SFO secures its second deferred prosecution agreement

Published on 18th Jul 2016

On 8 July 2016 the Serious Fraud Office secured court approval of the UK’s second ever deferred prosecution agreement (“DPA”), following the first such agreement concluded with Standard Bank in November 2015.

In a private hearing Lord Justice Leveson approved the terms of the SFO’s DPA with ‘XYZ Limited’ – an SME operating in the global steel industry which will remain anonymous until the criminal prosecutions of a number of its former employees have been concluded.

The case of XYZ provides helpful further guidance on the circumstances in which the SFO may agree (and the court may approve) a DPA as an alternative to an immediate criminal prosecution. It is now clear that DPAs may be available to corporates as an alternative to criminal prosecution even
in cases of serious and sustained wrongdoing – XYZ was involved in making corrupt payments through its intermediaries for 8 years.

As in the earlier case of Standard Bank, the key contributing factors for XYZ obtaining a DPA appear to be the promptness of its self-report and the high level of co-operation provided to the SFO thereafter. The co-operation of XYZ’s parent company, and its contribution to the financial
conditions of the DPA, were also key in convincing the SFO that there was a real commitment to new compliance measures and achieving cultural change.

What is a deferred prosecution agreement?

DPAs are a relatively new mechanism, available to the SFO since February 2014, whereby the prosecution of a corporate for economic crimes is deferred subject to certain conditions being met – such as payment of a penalty, disgorgement of profits or submitting to external compliance monitoring. If the conditions are met during the specified period then the criminal proceedings will be discontinued, however a breach of the terms of the DPA could lead to the prosecution being pursued.

In contrast to the US where DPAs have already been in use for some time, in the UK DPAs are subject to substantive judicial scrutiny of their detailed terms. In approving a DPA the court must be satisfied that it is likely to be in the interests of justice and that the proposed terms are fair, reasonable and proportionate in the circumstances of the case.

The terms of XYZ’s deferred prosecution agreement

XYZ admitted to both pre and post Bribery Act 2010 offences, specifically: conspiracy to corrupt, conspiracy to bribe and failure to prevent
bribery. The offences arise out of conduct which took place between 2004 and 2012, involving intermediaries of XYZ in various jurisdictions making corrupt payments in order to secure contracts, to the knowledge of certain of XYZ’s senior employees.

XYZ agreed to the disgorgement of profits (approximately £6 million), with nearly £2 million of that sum to be paid by its parent company ‘ABC’ as a representation of a significant proportion of the dividends it received from XYZ. XYZ will pay a financial penalty of just £353,000 – and will not contribute
to the SFO’s costs. This was agreed in the exceptional circumstances of this case, on the basis that a more substantial fine would leave XYZ insolvent and thus would not serve the public interest.

The SFO will also review XYZ’s compliance programme over the lifetime of the DPA – which will run until December 2018 or December 2020
depending on how quickly XYZ is able to satisfy the financial conditions.

Why was a deferred prosecution agreement approved in this case?

In reaching the conclusion that the DPA was in the interests of justice and the terms were fair, reasonable and proportionate, Lord Justice
Leveson considered the following 6 factors:

  1. The seriousness of the offence. XYZ had committed multiple offences over an extended period of time – in contrast to the one-off incident identified in the earlier Standard Bank case. Lord Justice Leveson noted that the Court took such conduct extremely seriously, however there were some mitigating factors including that the conduct was initiated and carried out by third party agents rather than XYZ itself.
  2. The importance of incentivising self-reporting. Despite the seriousness of the offences in this case, Lord Justice Leveson concluded
    there were important policy reasons to incentivise companies to self-report, particularly in cases where it was unlikely that the wrongdoing would otherwise be uncovered. XYZ self-reported promptly to the SFO on discovery of the issue and offered a high level of co-operation
    with the SFO’s own investigation.
  3. The history of similar conduct. XYZ had no history of previous bribery and corruption offences, nor had it been the subject of any prior
    criminal investigation.
  4. The attention given to compliance. XYZ admitted that its corporate compliance programme was
    inadequate during the 8 years over which the offences occurred. However, in 2011 a new compliance programme was put in place by its parent company ABC – ultimately leading to the discovery of the issues and the subsequent self-report. This demonstrated to the Court that ABC had not knowingly made a profit from its subsidiary’s criminality – there was also no suggestion that ABC should have known about the problem earlier.
  5. Cultural and personnel change. As a result of its internal investigation XYZ had dismissed certain senior employees and terminated its relationships with the relevant intermediaries. As a result none of XYZ’s current employees or directors are facing criminal charges. The Court found that XYZ was a culturally different company to that which had committed the offences.
  6. The impact of prosecution on innocent employees and the public. The conviction of XYZ would result in it being unable to participate in public contract procedures in the UK and EU and potentially lead to insolvency – with the consequent impact on its workforce, suppliers and the wider community being considered disproportionate in the circumstances.

How was the penalty calculated?

The calculation of the penalty was clearly a matter that exercised the Court’s thinking over some time. Ultimately the critical factor was the Court’s determination that a strict adherence to the Sentencing Guidelines was not appropriate given that to have done so would have led to the
insolvency of XYZ, which the Court found would have been disproportionate in all the circumstances.

Looking at the Court’s detailed reasoning, it appears that the parties submitted a lower than expected harm multiplier figure of 250%, but the Court found that this figure was always going to be academic given XYZ’s means and ability to pay.

250% of the gross profit from the corrupt payments (£6,553,085) gave a starting point for a financial penalty of just under £16.4 million. Significantly the Court then held, that discounting that sum for a guilty plea, a discount of 50% was appropriate not least to encourage others to conduct themselves as XYZ has when confronting criminality; this reduces the figure to £8.2 million.

However in the view of the Court such a financial penalty was wholly unrealistic for XYZ. It expressly stated that it was appropriate to step back, and consider all the circumstances. These included the conclusion that the interests of justice did not require XYZ to be pursued into insolvency. Thus, XYZ’s means and the impact of any financial penalty on XYZ’s staff, service users, customers and the local economy were all significant factors. In so doing the Court found it appropriate in the precise circumstances of this case to depart from the Sentencing Guidelines.

SFO accountants accepted that £352,000 was a reasonable estimate of the sum that would be available to XYZ to provide towards any financial obligations and that the balance would have to be provided through support from ABC. As a result, taking into account the sum to be disgorged of £6,201,085, a financial penalty of £352,000 led to a total equating to the gross profit on the implicated contracts.

The Court also noted that the figure could also have been reached by reducing the disgorgement and increasing the financial penalty by equal amounts. However, it noted that, taking a pragmatic approach, the overall sum payable (whether called disgorgement or financial penalty) sufficiently marked the offending and was itself fair, reasonable and proportionate.

In terms of costs, the SFO agreed not to seek costs in light of XYZ’s means and ability to pay. With regard to ancillary provision, late payment of instalments under the DPA’s financial terms by up to 30 days need not constitute a breach of the DPA agreement, but at the SFO’s sole discretion, can be subject to interest at the prevailing rate applicable to judgment debts in the High Court.


This case demonstrates that DPAs may be available to corporates as an alternative to criminal prosecution even in cases of serious and sustained wrongdoing. The decision reinforces the importance of prompt self-reporting, open co-operation and taking appropriate remedial steps to implement effective compliance programmes and achieve cultural change. The co-operation of XYZ’s parent company, and its contribution to the financial conditions of the DPA, also appear to have been key contributing factors.

In the exceptional circumstances of this case the Court agreed that it was undesirable to impose a larger fine or a costs order on XYZ which may result in its insolvency; however Lord Justice Leveson also made clear that in other cases this may be deemed appropriate and that impecunious companies cannot be used as a deliberate shield from sanctions for corrupt behaviour.

The departure from a strict application of Sentencing Guidelines, going even beyond a 50% discount for a guilty plea, whilst specific to this case, is significant and will be of great interest going forward.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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