9.1 To co-operate or not to co-operate?
This chapter focuses on corporate co-operation with regulatory agencies and criminal authorities: where and when co-operation is required, its outcomes and its implications. It examines the increasing expectation that corporates should co-operate with investigations, the ever-expanding definition of ‘co-operation’ and factors in favour of and against it. The chapter looks at the current practice and guidance, and recent jurisprudence, with a particular focus on the meaning and application of co-operation in the context of investigations and prosecutions by the Serious Fraud Office (SFO), given that authority’s clear stance that it will prosecute where the evidence allows unless corporates have genuinely and proactively co-operated.
Where co-operation is mandatory, the corporate has no option but to comply, or face criminal or disciplinary sanction. Examples of mandatory co-operation in the UK are:
- where there is a warrant to enter and search premises, and to seize material found therein;
- where a court issues a witness summons for a representative of the corporate to attend court, often with documents;
- where a compelled notice is issued, requiring the recipient to provide information or documents, or to attend for interview, by, for example:
- the SFO under section 2 of the Criminal Justice Act 1987;
- the Financial Conduct Authority (FCA) under section 165 of the Financial Services and Markets Act 2000 (FSMA) where the recipient is an authorised person, or under section 168 where the recipient is any other corporate;1 and
- the requirement that an authorised firm (or person) must disclose appropriately to the FCA and the Prudential Regulatory Authority (PRA) anything relating to the firm those regulators would reasonably expect notice of.2
Where co-operation is voluntary, the debate becomes more interesting. A corporate might wish to co-operate with an authority for a number of reasons. Co-operation may result in a less serious outcome, for example, no action being taken, a regulatory as opposed to a criminal resolution, a deferred prosecution agreement (DPA), fewer charges, less serious charges, or the period of wrongdoing under investigation being reduced. Co-operation is relevant at every stage and will even assist as mitigation in respect of sentence or sanction in the event of a successful prosecution or enforcement action.
A collaborative approach may enable a corporate to manage publicity and communications in conjunction with the authority and limit reputational damage. (See Chapter 35 on protecting corporate reputation.) It may also provide the opportunity to influence the course of an investigation, to avoid an overly protracted process, and to limit the cost to business that an investigation might otherwise entail. An additional benefit in the criminal sphere is the possibility of entering into a DPA, avoiding a conviction and its collateral consequences. Of course, regulatory agencies and criminal authorities will say that co-operating fully on a voluntary basis is also the right thing to do for any good corporate citizen; and while that may be true, it underestimates the myriad and sometimes competing obligations on corporates to their many stakeholders, including shareholders, employees, partners, customers and the markets generally.
9.2 The status of the corporate and other initial considerations
The status of the corporate is key. Is it a victim or witness? Is it the target or the subject of the investigation? Is it currently a witness, but circumstances indicate that it is at risk of becoming a subject? Understanding status is essential to providing proper, informed guidance.
At the outset, establishing the status of the corporate enables the evaluation of potential liability. Is the corporate exposed to risk? Can that risk be mitigated by co-operation? Is immunity a possibility? A consideration of these issues should define how the approach to the authority is made and how the relationship is managed.
If the corporate is a witness, it may be subject to mandatory co-operation requirements, such as compelled requests for information as outlined in Section 9.1. Witnesses face a lower expectation from prosecutors and regulators of voluntary co-operation, in terms of offering up documents and information beyond the scope of specific requests, primarily because additional co-operation offers fewer direct benefits than it might for a suspect. While proactive co-operation may enhance a corporate’s relationship with its regulator or enforcement body, and be consistent with its corporate governance values, a corporate may have good reasons to be circumspect in dealings with the authorities in an investigation. In particular, a corporate witness may have an ongoing commercial relationship with the corporate suspect. This is often the case for professional advisers, such as auditors, who are frequently compelled to provide information in the context of investigations into their clients. In these circumstances, the corporate witness will have to consider its obligations to its client, and also the potential for any disclosure to expose it to regulatory investigation or litigation.
Whether a witness or a suspect, co-operation without a proper understanding of the issues and underlying facts may be difficult. Accordingly, the desire or need to co-operate may trigger an internal investigation to establish the veracity of the allegation, at least on a preliminary basis. Consideration must be given to whether the regulator or criminal prosecutor would want or expect involvement in setting the scope of an internal investigation: its subject matter, its jurisdictional and chronological reach, and whether it is a superficial review or a deep exploration. (See also Chapter 5 on beginning an internal investigation.)
The corporate should be mindful of any mandatory reporting obligations that arise as its knowledge of the allegation increases. Under the Proceeds of Crime Act 2002 (POCA), ‘nominated persons’ in the ‘regulated sector’ must report to the National Crime Agency (NCA) where they have reasonable ground for suspecting that another person is engaged in money laundering.3 There may also be mandatory reporting or disclosure obligations that arise as matters unfold. For example, listed companies will need to consider their disclosure obligations to the market.4
Other initial considerations include legal privilege – invoking it where appropriate, but being sensitive to certain authorities’ mistrust of a company’s claim to privilege over, for example, first accounts of witnesses. (See also Chapter 31 on privilege.)
Where possible, the likely strength of the evidence should be assessed as quickly as possible. Information obtained by a prosecutor during an investigation is generally admissible in criminal proceedings against the corporate.5 A corporate and its advisers should, therefore, have regard to the potential impact of any documents or information they voluntarily disclose being used in proceedings against them and the extent to which voluntary co-operation may undermine any defence that the corporate later wishes to mount.
9.3 Could the corporate be liable for the conduct?
Where criminal misconduct is suspected, the extent of the corporate’s involvement in, or knowledge at the time of, the alleged misconduct will be a relevant factor in whether to co-operate.
Where the allegation is confined to an individual in a junior role, the risk of investigation and prosecution of the corporate may be low on the basis that the ‘directing mind and will’6 of the corporate was not engaged. The category of persons who fulfil that definition is narrow and, while the exact parameters are uncertain, it is usually confined to office-holders, board members and very senior management – those who have the authority (whether derived from the articles and memorandum of association, or similar) to act as the corporation, rather than as its servant or agent. In these circumstances, the benefits to the corporate of voluntarily co-operating with regulatory and enforcement authorities (beyond its mandatory co-operation requirements) may be outweighed by the risks. By voluntarily identifying witnesses and documents beyond the narrow scope of the investigation, the corporate may invite the authorities to look more widely into the issues than necessary or than they otherwise would.
There are, however, some circumstances in which a special rule of attribution of liability applies – where the purpose of the legislation would be defeated if there were the usual hurdle to establishing corporate liability. The public interest in the legislation in question and the policy behind it are key to this. The court will look at the language and purpose of the statute and the particular offence to determine whose criminal act or knowledge was intended to count as that of the company. This special rule tends to be applied to administrative, regulatory or quasi-regulatory offences. Illustrative examples of offences where the court has held the special rule to apply include:
- licensing offences, including sale of video to a customer of inapproriate age; the offence was committed by a company but was carried out by a member of staff;7
- environmental offences,8 including the creation of fraudulent records,9 where the applicable statutory regime is a combination of offences requiring knowledge or intent and strict liability offences; and
- the requirement on a corporate to disclose its substantial holding of securities in a public issuer.10 The individual who failed to make the disclosure was found to bind the corporate – absent that interpretation, the obligation to disclose would be rendered unenforceable.
The Court of Appeal has rejected the argument that corporate liability could be founded on a basis other than identification, based on Lord Hoffman’s opinion in the Meridian case. It held that the identification principles in Tesco v. Nattrass still stood and that Lord Hoffman was doing no more than adapting those principles to a very specific statutory duty.11 The supremacy of the identification principle was also reaffirmed by the Court of Appeal in the St Regis case.12
If the corporate identifies evidence to suggest that the ‘directing mind and will’ of the company was involved in the misconduct, or there is involvement at a lower level in the company and there is a concern that a special rule of attribution might apply, it should consider the benefits of self-reporting before the regulatory or prosecuting body itself comes to this conclusion.
In addition, a ‘failure to prevent’ offence (e.g., section 7 of the Bribery Act 2010) will have a wider application that is not dependent on the identification principle and this should be borne in mind. In a regulatory context the liability of a corporate may also be wider. Moreover, a corporate will of course have liability for acts of its employees from a regulatory perspective.
9.4 What does co-operation mean?
9.4.1 Definition and descriptions
Co-operation with authorities in criminal cases has traditionally been in the form of a guilty plea, and the offer to give evidence on behalf of the prosecution. Increasingly, co-operation is a more nuanced concept: self-reporting,13 saving the authority’s time and resources,14 a willingness to cede a good deal of control of an internal investigation or hand over voluntarily relevant evidence gathered or identified,15 and genuine and consistent transparency16 are referred to by courts and authorities as key aspects of co-operation.
In the fraud arena, the SFO under previous directors has championed co-operation, agreeing civil recovery orders with companies who self-reported. However, case law on co-operation with the SFO is scarce; inevitably little is known publicly about settlements that result in non-prosecution and the negotiations around a self-report will be confidential. Where a non-criminal settlement is the outcome of an SFO case, little may be said in a press release or in open court or about the detailed factual background and nothing is likely to be said about why the case was settled in that manner. Policy and guidance is general and principles-based and it can be difficult to glean insight on the process of co-operation.17 For this reason, the public statements of the Director of the SFO and his senior staff are a valuable source of information about what co-operation means to the SFO, and how to achieve it.
Under 2013 legislation,18 a DPA is available to a designated prosecutor as an alternative to a criminal prosecution. A court-approved DPA is a method of settling a case without a conviction, where a defendant has co-operated fully with the authority (discussed in detail in Chapter 9). The SFO concluded its first DPA in November 2015 with ICBC Standard Bank (Standard Bank). Since then, the SFO has used this case and its subsequent DPA with XYZ Ltd to extol the virtues of voluntary co-operation and has described Standard Bank’s conduct as ‘an object lesson in how to co-operate’19 and referred to the ‘exemplary co-operation’20 of XYZ Ltd.
The recent cases brought under section 7 of the Bribery Act 2010 – in particular the Standard Bank DPA – supported by public statements by the SFO, provide a map of what co-operation means in practice.
9.4.2 Genuine and continual co-operation
Authorities expect co-operation to be genuine, proactive and continual. For the FCA, a firm’s pattern of co-operation over the period leading up to the investigation, as well as during the investigation itself, is relevant. The FCA Handbook notes that: ‘An important consideration before an enforcement investigation and/or enforcement action is taken forward is the nature of a firm’s overall relationship with the FCA and whether, against that background, the use of enforcement tools is likely to further the FCA’s aims and objectives. So, for any similar set of facts, using enforcement tools will be less likely if a firm has built up over time a strong track record of taking its senior management responsibilities seriously and been open and communicative with the FCA.’21
The Office of Fair Trading (OFT) is the predecessor to the Competition and Markets Authority (CMA) and adopted a similar approach with regards to cartel investigations. The OFT has stated that one condition for leniency is that ‘the applicant must maintain continuous and complete co-operation throughout the investigation and until the conclusion of any action (including criminal proceedings and defending civil or criminal appeals) by the OFT arising as a result of the investigation’.22
In the criminal sphere, both co-operation and remorse are mitigating features for which a defendant can expect a reduction in sentence. Where a DPA is under consideration, the key public interest factor against prosecution is co-operation: considerable weight will be given to a ‘genuinely proactive approach adopted by an organisation’s management team when the offending is brought to their notice’.23 Whether a DPA is in the public interest is a focus of the court in its assessment of the proposed agreement. As such, it is unsurprising that the SFO’s expectations of continual co-operation are so high where a DPA is in play.
Co-operation will clearly be considered in the round, by reference to the company’s broader attitude towards the investigation. Companies that make incorrect or unsubstantiated arguments about the underlying nature of the misconduct run a real risk of being deemed unco-operative, a point highlighted by the conduct of Sweett Group: the company was heavily criticised by the SFO and the court for apparently attempting to deliberately mislead the SFO, by attempting to obtain a letter characterising the offending payment its subsidiaries had made as a legal finder’s fee under United Arab Emirates law.24
9.4.3 Prompt reporting to the SFO
A corporate should report to the SFO as promptly as possible, if it wishes to be considered as co-operating. How early a corporate self-reports is a factor the SFO may consider when deciding to offer a DPA.25 This does not mean that corporates should report all allegations of criminal behaviour as soon as they become aware of them.26 The corporate will need to consider and verify such allegations to a certain extent before deciding whether it is necessary and appropriate to take the serious step of reporting itself to the SFO. Reporting wrongdoing but failing to verify it, or reporting it knowing or believing it to be inaccurate, misleading or incomplete is a factor in favour of prosecution.27 What level of investigation is required to ‘verify’ wrongdoing is undefined. The SFO has made clear that this is a judgement for the corporate to make28 with assistance from its advisers. The following factors should be taken into account:
- the alleged criminal conduct should be reported to the SFO before it otherwise becomes aware of it. As such, the corporate should be alert to the possibility of whistleblowers or other organisations or individuals (e.g., NGOs) approaching the SFO,29 and should be conscious of the implications of any other reports that the corporate may have made to other authorities in the UK or overseas;
- the corporate is entitled to conduct an ‘initial assessment’ of the allegation but as soon as reasonable grounds to suspect wrongdoing in the way the company or those associated with it conduct business30 are identified, they should be flagged to the SFO; and
- the first approach to the SFO should not occur at the end of a major internal investigation, months or years after an issue has come to light.31
In the case of Standard Bank, the bank reported the alleged misconduct ‘within a matter of days of it coming to its attention’,32 and, in passing sentence on the bank, the court noted that considerable weight was to be attached to the fact that it had ‘immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter’.33 However, it seems likely that Standard Bank had mandatory reporting obligations under POCA given that the bank’s solicitors had reported the matter to the Serious Organised Crime Agency (which was subsequently merged into the NCA) six days before the bank reported the matter to the SFO.34
In the case of XYZ, a global programme designed to improve compliance in the relevant subsidiary unearthed concerns about specific contracts; as a result, XYZ took immediate action by retaining a law firm to undertake an independent internal investigation.35 Within a month of commencing the investigation, the law firm had informed the SFO that a self-report might be forthcoming. Six weeks later, the lawyers met with the SFO to confirm that XYZ would be making a self-report at the conclusion of the investigation. This was supplemented by continuing assistance and two further reports. The court commended ‘the promptness of the self-report, the fully disclosed internal investigation and co-operation of XYZ’.36
A corporate is unlikely to get credit from the SFO for self-reporting where there is a sense that its hand has been forced, as was the case with the Sweett Group, who apparently only reported the conduct at issue to the SFO following a tip-off from the Wall Street Journal that it was about to publish a story.
Likewise, a cartel member reporting and providing evidence of a cartel will not benefit from leniency if, for example, the CMA is already investigating the cartel, or if another cartel member reported the wrongdoing beforehand.37
9.4.4 Conducting an SFO approved internal investigation
Once a self-report has been made, the SFO expects genuine and constructive co-operation. This means that, following a self-report, any internal investigation conducted by the corporate or its advisers should be done in conjunction with the SFO and with its approval.38 The SFO will want to have a reasonable degree of involvement in the early stages of an internal investigation – to enable it to discuss work plans and timetabling and to give directions.39 The SFO has made clear that it expects promises of co-operation to be backed up with actual co-operation. In the SFO’s view, this requires corporates and their advisers to be open about the scope and methodology of any internal investigation, and not to ‘rush ahead’ and complicate the SFO’s job.40 The SFO does not want to be kept ‘in the dark’ while a corporate carries out ‘extensive private investigations’ and to be presented with findings ‘some months or even years later’.41 It was to Standard Bank’s credit that it ‘conducted a detailed internal investigation that had been sanctioned by the SFO and reported its findings’.42 Sweett Group, on the other hand, was at one point formally notified by the SFO that it was considered unco-operative because of its continuing internal inquiry into the allegations.43
The SFO is at pains to emphasise that it is not averse to the involvement of external legal advisers in the investigation process. Indeed, it has noted that it is ‘already building a track record with some law firms’ on how to manage investigations following a self-report.44 However, the SFO is openly critical of lawyers who, in its view, deploy tactics that delay or otherwise disrupt the investigation process. Some practitioners would argue that the SFO is too suspicious and mistrusting in this regard and that this is the result of a small number of bad experiences where it has been overly reliant on external legal advisers acting for corporates.
9.4.5 Facilitating SFO access to documents and witnesses
The SFO is particularly concerned that the ‘crime scene’ be preserved,45 which means properly preserving relevant documents and ensuring ‘first accounts’ from witnesses are not prejudiced.46 Other regulatory and enforcement authorities, including the FCA, are increasingly adopting a similar stance. (See also Chapter 3 on self-reporting.) A co-operating company should do all it can to assist, rather than obstruct, the SFO’s investigation and the desire to understand the scope of the wrongdoing and the potential for contagion will drive many companies in this direction in any event. In addition to providing timely and complete responses to mandatory document requests, this means:
- proactively taking steps to preserve, and prevent destruction of, all relevant sources of documents (including back-up tapes);
- alerting the SFO to additional sources of documents of which they may not be aware;47
- providing all information that the SFO requires to assess the forensic integrity of the data-gathering process (including records of the steps taken supported by witness statements);48
- not tipping off data custodians;49
- providing access to any document review platform being used by the corporate; and
- providing a copy of a report of any internal investigation completed.
In practice, the level of co-operation requested may feel uncomfortable for a corporate – particularly one not in a regulated sector – unfamiliar with regulatory oversight. Co-operation may involve providing material from overseas, or material that appears to be on the margins of relevance to the investigation, with a willing and uncomplaining attitude. For example, the assistance provided by Standard Bank included providing shared documents collected from: email servers held in Africa, inboxes, hard drives and shared drives, paper files, CCTV images recorded in Africa and recordings of telephone conversations. The SFO would not have had access to much of this evidence had it not been provided voluntarily by the bank.50 Similarly, XYZ identified and provided relevant information that extended the investigation beyond the SFO’s original scope. Email caches were volunteered.
Some practitioners would argue that there should be a curb on the extent of the co-operation expected by the SFO and that corporates should do what they are legally required to do and thereafter exercise careful judgement as to the merits of co-operating further (e.g., there may be risks in identifying and providing material beyond what is sought through mandatory requests).
From a prosecutor’s perspective, achieving best evidence is a key principle in a criminal prosecution. The first account of a witness is crucial, and the circumstances in which it is obtained can be critical to the credibility and efficacy of the evidence. Discrepancies between a first account and subsequent testimony can undermine the prosecution case. As such, the SFO places particular significance on obtaining first access to witnesses, or to notes or summaries of first accounts.51 Many defence lawyers would take a different view, arguing that first accounts are not as helpful and reliable, and therefore as critical, as the SFO maintains. Nonetheless, a failure to co-operate with the SFO in this regard could jeopardise the offer of a DPA.52 In certain circumstances, the SFO or the FCA may expect corporates not to interview witnesses before consulting with them, or they may request that a company does not interview potential witnesses before a compelled interview has been carried out or a witness statement obtained. Where a corporate is able to interview witnesses, the SFO or the FCA may wish to dictate the order in which interviews are carried out, see materials or questions to be put to witnesses and receive copies of any work-product generated following each interview.
9.4.6 Privilege and the SFO
The legal professional privilege often claimed to protect from disclosure communications generated during the course of an investigation is becoming an increasingly vexed issue for the SFO. Public statements by the SFO make clear that it would prefer companies to structure internal investigations so that witness interviews do not attract legal professional privilege, and that it considers as a ‘significant mark of co-operation a company’s decision’ to waive privilege over notes of witness interviews.53 Standard Bank is understood to have not provided notes (or referred to first account witness interviews in its internal investigation report to avoid waiving privilege). Instead, they provided oral summaries. The same was true of XYZ Ltd, which suggests the SFO may be flexible, in certain circumstances.
At the same time, the SFO has indicated a willingness to challenge claims to privilege over such materials where it deems this appropriate.54 It does not readily accept that records of interviews, or at least their factual content, are privileged on any basis. Moreover, the SFO increasingly looks to challenge claims to privilege where an interview is undertaken, in the absence of actual or contemplated litigation, with an employee who may be deemed to be outside the narrow definition of the ‘client’ for the purposes of legal advice privilege. (See also Chapter 31 on privilege.)
9.5 Co-operation can lead to reduced penalties
Co-operation with authorities in criminal cases has always been rewarded with a more lenient outcome for a defendant: whether through the statutory recognition that a sentence should be reduced for a guilty plea at the earliest opportunity (the current guideline being a reduction of one-third),55 through the passing of a less onerous type of sentence (a non-custodial as opposed to a custodial sentence), or through a lower multiplier being used to calculate a fine for a corporate. Conversely, attempts to conceal misconduct will be taken into account and result in a more severe sentence.56
Individuals who plead guilty and offer significant voluntary co-operation with a prosecutor, may be entitled to a lesser sentence under section 73 of the Serious Crime and Police Act 2005 (SOCPA).57 A defendant enters into an agreement with the authorities under SOCPA to provide certain assistance, the extent and nature of which is taken into account when he or she is sentenced. The assistance is often directed at obtaining evidence about other individuals, or establishing facts that advance the investigation. This approach is being used increasingly in fraud and organised crime cases. It has been used effectively by the FCA, and has resulted in defendants avoiding immediate sentences of imprisonment.58
The likelihood of prosecution and the likely sanction in the event of conviction are important factors in any decision voluntarily to co-operate with an investigation by a regulatory or enforcement body. This is primarily because there is no guarantee that voluntary co-operation will result in a reduced sanction or complete immunity. The corporate and its advisers should not lose sight of the fact that, where there are allegations that criminal offences or regulatory breaches have been committed, the regulatory and enforcement bodies’ primary role is to properly investigate and prosecute or otherwise sanction the offender.
The more serious the offence, the less likely it is that a DPA (as opposed to prosecution) will be considered to be in the public interest. The legislation requires any financial penalty that forms part of a DPA (the ‘meat’ of the sentence for a company) to be broadly comparable to a fine the court would have imposed following a guilty plea.59 However, the current Director of the SFO has made clear in speeches that he would like greater flexibility to exist, such that a discount of greater than one-third could be available. In SFO v. XYZ Ltd, Sir Brian Leveson, President of the of the Queen’s Bench Division, allowed a 50 per cent discount ‘given that the admissions are far in advance of the first reasonable opportunity’ and therefore represented additional mitigation. The discount was described as an encouragement to others considering a similar course, and indicates that the court appears to support the Director’s view.60
In the regulated space, co-operation can also lead to reduced penalties. Although regulated firms and individuals are required to co-operate with the FCA, the authority makes clear that proactive co-operation can benefit individuals or firms in a number of ways: this can include not pursuing enforcement action,61 reduced charges or lighter sanctions being sought (something which may ultimately be reflected in the final notice). The FCA’s Enforcement Guide makes clear that the settlement discount scheme allows a reduction in a financial penalty or period of suspension, restriction or condition that would otherwise be imposed, according to the stage at which the agreement is reached. Co-operation appears to be becoming ever more important. The recent consultation on Enforcement Decision-Making considers retaining a firm’s credit for co-operation where the firm accepts the case against it but objects to the proposed penalty (at the moment, that credit is lost).62 Timetables for settlement discussions will be set for efficiency and effectiveness and the FCA will expect firms and others to give it all reasonable assistance in this regard.
In the competition context, cartel members who self-report and provide information about the cartel can benefit from the CMA’s leniency regime. To do so, they must be the first member to report the cartel and must do so before the CMA commences an investigation of its own volition. They must also fulfil certain immunity conditions, which include maintaining continuous and complete co-operation throughout the investigation and refraining from further participation in the cartel activity.63
9.6 Other options besides co-operation
In circumstances where no regulator or enforcement body is yet involved in, or aware of, an issue, whether to co-operate at all (i.e., whether to self-report) remains a judgement call for a corporate taking into account the factors described earlier.
Once a regulator or enforcement body is on the scene, co-operation in its various forms may, as described above, afford significant advantages for a corporate. However, there is still a balance to be struck.
On the one hand, it is important that a corporate does not entirely prostrate itself where that is not warranted, that it constantly keeps under review whether the investigating or prosecuting authority has a provable case, and that it does not admit to facts or enter pleas that it has committed wrongdoing without advice. If the corporate is on reasonable grounds evidentially, it may be well advised to maintain a robust stance in the course of an investigation and even to defend the case at trial. Moreover, other factors may impact the nature and extent of the co-operation that the corporate is prepared, or able, to entertain. For example, some aspects of the voluntary co-operation that an investigative or enforcement authority might expect could be problematic for a corporate where follow-on litigation is pending or threatened, and many corporates will be unwilling to be seen to abandon current or former employees who are themselves under scrutiny and to co-operate in their investigation and prosecution.
On the other hand, where the risk of a conviction (and its potential collateral consequences) cannot be entirely excluded, a guilty plea or a DPA may be more attractive. A DPA will only be available where a corporate is deemed to have been sufficiently co-operative and for both pleas and DPAs the extent of the corporate’s co-operation will impact the sentencing or the fine. However, in the bribery space at least, the outcomes of the guilty plea in the Sweett Group case and the DPA in the Standard Bank case (both involving large fines with similar percentage reductions) have led commentators to consider whether fines would have been materially different in the event of a conviction after a trial. Also, a DPA is likely to include terms requiring co-operation with ongoing prosecutions and continuing disclosure obligations in respect of relevant matters (as seen with the DPA in the Standard Bank case64 and the XYZ Ltd case).
9.7 Companies tend to co-operate for a number of reasons
With all of that said, corporates increasingly choose to co-operate with regulators and enforcement bodies, in some cases very extensively. In some cases, this is just a matter of being a good corporate citizen and maintaining integrity and credibility in the eyes of stakeholders, government and the general public. Sometimes there will be considerable stakeholder pressure (e.g., from a new board or shareholders). Sometimes there is an ongoing relationship with the investigating authority to think about.
In other cases, there may be significant strategic benefits to co-operating. Without some degree of co-operation, a corporate will have little control over, or ability to influence, a regulatory or criminal investigation. Co-operation will often mean the company has a better view of the investigation and a greater degree of communication with the investigating authority, and these may provide an opportunity to influence the course of the investigation, to offer up mitigation to adverse findings immediately and even to effect the discontinuance of an investigation. Co-operation that is thorough and genuine throughout may help resolve the issue in a non-adversarial way (such as through a DPA), while retaining some control over what admissions are made and what is said publicly by the relevant authority.
Certainly, few corporates will take lightly the financial implications of a prolonged investigation or the management time and business interruption it will entail. Nor can corporates afford to be dismissive of the impact a drawn-out process will have on the morale of employees and the risk of ‘talent flight’. For many companies and their stakeholders, gaining clarity and certainty and being able to return to focusing on their day-to-day business will be an absolute priority.
Finally, no company will relish the prospect of a criminal conviction and the reputational impact this will have; and for many companies, there may be broader implications of a criminal conviction, such as debarment from public tendering.
9.8 Multi-agency and cross-border investigations
The ways regulators and criminal prosecutors choose to co-operate with each other are numerous and varied. There is undoubtedly an increasing desire for agency co-operation on domestic and international levels.
For example, in the context of the VimpelCom case, Kara N Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, described international co-operation among regulators as ‘critical to holding companies responsible for all facets of a bribery scheme.’65 In December 2014, the US authorities fined the US division of French infrastructure giant Alstom US$772 million in respect of bribery offences, and expressly acknowledged the assistance received from authorities in Indonesia, Switzerland, the United Kingdom, Germany, Italy, Singapore, Saudi Arabia, Cyprus and Taiwan, and the World Bank during their investigation.66 The SFO commenced its own investigation into Alstom’s UK operations, with information from Poland, Tunisia, Hungary and Lithuania, and sought to rely on the evidence of the US conviction in the UK proceedings. This example highlights the danger that one authority will use information from another to launch an investigation of its own.
Authorities work together in a number of different ways. There are informal channels of communication, agreements or memoranda of understanding (MOU), formal information gateways and treaties for mutual legal assistance (MLA). Nevertheless, authorities may assist each other passively, such as by sharing information they have gathered during their investigations or obtaining publicly available records, or by taking a rather more active role, such as by interviewing witnesses, providing logistical support to enable foreign authorities to conduct their own witness interviews and allowing secondments.67
Authorities share information, increasingly frequently and informally, on an ‘intelligence only’ basis. This has the advantage of speedily progressing an investigation by the exchange of, for example, banking, trading or company data without the delay associated with formal information channels. If the information is ultimately required for evidence in a criminal case, a formal route (i.e., a letter of request (LOR)) will be used to obtain the same information in evidential form.
9.8.2 Memoranda of understanding
Authorities commonly enter into MOU with authorities in other jurisdictions where both exercise similar functions, or are concerned with the same issues (e.g., the PRA and the FCA have entered into a number of MOU with equivalent authorities in other jurisdictions68). Some multi-party MOU exist, such as the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, to which over 109 parties are presently signatories.69 MOU are not legally binding, but declare a shared commitment and aim to provide useful guidelines enabling faster and more efficient information-sharing.
Confidentiality clauses feature in MOU and there are carve-outs where to provide the information requested would violate domestic law or interfere with ongoing domestic criminal proceedings, for example.
9.8.3 Information gateways
There exist a number of statutory powers available to investigatory, regulatory and prosecution bodies to supply and share information with each other, domestically and internationally. These are commonly known as ‘information gateways’ and have a statutory basis.70
For example, Part 9 of Enterprise Act 2002 prohibits the disclosure of information received by the CMA except, for example, where it is disclosing that information to another authority for the purpose of criminal proceedings. This gateway could be used in a LIBOR or FX-type investigation involving both criminal and competition issues.
There are limitations on the transmission of information. Any information so disclosed must be used only for the relevant purpose and the CMA must not make the disclosure unless it is satisfied that it is proportionate.71 The CMA also must (so far as practicable) exclude from disclosure any information that is contrary to the public interest, commercial information that it believes might significantly harm the legitimate business interests of the undertaking to which it relates, or information relating to the private affairs of an individual, disclosure of which might significantly harm the individual’s interests. Where the information is being transferred overseas additional limitations apply (e.g., seriousness of offence, appropriate local protection for the privilege against self-incrimination in criminal proceedings, storage of personal data).
9.8.4 Mutual legal assistance
Mutual legal assistance (MLA) is a formal method of co-operation between countries for obtaining assistance in the investigation or prosecution of criminal offences. The nature of the assistance varies, but includes obtaining documentary evidence, conducting interviews, taking witness statements, requesting the execution of search warrants, freezing assets and producing bank documents.72 Authorities will resort to MLA with their counterparties to receive evidence that cannot be gained through informal (and far quicker) means of co-operation, or where formal evidence is required. For instance, while one authority may ask another to obtain a witness statement, that authority will only be able to comply if the witness voluntarily agrees to give a statement. If that consent is not forthcoming, the requesting authority must instead resort to making an MLA request to compel the witness to provide evidence.
An important limitation for requests under legal assistance treaties is that the requesting country must comply not only with its own laws but with the requested country’s laws: meaning that in practice, MLA requests can be resource-intensive to prepare and serve. Voluntary co-operation with an authority can result in requests for the corporate to obtain documents from overseas where it can, as a demonstration of its ongoing and genuine co-operation.
9.9 Strategies for dealing with multiple authorities
Companies should proceed on the assumption that authorities share (or will) share information and materials. It may be clear from the outset that an issue affecting a corporate operating in multiple jurisdictions would likely attract the attention of authorities in those countries. Alternatively, an authority may effectively be tipped off following a MLA request for assistance from a foreign authority and, on the basis of information provided pursuant to that request, commence its own investigation.
Accordingly, a coherent strategy for dealing with such attention should be formulated from the outset. The company may find it sensible to engage in an open and pragmatic dialogue with each authority regarding matters such as timetables and document requests and be proactive in encouraging the authorities to take the same approach with each other wherever possible.
The following additional points should be considered when dealing with multi-agency investigations:
- Consider what enquiries or internal investigation should be conducted. An internal investigation will enable a company to quantify potential risk and to develop a strategy to cope with concurrent investigations. It can, however, be difficult to structure an internal investigation so that material generated is privileged in each jurisdiction involved (if privilege is even recognised). Moreover, potential exposures in one jurisdiction might mean enquiries elsewhere need to be more circumspect.
- Ensure that an appropriate employee (most likely a member of the in-house legal team) is given specific responsibility for co-ordinating the corporate’s response to the investigations. Where international authorities are involved, the corporate should consider whether to form an internal response team to include employees from all affected jurisdictions.
- When formulating a strategy for dealing with concurrent investigations, consider which authorities are likely to be more influential or proactive and consider adopting an approach that takes into account their likely priorities or concerns.
- Engage specialised legal counsel to interface with law enforcement, including, where subject to overseas investigations, instructing and seeking advice from local counsel as necessary. This is particularly important if complying with a request for information from one authority may leave employees at risk of breaching data protection laws in other jurisdictions.
- Make sure that consistent explanations and documents are given (including considering whether developing a narrative ‘script’ may be helpful), and, so far as possible, that consistent approaches are adopted across all investigations (including coordination with local counsel and any other relevant external advisers).
- Where relevant, attempt to adopt a standardised approach to privilege across all investigations (which may necessitate careful negotiation with all authorities if approaches to privilege in their jurisdictions differ considerably).
- When considering whether to enter into settlement discussions, consider whether it would be beneficial to engage with all authorities at the same time. This may not be possible in circumstances where authorities are at differing stages in their investigation timetables, but would have the benefit of managing negative impacts such as business interruption, reputation and share price, as well as removing the need for ongoing company resource to be dedicated to overseeing the concurrent investigations; encourage an holistic approach to sanctions across multiple jurisdictions, so as to avoid multiple monitorships or duplicative reparation and, where possible, to minimise fines.
Corporates are increasingly expected to co-operate with regulatory agencies and criminal authorities, even when such co-operation is voluntary. The recent DPAs corporates have entered into with the SFO demonstrate this expectation.
Corporates are coming under pressure from the public, stakeholders and government to act as good corporate citizens. Maintaining credibility with capital markets can be an additional factor in a decision to co-operate.
Co-operation is relevant at every stage of an investigation, and for every outcome. It requires continual and genuine assistance, prompt reporting of wrongdoing, and access to hard copy materials, electronic data and potential witnesses.
The conduct of internal investigations, witness interviews and legal privilege are becoming fraught battlegrounds.
Corporates should expect the involvement of multiple agencies across multiple jurisdictions as the co-operation between agencies and authorities increases.
- Where it appears to the FCA that there are circumstances suggesting that a person may be guilty of one of a number of criminal offences (including insider dealing, market abuse, money laundering or certain regulatory breaches under FSMA), it may appoint investigators to conduct an investigation under s.168 FSMA. Once that section is invoked, the investigators assume powers under s.171, s.172 or s.173 FSMA to compel information from non-authorised persons (i.e., corporates or individuals who are not authorised or supervised by the FCA) both in the form of documents and in interview. Where a criminal investigation has commenced, the powers of compulsion are wider than where the investigation is limited to a regulatory breach.
- Principle 11, Principles for Businesses.
- s.330 of the Proceeds of Crime Act 2002.
- See Part 7 of the Financial Services Act 2012.
- Material described in para. 13(6) of Schedule 17 of the Crime and Courts Act 2013 can only be used in limited circumstances but there is no limitation in the use to which other material obtained by a prosecutor during the DPA negotiation period may be put against the corporate or anyone else so far as the rules of evidence permit. See the DPA Code of Practice paras. 4.4 and 4.5 at https://www.sfo.gov.uk/publications/guidance-policy-and-protocols/deferred-prosecution-agreements/.
- Tesco Supermarkets Ltd v. Nattrass  AC 153. Corporate criminal liability is considered more fully in Chapter 1.
- Tesco v. Nattrass (ibid.).
- Alphacell Ltd v. Woodward  AC 824.
- Environment Agency v. St Regis Paper Co. Ltd  1 Cr. App. R.177.
- Meridian Global Funds v. Securities Commission  2 AC 500 PC.
- Attorney General’s Reference (No. 2 of 1999)  2 Cr. App. R. 207, 217-218.
- Environment Agency v. St Regis Paper Co. Ltd  1 Cr. App. R.177, paras. 10-11.
- See, for example, speech by Matthew Wagstaff, Joint Head of Bribery & Corruption, at the 11th Annual Information Management/Investigations Compliance eDiscovery Conference on 18 May 2016 (https://www.sfo.gov.uk/2016/05/18/role-remit-sfo/): ‘the fact of a genuine and pro-active self-report is clearly a factor which will weigh very heavily with any prosecutor who is considering the application of the public interest limb of [the Full Code Test as set out in the Code for Crown Prosecutors]’. See also SFO v. Standard Bank plc, Approved Judgment, Case No. U20150854, paras. 27-28: ‘The second feature to which considerable weight must be attached is the fact that Standard Bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter . . . . Credit must also be given for self-reporting which might otherwise have remained unknown to the prosecutor . . . . Were it not for the internal escalation and proactive approach of Standard Bank and Standard Bank Group that led to self-disclosure, the conduct at issue may not otherwise have come to the attention of the SFO.’
- See, for example, speech by Alun Milford, SFO General Counsel, at the European Compliance and Ethics Institute, Prague, on 29 March 2016 (https://www.sfo.gov.uk/2016/03/29/speech-compliance-professionals/): ‘The Standard Bank case shows how this can be made to work in practice. The bank first came to us within days of learning it had a problem. We discussed next steps with them and they conducted an internal investigation, gathering in information from across its various businesses. Their written report was thorough and it served as a helpful spring-board for our own independent investigation. Their conduct was an object lesson in how to co-operate. In return, we were able to complete our investigation within a shorter period of time than if we had not had their co-operation.’
- See, for example, speech by Ben Morgan, Joint Head of Bribery and Corruption at the SFO, at the Annual Anti Bribery and Corruption Forum on 29 October 2015 (https://www.sfo.gov.uk/2015/10/29/ben-morgan-at-the-annual-anti-bribery-corruption-forum/): ‘The next question once you have decided to speak to us, and chosen your moment to do so, is what happens next. This is where the issue of co-operation really kicks in. We want you to engage with us on how investigation of what has happened takes place, and to respond to our interests in doing so.’
- See, for example, speech by Ben Morgan, Joint Head of Bribery and Corruption at the SFO, at the Global Anti-Corruption and Compliance in Mining Conference 2015 on 20 May 2015 (https://www.sfo.gov.uk/2015/05/20/compliance-and-cooperation/): ‘Our stance is to ask for genuine cooperation with our investigation, not duplication of it. We don’t expect you to keep us in the dark while you carry out extensive private investigations and some months or even years later present us with a package of your findings. . . . We expect you to engage with us early, and to work with us as we investigate, not to rush ahead and, whether intentionally or not, complicate the work we need to do.’
- See, for example, SFO Operational Handbook.
- Crime and Courts Act 2013.
- See speech by Alun Milford, SFO General Counsel, at the European Compliance and Ethics Institute, Prague, on 29 March 2016 (https://www.sfo.gov.uk/2016/03/29/speech-compliance-professionals/).
- See press release: www.sfo.gov.uk/2016/07/08/sfo-secures-second-dpa/.
- FCA Handbook EG 2.12.1.
- Para. 2.7(c) of ‘Applications for leniency and no-action in cartel cases’, guidance document OFT1495, July 2013 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284417/OFT1495.pdf). The CMA Board has adopted this guidance, which has been retained unamended but does not take account of developments since its publication (see https://www.gov.uk/government/publications/leniency-and-no-action-applications-in-cartel-cases.).
- DPA Code of Practice para. 2.8.2.
- R v. Sweett Group, Sentencing Remarks.
- DPA Code of Practice, para. 2.9.2.
- See Alun Milford’s speech on 29 November 2016.
- DPA Code of Practice, para. 2.8.1(vi).
- See, for example, Ben Morgan’s speech of 29 October 2015.
- See, for example, Matthew Wagstaff’s speech of 18 May 2016.
- See, for example, Alun Milford’s speech on 29 March 2016.
- See, for example, Ben Morgan’s speech of 20 May 2015.
- SFO v. Standard Bank plc Statement of Facts prepared pursuant to para. 6(1) of Schedule 17 to the Crime and Courts Act 2013, para. 4.
- SFO v. Standard Bank plc, Approved Judgment, Case No. U20150854, para. 27.
- Press release entitled ‘SFO agrees first UK DPA with Standard Bank’, 30 November 2015 (https://www.sfo.gov.uk/2015/11/30/sfo-agrees-first-uk-dpa-with-standard-bank/).
- SFO v. XYZ Ltd, Redacted approved Judgment, Case No. U20150856, para. 11.
- Ibid. at para. 16.
- Para. 2.9 of ‘Applications for leniency and no-action in cartel cases’, guidance document OFT1495, July 2013 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284417/OFT1495.pdf).
- DPA Code of Practice, para. 2.9.2.
- DPA Code of Practice, para. 2.9.2.
- See Ben Morgan’s speech of 20 May 2015. See also Matthew Wagstaff’s speech of 18 May 2016.
- See Ben Morgan’s speech on 29 October 2015.
- SFO v. Standard Bank plc, Approved Judgment, Case No. U20150854, para. 29.
- ‘SFO views Sweett Group as non-cooperative’, Global Investigations Review, 12 November 2014 (http://globalinvestigationsreview.com/article/1016639/sfo-views-sweett-cooperative).
- See Ben Morgan’s speech on 29 October 2015.
- Ben Morgan speaking at the Global Anti-Corruption and Compliance in Mining Conference on 20 May 2015 (https://www.sfo.gov.uk/2015/05/20/compliance-and-cooperation/).
- DPA Code of Practice, para. 2.9.3.
- See Ben Morgan’s speech of 29 October 2015 where he gives the example of suggesting additional key-words that the SFO may not have identified.
- See Alun Milford’s speech of 29 March 2016.
- See Matthew Wagstaff’s speech of 18 May 2016.
- SFO v. Standard Bank plc Statement of Facts prepared pursuant to para. 6(1) of Schedule 17 to the Crime and Courts Act 2013, para. 4.
- See, for example, Alun Milford’s speech of 29 March 2016: ‘Why are witness first accounts so important to us? The immediate point is that they simply help us understand quickly what went on. Of course we can and we will go to speak to witnesses ourselves but companies who tell us what they were told during the course of an internal investigation plainly help us in the course of our inquiries. There is a second reason why we want witness accounts. As I have previously made clear, people who give an account to an internal investigation are liable to be witnesses in any criminal case we might bring. In considering the evidence witnesses might give us, we are duty-bound to assess its accuracy and integrity. So fundamental to prosecutors is that duty that it is set out in the Code for Crown Prosecutors. An important way in which accuracy or integrity is tested is by reference to first accounts. Plainly, if we do not have first accounts then our ability to assess witness credibility might be affected to the extent that we might not be able to call them as witnesses.’
- DPA Code of Practice, para. 2.9.2.
- See Alun Milford’s speech of 29 March 2016.
- 'SFO chief takes on company lawyers’, The Times, 5 February 2015 (http://www.thetimes.co.uk/tto/law/article4344807.ece).
- s.144 Criminal Justice Act 2003, and the Sentencing Council Definitive Guideline on Reduction in Sentence for a Guilty Plea. See also Attorney General’s Guidance on the acceptance of pleas: https://www.gov.uk/guidance/the-acceptance-of-pleas-and-the-prosecutors-role-in-the-sentencing-exercise.
- See, for example, ‘Fraud, Bribery and Money Laundering Offences Definitive Guideline’ 1 October 2014, p. 50. (See also Chapter 23 on fines, disgorgement, etc.)
- This applies where an offence specified under the Schedule to SOCPA has been committed. Prosecutors holding SOCPA powers include the CPS, FCA and SFO. See also CPS Guidance on SOCPA: http://www.cps.gov.uk/legal/s_to_u/socpa_agreements_-_note_for_those_representing_assisting_offenders/.
- For example, R v. Anjam Ahmed; sentencing hearing at Southwark Crown Court, 22 June 2010; a SOCPA agreement was in place resulting in a suspended, rather than immediate, term of imprisonment. (See also Chapter 23 on fines, disgorgement, etc.).
- Crime and Courts Act 2013, Schedule 17, para. 5(4).
- SFO v. XYZ Ltd, Redacted approved Judgment, Case No. U20150856, para. 57.
- See FCA Handbook EG2 2.1.4.
- FCA Consultation Paper CP16/10 on Proposed Implementation of the Enforcement Review and the Green Report, para. 5.15.
- https://www.gov.uk/guidance/cartels-confess-and-apply-for-leniency and https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284417/OFT1495.pdf.
- Deferred Prosecution Agreement between Standard Bank PLC (now ICBC Standard Bank PLC) and the Serious Fraud Office (https://www.sfo.gov.uk/cases/standard-bank-plc/).
- SEC press release: ‘VimpelCom to pay $795 Million in Global Settlement for FCPA Violations’, dated 18 February 2016 (https://www.sec.gov/news/pressrelease/2016-34.html).
- DOJ press release: ‘Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges’, dated 22 December 2014 (https://www.fbi.gov/news/pressrel/press-releases/alstom-pleads-guilty-and-agrees-to-pay-772-million-criminal-penalty-to-resolve-foreign-bribery-charges).
- See, for example, the text of a speech given by Assistant Attorney General Leslie R Caldwell in Bogotá, Colombia, on 12 April 2016, in which she stated that the Criminal Division of the DOJ contemporaneously had ‘prosecutors stationed in at least 45 countries’ (https://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-speaks-catholic-university-colombia).
- See, for example, the MOU between the Dubai Financial Services Authority and the PRA dated 12 June 2014 and the MOU between the Bank of Korea and the PRA & Bank of England dated 16 December 2014. Other examples include the MOU between the CFTC and FSA dated 17 November 2006 (‘developed . . . in order to enhance their respective capabilities to address potential abusive or manipulative trading practices that may involve trading on UK and US derivatives exchanges’) and the MOU between the SEC and the FCA dated 22 July 2013 concerning the consultation, co-operation and exchange of information related to the supervision of the relevant entities in the asset management industry.
- May 2002, revised May 2012. A list of current signatories can be found here: http://www.iosco.org/about/?subSection=mmou&subSection1=signatories.
- For instance, the information gateway for the SFO is in section 3(5) of the Criminal Justice Act 1987, for the CMA in Part 9 of the Enterprise Act 2002 (EA02) and the FCA and the PRA within section 349 of FSMA 2000.
- Further guidance as to the types of assistance available from the UK authorities can be found in section 3 of the Home Office publication ‘Requests for Mutual Legal Assistance in Criminal Matters: Guidelines for Authorities Outside of the United Kingdom – 2015’ (12th edition – May 2015).