UK's Serious Fraud Office Agrees to Rare Deferred Prosecution Agreement
This July, the UK's Serious Fraud Office (SFO) entered into a Deferred Prosecution Agreement (DPA) with G4S Care & Justice Services (UK) Limited (G4S C&J), a wholly owned subsidiary of the global security services company G4S Group plc. This marks the eighth DPA to which the SFO has agreed since the tool was introduced into the UK in 2014—and the first that requires an SFO-approved independent monitor to report on G4S C&J's compliance improvements over the DPA's three-year duration. But while the G4S C&J DPA may signal an evolving approach to SFO enforcement, it is not likely to represent a revolution.
As part of the DPA, G4S C&J accepted responsibility for three fraud offences arising out of its false representation of costs under a government supply contract. The company also agreed to pay a penalty of £38.5 million, as well as the SFO's costs for investigating the matter amounting to £5.9 million. In the judgment approving the DPA, Mr Justice William Davis sitting at the Royal Courts of Justice determined the penalty by multiplying the company's unjust profit by 300%—the same as the court would do following a conviction.
The fact that the G4S C&J did not have previous convictions and that the conduct occurred under previous management did not persuade the presiding judge to reduce the penalty. While the court acknowledged that G4S C&J had cooperated with investigators, the company only provided the SFO with access to all interviews conducted, subject to a limited waiver of privilege, five years into its internal investigation. Due to this delay, the court allowed a discount of only 40%, rather than the customary 50% discount, for cooperation.
Further, the court held that an SFO-approved monitor would be assigned for the DPA's duration. Earlier DPAs have allowed companies to self-report their progress to the SFO. We expect that this new feature—so common to DPAs in the US—may be built into future DPAs in the UK. Lisa Osofsky, former counsel at the US's Federal Bureau of Investigation, and current Director of the SFO, recently signalled as much when she noted that the "unique leverage DPAs give  to drive better corporate citizenship"—which she also implied contrasted to convictions.
Still, it is unlikely that DPAs will be used in the UK with the same frequency as they are in the US. One reason for this is that UK DPAs are subject to ongoing judicial supervision. In the US, DPAs are largely imposed and monitored at the discretion of the prosecutor. In the UK, once the prosecutor has entered into negotiations with the corporate defendant, she must seek the court's approval to proceed by demonstrating that the proposed DPA would properly serve the public interest and that the terms sought are fair, reasonable, and proportionate. The resulting agreement is then rigorously scrutinised by the court before it is approved. As acknowledged by Sir Brian Leveson in the UK's first judgment approving a DPA in 2015:
"In contra-distinction to the United States, a critical feature of the statutory scheme in the UK is the requirement that the court examine the proposed agreement in detail, decide whether the statutory conditions are satisfied and, if appropriate, approve the DPA. ... The court retains control of the ultimate outcome."
Procedure aside, the benefits that DPAs provide American corporations may not be as significant in the UK, because the threshold for proving corporate wrongdoing is higher. While US prosecutors are availed of the "respondeat superior" doctrine to attribute the misconduct of employees to their company, UK prosecutors must contend with the "identification doctrine" for most corporate offences, requiring proof that the criminal activity was committed by an individual who was at the material time the directing mind and will of the company. This requirement, emanating from the industrial revolution when companies were controlled by a select few, presents challenges to investigating wrongdoing within complex corporations. Corporations being investigated for wrongdoing in the UK may thus prefer their chances at trial—especially if, as in the case for G4S C&J, the penalties under the DPA remain quite high.
Nevertheless, this most recent DPA serves as a reminder of the requisite quality of compliance measures that corporations must embrace when entering into government procurement contracts. Additionally, it highlights the importance of early cooperation with investigating authorities to achieve the most favourable outcome for a corporation that would otherwise be faced with criminal charges. For further information about this DPA, and wider enforcement issues in the UK, To learn more, read our most recent UK Enforcement Update.
* Lauren Blanchard contributed to this blog post.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.