance which, as SFO General Counsel Alun Milford emphasised at a recent speech at the European Compliance and Ethics Institute, “has plainly been drafted by people with an understanding of how bribery occurs, therefore, it gives an indication of some of the lines of enquiry that interest us.”

He went on to give an example of an issue which rings true to the judgement in the recent case brought by the SFO:

“Intermediaries and agents are a classic red flag, particularly where they are purporting to offer assistance in winning business in a country other than the one in which they are based. Only last year, following a study of 427 foreign bribery cases from across the world, the OECD reported that in the vast majority of such cases, the bribery was carried out via an agent or intermediary.”

Kroll’s own experience resonates with this statement. Many of the internal investigations which we have assisted clients with could have been prevented if the company involved had been more proactive in assessing the risk of operating through intermediaries in difficult jurisdictions, and implementing a risk based compliance monitoring programme to detect and monitor these risks.

We are seeing a growing trend in corporates asking for assistance in identifying potential bribery and corruption risk beyond third party due diligence. Kroll is increasingly working with international companies seeking to leverage our data analytics and emerging and frontier market expertise. We enable companies to interrogate accounting data to identify red flags for investigation and conduct onsite bribery and corruption risk assessments.

In recent years, it has become clearer that law enforcement authorities and regulators view bribery risk assessment as an integral part of business planning, and that having adequate procedures in place to prevent bribery is the only defence available to companies facing prosecution. Indeed, in the UK, risk assessment is one of the six principles enshrined in the Ministry of Justice Guidance.

While many senior managers may feel that they already conduct their businesses in an ethical manner, this recent case demonstrates that all may not be as it seems. In order to demonstrate that a company is robustly addressing this issue, a risk-based approach to detection, prevention, and remediation, including timely reporting, can have tangible benefits in avoiding prosecution and the potentially crippling financial and reputational consequences.

Angela Barkhouse, Associate Managing Director
Matthew Weitz, Senior Director

Forensic Investigations and Intelligence

The Kroll Investigations, Diligence and Compliance teams consists of experts in forensic investigations and intelligence, delivering actionable data and insights that help clients worldwide make critical decisions and mitigate risk.

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The Kroll Investigations, Diligence and Compliance team partners with clients to anticipate, detect and manage regulatory and reputational risks associated with global ethics and compliance obligations.