Prosecution Agreement with UK company. On 8 July 2016 ... Under a DPA, the defendant company agrees to .... insight, int
RISK FOCUS FINANCIAL LINES GROUP SEPTEMBER 2016
Serious Fraud Office agrees second Deferred Prosecution Agreement with UK company On 8 July 2016 the Southwark Crown Court approved the UK’s second-ever Deferred Prosecution Agreement (DPA) made between the Serious Fraud Office (SFO) and a company accused of bribery and corruption offences. This follows the UK’s first DPA made between the SFO and Standard Bank, in November of last year following their introduction in 2014.
Their use, which is destined to increase, should prompt directors and officers to review their Directors & Officers (D&O) policies to ensure that, where their interests may diverge from that of their employers during the course of a criminal investigation, directors and officers continue to have the protection of their D&O insurers and are not left without cover.
Crime and Courts Act 2013. They
agrees that, upon approval of the DPA
can be made between a “designated
by the court, the indictment against the
prosecutor” (either the Director of Public
company is suspended.
Prosecutions or the Director of the SFO), and a defendant organisation (but not an individual) where the prosecutor is considering prosecuting the organisation for alleged fraud, bribery, corruption or certain other economic offences. Under a DPA, the defendant company
WHAT ARE DPAS?
agrees to comply with certain
DPAs were made available in the UK
agreed fine) and in turn, the prosecutor
in February 2014 pursuant to the
requirements (such as the payment of an
Of most significance, however, particularly for directors and officers caught up in the same investigation, is that the DPA will contain an agreed statement of facts relating to the alleged offence(s), negotiated between the prosecutor and the defendant company. It will also likely include significant admissions made by the defendant company in relation to the offences
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FINANCIAL LINES GROUP | Risk Focus | September 2016
being investigated by the prosecutor.
internal concerns arose about the
38% of the contracts it examined had
The agreed statement of facts and/or
lawfulness by which certain contracts
been secured as a result of bribery and
admissions could be made adverse to
had been secured by XYZ. As a result
corruption.
the interests of directors and officers.
of those concerns, XYZ retained a law firm to conduct an internal investigation,
THE UK’S SECOND DPA In this second example of a DPA, the
following which XYZ self-reported its findings to the SFO.
Rather than embark on a costly and lengthy prosecution of XYZ, the SFO proceeded by way of a DPA. Under the DPA, XYZ (with financial contribution from
defendant company was XYZ Ltd, a
The SFO commenced an investigation
ABC) agreed to pay approximately £6.5
UK subsidiary of a US company, ABC
into XYZ’s conduct. Importantly, during
million, comprising approximately £6.2
Companies LLC (neither company’s
the course of that investigation XYZ
million disgorgement of gross profits and
identity can be published due to ongoing
continued to cooperate fully with
a £352,000 financial penalty.
legal proceedings against former,
the SFO by providing it with further
again anonymous, XYZ employees).
information. In addition, XYZ made two
Information around the DPA is limited
further self-reports to the SFO as its own
due to the anonymity described above,
investigations revealed further concerns
however certain facts have been
about its historic conduct.
published by the SFO from which guidance can be drawn.
In addition, XYZ has agreed to continue to cooperate fully with the SFO. It will provide, for example, a report addressing all third party intermediary transactions, and provide details to the SFO on the
The SFO proceeded to indict XYZ Ltd for
completion and effectiveness of its
bribery and corruption offences under the
existing anti-bribery and corruption
In late 2011, ABC sought to put in place
Criminal Law Act 1977 and Bribery Act
controls, policies and procedures within
certain compliance procedures for
2010 in connection with the procurement
twelve months of the DPA and every
XYZ. During the course of that process,
of XYZ’s contracts with customers
twelve months whilst the agreement
abroad. Specifically, the SFO alleged that
remains in force.
38% The SFO alleged that 38% of the contracts it examined had been secured as a result of bribery and corruption.
www.jltspecialty.com | Risk Focus
CO-OPERATION OF COMPANIES AND THE FUTURE OF DPAS
5. Prosecution and conviction would
In other words, whilst DPAs will be seen
lead to significant costs and a
as an attractive and cost-effective route
financial penalty that would risk the
out of expensive and reputationally
Importantly, guidance has emerged from
solvency of XYZ, harming the
harmful bribery and corruption trials
interest of its workforce and the
by defendant companies, to achieve
wider community.
a DPA a company must demonstrate
XYZ’s case on when a court will consider approving a DPA in the future. The judge, Lord Justice Leveson (who also
Indeed, in approving the above DPA,
approved the UK’s first DPA last year)
Lord Justice Leveson said: “[This
permitted a DPA in this instance for the
conclusion] provides an example of the
following reasons:
value of self-report and co-operation along with the introduction of appropriate
“exemplary co-operation” and, by necessity, agree the facts surrounding alleged bribery/corruption and make admissions in relation to it.
2. Its internal investigation was fully
can only improve corporate attitudes to
bribery and corruption.”
WHAT DOES THIS MEAN FOR DIRECTORS AND OFFICERS?
3. XYZ provided “exemplary
Further, the SFO Director David Green
The interests of the company and an
cooperation”
CB QC said: “This case raised the issue
1. XYZ’s self-report was prompt
disclosed to the SFO
4. XYZ implemented internal policies
relating to the conduct complained
of going forwards (and indeed it was
those strengthened policies which
led to the discovery of the alleged
conduct by XYZ); and
compliance mechanisms, all of which
about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation.”
individual directors and officers in the context of DPAs may be very different. For example, the concessions made by a company in entering into a DPA will be relevant to the defence, and potentially insurance coverage, of directors and officers caught up in the same proceedings. Statements of facts and
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FINANCIAL LINES GROUP | Risk Focus | September 2016
JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies.
admissions in DPAs, which are publicly
allegations, and conditions relating
available documents, could refer to acts
to the making of admissions) are not
or omissions of individuals within the
impacted by admissions made by their
defendant company.
employers in any DPA. Directors and
Our success comes from focusing
Concessions made by the defendant
on sectors where we know we can
company may even result in claims
make the greatest difference – using
by third parties, shareholders or
insight, intelligence and imagination
stakeholders of the company against
to provide expert advice and robust
directors and officers.
– often unique – solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. Our London based management
It is therefore important that directors and officers ensure that insuring clauses, exclusions and other relevant policy
officers should also ensure that there is sufficient limit available to protect them in circumstances such as these where a company indemnity is unlikely to be triggered. Failure to do so may mean that directors and officers are left funding the defence of an investigation from their own pocket.
terms and conditions (in particular,
For further information, contact JLT
any exclusions relating to criminal
for a free, confidential D&O policy
conduct or bribery and corruption
health check.
liability team was founded in 2001 and now looks after 350+ UK and international clients. Part of the Financial Risks division, with over 120 financial risks specialists, the team has a strong technical focus with an integrated client servicing, broking and claims service.
D&O HEALTH CHECK JLT offers a D&O health check so that we can review your existing cover and
CONTACTS
highlight enhancements to ensure that where possible issues may emerge as a consequence of DPA’s can be resolved.
James Morris Legal and Technical Executive, JLT Specialty Limited +44 20 7528 4308
[email protected] Kurt Rothmann Partner, JLT Specialty Limited +44 20 7528 4961
[email protected] JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com
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This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
