Serious Fraud Office wins approval for eighth Deferred Prosecution Agreement

On 17 July 2020, Mr Justice William Davis approved a Deferred Prosecution Agreement (DPA) between the Serious Fraud Office (SFO) and G4S Care and Justice Services (UK) Ltd, relating to a scheme to defraud the UK Ministry of Justice (MoJ) in connection with contracts for electronic monitoring of offenders.

The charges underlying the DPA concerned three offences of fraud (contrary to section 2 of the Fraud Act 2006) arising from a scheme to deceive the MoJ as to the true extent of G4S's profits between 2011 and 2012.

G4S accepted that in excess of £21 million of profit had been acquired by the fraud. The sum had already been repaid to the MoJ in related civil proceedings, and no further disgorgement of profit was therefore considered necessary for the purposes of the DPA.

The DPA

The charges will be discontinued if G4S complies with the conditions in the DPA, namely:

• Payment of a financial penalty of £38,513,277 and the SFO’s costs of £5.9m; and
• Agreement to an extensive programme of review, assessment and reporting on its internal controls, policies and procedures, with performance being guaranteed by G4S plc, the parent company.

The DPA remains in place for three years from 17 July 2020.

Public interest

When addressing the interests of justice in approving the DPA rather than requiring a full prosecution, the court considered a number of countervailing factors. The factors, which lent in favour of prosecution included:

• The fraud related to the working of an important part of the criminal justice system.
• It involved a very substantial loss to the public purse.
• G4SL had demonstrated less than full cooperation with the SFO until a relatively late stage.

On the other side of the equation, factors in favour of a DPA included:

• Prompt reporting in January 2014 by the company to the SFO of the fraudulent conduct.
• Co-operation with the SFO in their investigation.
• The relative age of the conduct.
• The remedial measures taken by G4S plc as the parent company.
• The disproportionate consequences which potentially would flow from any conviction of G4S.
• The potential collateral effects on the public and on the employees and shareholders of G4S in the event of conviction.

Taking all factors into account, Davis J concluded that the proposed DPA was in the public interest.

Osborne Clarke Comment

The decision yet again reiterates that self-reporting, co-operation with the authorities and ensuring effective remediation will be critical factors if a DPA is to be successfully applied for.

On co-operation, the decision indicates that even though G4S was "less than full" until late in the day, this in itself may not prevent a DPA being approved. However, it did result in G4S not receiving the maximum 50% discount on sanction awarded in previous DPAs. The delay resulted in a discount of 40% being granted. The decision also reaffirmed the position that full co-operation will be likely to require a limited waiver of privilege over witness accounts and other internal investigation materials.

The court also had regard to the possibility that the DPA would avoid the possibility of G4S potentially being debarred from future public contracts under discretionary criteria in the Public Contracts Regulations 2015. Evidence from the UK government’s chief commercial officer on the potential impact of conviction on G4S being able to enter into future public contracts was considered by Davis J, and in our view it may be likely that courts will expect to receive evidence on this aspect in future cases where relevant.

A significant aspect of the government's evidence was its conclusion that the remedial action taken by G4S allowed it to be confident that it would be appropriate to continue awarding public contract to G4S. Indeed the focus given by the court to the remediation committed to by G4S was perhaps the stand out feature of this case, with the Judge noting:

"The intensity of the external scrutiny as set out in the DPA is greater than in any previous DPA. This is necessary and appropriate given the exposure of both [G4S] and the parent company to government contracts. Equally, it is an important factor in providing reassurance to the SFO, to relevant government departments and to the wider public that both companies have proper controls in place to ensure the integrity of their accounting and governance processes."

The use of monitors had been expected to increase under Lisa Osofsky’s term as director of the SFO, given she was previously a US prosecutor and a monitor in private practice. In January 2020, the SFO released guidance on its approach to compliance programmes, which pointed to the possibility of external monitors being used more regularly as part of the DPA process.

The G4S DPA includes the appointment of a "reviewer" who will be required to submit two detailed reports to the SFO during the DPA. This represents a significant development from previous DPAs, which permitted companies to report on their own progress as opposed to be being subject to active external monitoring.