Insights from the SFO’s third DPA in 2020

On 30 October 2020, Mrs. Justice May approved a Deferred Prosecution Agreement ("DPA") between the Serious Fraud Office and Airline Services Limited ("ASL") - the SFO's third DPA in 2020 and ninth DPA overall. It brings to a close the SFO's lengthy criminal investigation into ASL which began in December 2015 following a self-report made by ASL in respect of concerns that had come to light during an internal investigation (on an unrelated matter). Although the SFO's initial investigation extended across multiple jurisdictions, charges were ultimately brought in respect of one agent based in Germany.

Background

ASL provided services and products to commercial airlines for the refurbishment of aircraft interiors since 1982. Although it stopped trading in 2018, it continued to exist as a non-trading shell entity for the purpose of permitting the SFO to conduct its investigation. The SFO Director, Lisa Osofsky commented, "[i]t is to the credit of this now-dormant company that it voluntarily disclosed this conduct to the SFO and will remain in existence to fulfil the terms of the DPA".

Pursuant to section 7 of the UK Bribery Act 2010 ("UKBA"), ASL accepted responsibility for three counts of failing to prevent bribery arising from the company's use of an agent to win three contracts (the "Contracts") worth over £7.3m to refit commercial airliners for Lufthansa.

In this article we examine ASL's exposure to the section 7 UKBA charges and analyse its cooperation with the SFO.

Failure to prevent

Section 7 UKBA is a strict liability offence and can only be defended if a corporate is able to show it had in place "adequate procedures" to prevent those acting on its behalf from participating in corrupt activity. The adequacy requirement is entirely fact-specific and therefore, not always easy to discern. However, the case of ASL, the statement of facts and judgment depict that this was an easily surmountable hurdle for the SFO.

In handing down her judgement, Mrs Justice May described ASL's compliance procedures as "woefully inadequate" and noted that ASL "had made negligible efforts to educate staff or to introduce processes to identify and counteract occasions of bribery". In advance of the implementation of UKBA, ASL engaged external legal counsel to advise on anti-bribery controls in 2010 but failed to adopt counsel's recommendations, including to implement a draft anti-bribery policy or communicate the UK bribery standards to its staff.  In addition, between 2011 and 2013, only one bribery compliance training event was held at ASL for its senior managers.

For anti-bribery policies and procedures to have any real bite, it is not enough to simply take external advice, or circulate a draft policy to senior management as part of one ad-hoc training session. This, in Mrs. Justice May's words amounted to a ""willful disregard of the commission of bribery offences". Whilst we cannot be sure as to whether the policies and procedures recommended by legal counsel would have been sufficient to deter the improper conduct in relation to the Contracts, what is clear is that the flagrant disregard to address anti-bribery compliance did not give ASL a fighting chance against the section 7 charges.

Incentivising cooperation

Mrs. Justice May cited the following cooperation factors as weighing heavily in favour of a DPA:

1. ASL self-reported the offending to the SFO "in a timely manner";

2. ASL "actively cooperated" with the SFO's investigation, including facilitating interviews with ASL staff and providing access to material requested (often voluntarily);

3. ASL refrained from interviewing its staff once the SFO had begun its investigation;

4. ASL provided the SFO with a limited waiver of legal professional privilege "in respect of ASL's own investigation into the Lufthansa agreements..."; and

5. ASL cooperation extended across jurisdictions i.e. with the German authorities.

ASL's actions duly ticked off the requirements noted in SFO's Corporate Cooperation Guidance. The importance of cooperation has also been emphasised by the SFO in the section of its Operational Handbook on DPAs which was recently revised on 23 October 2020 (accessed here), and summarised in our article.

A feature of all DPAs to date has included praise for the voluntary provision of information, including a limited waiver of privilege, particularly in circumstances where an internal investigation has already been conducted by external lawyers, and this factor was reiterated in the ASL case. It is comforting, however, to note that ASL's waiver of privilege did not extend to all privileged material, which shows that the SFO will accept a privilege claim over some material without it harming the prospect of a DPA.

Financial sanction

The DPA required ASL to pay £2,979,685.76, consisting of a financial penalty of £1,238,714.31, disgorgement of profits representing the gain of the criminal conduct of £990,971.45, and a contribution to the SFO's costs of £750,000. 

Although the maximum discount on the financial penalty following a guilty plea is usually a third, in SFO v Sarclad, Lord Justice Leveson found that in DPA cases "50% could be appropriate not least to encourage others how to conduct themselves when confronting criminality".  Despite its "egregious" conduct on compliance, ASL was deserving of the 50% discount because of its full cooperation with the investigation.

It should be noted, however, that 50% is the same discount that has been awarded to all corporates entering into a DPA post-Sarclad apart from G4S Care and Justice Services (UK) limited whose "full cooperation with the SFO came relatively late in the day" (see our article). Notwithstanding the fact that ASL has one of the best track records on DPA cooperation in comparison to other corporates who were also offered the same discount, the possibility of having a discount greater than 50% in the ASL case did not arise, suggesting that the maximum discount is also available where cooperation is less than perfect.  

Observations

The DPA with ASL appears to have been quite a straightforward application of law and guidance, but there are a few interesting observations:

• A company may identify and report a specific concern to the SFO, but this could lead to a much broader unanticipated investigation into other areas of their business.

• The period between ASL's initial self-report in December 2015 and the agreement of the DPA in October 2020 i.e. 5 years is much longer than the SFO's previous DPAs with e.g. Standard Bank Plc (2 years) or Sarclad Ltd. (3 years).

• Presumably the lengthier period resulted in higher SFO costs i.e. £750,000 in this case in comparison to £330,000 in Standard Bank Plc.

• The fact that ASL became a non-trading dormant entity during the SFO's investigation meant that there was no remediation measures to address in the DPA terms and therefore the 12-month duration is the shortest to date.

• The SFO has confirmed that it will not pursue prosecutions against the individuals involved. Although we may query why a case which warrants a DPA does not warrant the conviction of the individuals involved in the underlying bribery, we also note that the SFO's historic prosecution of individuals associated with conduct in relation to section 7 bribery has only resulted in acquittals thus far (e.g. Tesco and Sarclad).

• The SFO continues to show an appetite to investigate and agree DPAs on "smaller" cases (i.e. in single-digit millions) if they meet the requisite criteria.

• The use of external agents remains risky, even in jurisdictions closer to home, such as Germany (in this case).

• Companies who took anti-bribery compliance advice when the UKBA was first introduced must regularly revisit and update their compliance programmes.  Obtaining advice and then leaving it on a shelf to gather dust as ASL did means that it will not be able to avail itself of the adequate procedures defence under section 7 UKBA if faced with it.

A copy of the DPA, Mrs Justice May's judgment and the Statement of Facts can be found here.

Also see our DPA tracker for up-to-date information on the DPAs approved, rejected or known to be pending approval by the SFO or the Crown Prosecution Service.