In a recent article on the first UK Deferred Prosecution agreement (ICBC Standard Bank), attention was focused on the importance of the self-reporting of wrong-doing within the organisation. The SFO made it clear that they expect companies to seriously consider self-reporting as part of exploring enforcement options short of criminal prosecution. Two recent events underline the need to undertake the self-reporting exercise with care.
Brand-Rex Ltd has agreed with Scotland’s Civil Recovery Unit that it will pay £212,800 for falling foul of section 7 UK Bribery Act – Failure of a commercial organisation to prevent bribery. It is the first such agreement in the UK and emphasises the need to develop ‘adequate procedures’ to prevent bribery, especially where an organisation operates through agents and subsidiaries. Brand-Rex operated an incentive programme called “Brand Breaks”. Distributors and installers could earn rewards by exceeding sales targets, including holidays abroad. An installer allegedly gave holidays to an end-user employee with the intent of inducing him to select Brand-Rex products. Even though the installer was independent and the scheme itself was not unlawful, Brand-Rex failed to prevent the potential for bribery and thereby contravened section 7 of the Bribery Act 2010. The background is less important than the fact that settlement was reached following a self-report to the Scottish Crown Office and the Procurator Fiscal. This was under an arrangement whereby companies may avoid prosecution in Scotland following a self-report and it is interesting that the first example in Scotland was concluded in this way.
The second event comes from across the Atlantic, where the Deferred Prosecution Agreement has been part of the US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) enforcement tool kit for years. Keenly aware of how self-reporting can abbreviate costly investigations, the US Securities and Exchange Commission (SEC) announced on 17th November 2015 that companies subject to the Foreign Corrupt Practices Act (FCPA) enforcement actions will need to self-report their potential misconduct to be eligible for deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs).
However, SEC Enforcement Director Andrew Ceresney has made it clear that self-reporting will not guarantee a DPA / NPA. Much will depend upon evaluating the factors set out in their Seaboard report. This includes factors such as - cooperation with law enforcement authorities, remediation and self-policing. These factors were at the forefront of David Green’s mind when he commented upon the first UK Deferred Prosecution Agreement at the beginning of December 2015. As head of the UK Serious Fraud Office, he claims to have received a growing ‘portfolio’ of self-reports and time will tell whether we follow our American cousins in requiring a self-report before a DPA can be considered.
There is little doubt that corporations are being encouraged to review their practices and arrangements with agents and subsidiaries. Section 7 Bribery Act provides the SFO with a very tidy way in which wrong-doing can be identified and attributed to the organisation. Good quality self-reporting will therefore become more important over time and will ultimately underpin the negotiations. It could be the most important commercial decision a company makes and a self-report will not always be appropriate. Directors need to understand what they risk in not taking certain steps. The decision matrix is complex and the DPA arrangement is in its infancy in the UK. Sensible advice is essential in understanding what may result from putting a toe in the DPA water.