While 2018 was light in terms of UK Bribery Act resolutions, there were a number of highly interesting developments. Some noteworthy events included the installation of Lisa Osofsky as the UK Serious Fraud Office (SFO)’s director, bringing with her a new set of priorities, and the UK Parliament starting a formal review of the Bribery Act. Here’s what to expect going forward from Bribery Act enforcement and the UK Serious Fraud Office (SFO) tasked with enforcing the law.
Please note that this post is part of a Legislation Lessons for 2019 series, which is focused on bringing you updates on the regulations impacting compliance officers the most. Last week we reviewed the lessons from the biggest developments in FCPA enforcement for 2019. We also recently reported on the latest developments from UK Bribery Act hearings and their relevance for compliance officers.
In terms of resolutions, 2018 was a quiet year for the UK Bribery Act. Only one UK Bribery case was actually resolved; the Crown Prosecution Service (CPS) secured a conviction against a small interior refurbishment company called Skansen Interiors for the section 7 offense of failing to prevent bribery. Bear in mind that the Bribery Act only applies to conduct that occurred after its entry into force in 2011.
The Skansen case has been somewhat controversial since it was the first contested conviction under the Bribery Act. Skansen defended itself by arguing that the procedures it had in place, while minimal, were adequate for the size of the business, an argument that the jury did not accept. Moreover, questions have been raised why the company was not offered a Deferred Prosecution Agreement (DPA) like bigger defendants including Rolls-Royce and Standard Bank have previously. As the Bribery Act hearings have shown this year, there is still a lack of clarity about the application of the law; since the number of convictions for section 7 offenses can still be counted on one hand, we can expect jurisprudence to slowly develop with each forthcoming resolution.
Despite the fact that the Act has been in force for over seven years, the number of resolutions remains low due to the fact that the Act does not apply to behavior predating the entry into force of the Bribery Act. However, a number of potential blockbuster UK Bribery cases on the SFO’s docket, including investigations into Airbus and Unaoil, are said to be approaching a resolution; look out for those in 2019. Additionally, the SFO announced in late November 2018 that the first DPA it ever struck, with Standard Bank PLC, had come to an end following the fulfillment of the DPA’s requirements by the bank. While this would normally be cause for celebration, the future of DPAs in the UK looks uncertain following missteps by the SFO in late December.
SFO Under Fire
The SFO has come under fire repeatedly this year, instilling some doubt about the future of the effectiveness of its enforcement. Most notably, the agency’s case against two former executives suspected of fraud in relation to a GBP 250 million accounting gap in the company’s filings was thrown out by the trial judge in late December. The judge considered that “in certain crucial areas, the prosecution’s case was so weak that it should not be left for a jury’s consideration”. The case is a scathing blow to the SFO, as it calls into question its ability to secure convictions and perhaps, more importantly, it may change the calculus for corporations to determine whether entering into a DPA with the agency is beneficial.
DPAs are generally considered favorable to both sides; they provide expediency for the SFO without having to go to court, which corporations generally see as an advantage since they can pay a fine and quickly resolve charges while publicly displaying the company’s efforts at remediation. However, these developments call Tesco’s own DPA, agreed back in April 2017, into question. Did the company voluntarily agree to pay fines over conduct that, as it may appear now, would not have been successfully prosecuted at trial? A very real danger for the SFO is that its weak performance may sway corporations to take their chances in court rather than agree to a DPA.
It does need to be noted, however, that UK prosecutors remain hamstrung by the requirements to prove that “controlling minds” were directly involved in the misconduct; a high bar to clear that both current SFO director Lisa Osofsky and her predecessor David Green have forcefully advocated against.
Moreover, the long-running dispute between mining company ENRC and the SFO continued this year. ENRC has accused the SFO of using privileged information in its probe into the company that it improperly received from the company’s former solicitors. The agency was dealt an additional blow in September when an appellate court decided that documents from ENRC’s internal investigation, including employee interview notes, were subject to legal privilege after all. Without a doubt, this came as a relief to compliance officers everywhere. While most compliance officers will agree with the appellate court’s decision, the move may increase the difficulty of conducting a successful investigation towards a resolution for the SFO.
Lofty Ambitions Under New Leadership
The SFO installed Lisa Osofksy as its new director in September of 2018. How Bribery Act enforcement will change under her leadership is what we will likely see in the new year, but Osofsky has made her top priorities pretty clear.
For one, the SFO is expected to push even more for a US-style model of prosecution with a strong focus on cooperation and self-reporting. Osofsky has made it clear that for her corporate cooperation does not mean merely responding to requests for assistance or information, but rather a proactive stance which practically allows the SFO to make the case against the defendant. As she put it in a recent speech: “point us to the evidence that is most important – both inculpatory and exculpatory. In other words, give us the “hot” documents. Don’t just bury us in a document dump.”
Secondly, Osofsky has made no secret of the fact that she welcomes increasing cooperation between authorities across borders. Moreover, as many have suspected from her background in U.S. law enforcement, Osofsky is slowly moving closer to U.S. style practices. It was revealed that there is currently a DOJ prosecutor stationed inside the SFO, whom she says is “[…] is learning our British ways, and he is teaching our prosecutors DOJ’s ways.” However, the lack of a reciprocal prosecutor on the other side of the Atlantic certainly suggests that the exercise might be lopsided. Compliance officers should expect the SFO to move even closer to the US model of cooperation and self-reporting and adjust their practices accordingly.
Lastly, like her predecessor, Osofsky has forcefully argued in favor of a general “failure to prevent” offense spanning all types of economic crime. The topic was the subject of a public consultation, of which the results have not yet been published, by the UK Government back in 2017. Osofsky argued in favor of such an offense once again in November during a hearing in UK Parliament about the implementation of the Bribery Act. If progress is made on this topic in 2019, the consequences for compliance officers could be significant as more resources would be required to meet the burden of a general “failure to prevent” for all economic crime.
How UK Bribery Act Enforcement Is Changing
Ultimately, 2018 was a year of change and uncertainty for corporate criminal enforcement in the UK. The SFO faced setbacks in terms of lost court cases and continued contention with ENRC, but it has an impressive docket left with cases including the bribery allegations against airplane-maker Airbus and oil firm Unaoil. The new year should tell us whether Osofsky’ lofty ambitions and goals can be met, despite the significant setbacks the SFO experienced this year. Moreover, the release of a report summarizing the findings of the Bribery Act committee hearings may spark legislative activity; particularly the broadening of a “failure to prevent” offense to other economic crime would place a large additional burden on compliance departments. Many of these developments will continue into 2019; compliance officers are well-advised to keep a close eye on the SFO going into the new year.