It’s time to talk: trust, relationships and the SFO

15 Medi, 2016 | Areithiau

Ben Morgan, Joint Head of Bribery and Corruption, at Global Investigations Review: Live,  New York City, USA.

Good morning.

Thank you for this opportunity to address GIR Live: New York City.

It is an important opportunity for the UK Serious Fraud Office to speak to you, some of the leading advisors in the complex fraud, bribery and corruption space. That being your specialisation, I am going to take for granted that you all know what the Serious Fraud Office is, what we do and why.

In terms of where we go this morning then, I want to concentrate on just two connected points. They are first, the relationship between you (the defence bar) and us; and secondly, why we seek cooperation from your clients.

Taking one step back, I’m conscious that cooperation with the SFO, be it from companies or their advisers, is a subject that comes up a lot, and one that we regularly talk about. The reason is that in the UK it is an area of engagement that is relatively new. 

Our main job though is to be a prosecutor. In that capacity, the relationship between us, defendants and their advisors is well established.  The roles are clear and the rules of engagement are understood. So although it’s the majority of the work we do, prosecution is something we say disproportionately little about – and that’s because there is not much that is new or that any of us is likely to do differently. 

So, I wanted to note that up front, lest it be thought that cooperation and Deferred Prosecution Agreements is all the SFO is interested in. That is emphatically not the case.  That our first DPA was immediately followed by a corporate conviction on a guilty plea might be said to demonstrate that.  But with cooperation and Deferred Prosecution Agreements we think there is still real value in us reaching out to you and your clients.  Unlike here in the US, at the moment it is a less well-trodden path in the UK, and one that it is worth exploring further. So that’s why I really want to talk about relationships and cooperation today.

Relationships

I said I would take for granted that you are all familiar with the SFO more broadly. I am quite confident in making that assumption, having had a good look at the GIR website and some of the comments and articles a number of you have published. Of particular interest was the annual “Due Process Guide” published in June this year.

For anyone who doesn’t know, this appears to be basically an end of term report, summarising and commenting on SFO activity which has made it into the public domain over the preceding year. We were even marked for our performance, achieving a creditable, if modest, “B+”. Not a resounding endorsement perhaps, but solid enough from a group of people who I suppose would traditionally be considered our adversaries.

Question 1 in your Due Process Guide is “what do lawyers think about the [SFO]?”, and that question is answered comprehensively in the Guide. It’s an important question, but in in any functioning relationship, both parties should have their say.  So I thought, imagine if we got to score you? What do we think about you?  What would your end of term report look like?

Well, as a general comment, it would commend the work done by first-rate lawyers who are trusted by their clients to deal with the SFO on often highly complex matters. We recognise and respect the quality of the vast majority of the representatives we deal with.

Going into the detail, it would set out the differences, which I find fascinating, in how you each go about doing this work. It is fascinating because being the focal point for the cases you are all instructed on, we have a unique insight into how you each approach them, and there is a significant variance in our experience.

There are those of you instructed to oppose us. We have no problem with that. Your clients have every right to defend themselves and to use the best lawyers they can find to do so. In the end a jury will give its verdict, and that’s as it should be – as our Director has described it, the “least imperfect system” for determining criminal liability.

Separately, there are those of you instructed not to oppose us per se, but rather to cooperate with us, and frankly that is the area on which we can most usefully focus our attention. I’ve said before that there are two schools of practice: those who embrace our request for cooperation wholeheartedly and those who do it half-heartedly, saying one thing, doing another, hoping to keep their options open.

That remains the case, but like sand draining through an hour-glass, the distribution is steadily and irresistibly changing from the half-hearteds, to the whole-hearteds. There really is a pronounced difference now in the way companies are routinely approaching us – “we think we’ve got a problem and we’re willing to work with you to find out, and if necessary resolve it”, not “there’s nothing to see here, good luck finding anything out, but we felt we had to come and say something”.

I know there are still some here who profess to take great offence at the requests we make when we seek cooperation and rarely miss an opportunity to say so. That is not conducive to building a relationship with us.  Believe me when I say there are many more among you – the significant silent majority – who do not object to everything we ask, who are not ‘noisy gongs’ or ‘clanging bells’, but who are gently going about their engagement with us in a measured, cooperative way. Cautious? Yes of course, understandably, but fundamentally listening to what we say and finding a positive way forward. These are the people I personally think are really serving those they represent, securing or moving rapidly towards realistic, balanced disposals of the risks their clients face.

This means, for example, despite the near obsession with the subject of privilege in articles and blogs, in many cases we have readily reached agreement with companies and their lawyers concerning access to witness accounts, where they exist. Behind all the noise, lots of people are quietly overcoming this and other perceived barriers when they deal with us.

I am reluctant to say anything new on the subject of privilege as it will no doubt generate yet more copy, but I will say this – to the extent that there is any genuine confusion between us on the matter, we have thought hard about why that is the case. The only reason we can really come up with is the fact that it is impossible, of course, to make a single statement about access to evidence that would apply to any given situation without further thought being necessary.   It may be that that causes frustration for those wanting to describe our approach to, say, witness accounts, in the abstract.  But I hope it is uncontroversial that the way we go about finding out what witnesses said, and hence the extent to which we might be satisfied with any particular representations from you, varies.  The reason it varies might be any of the following:

• The circumstances under which a first account took place;
• Whether there are likely to be any human defendants with liability arising from the matter;
• The extent to which contemporary records, written summaries or oral summaries accord with or differ from our own understanding of the case, based on our own investigative work;
• The stage of any internal investigation that the company has reached before it comes to speak to us, together with the steps that they or we still wish to carry out; and
• The quality and impact of other cooperative steps the company has taken.

To those involved in cooperative discussions with us, those points will be familiar and obvious. If a company is aware it has risk it wishes to resolve, then it should be able to count on its external advisors to navigate an appropriate path through this issue.

So when it comes to the relationship between the SFO and the defence bar, I can’t overstate the importance of engaging constructively with us on a case. We invite a free-flowing dialogue on subjects like this, and indeed many others. That may not make for great headlines or eye-catching articles, but it invariably results in a better understanding of each other’s positions, and how to advance them.

For those instructed to cooperate with us, we make this offer to build trust and understanding, and you will find us ready to maintain that approach if you reciprocate. That is the relationship we think is both in our own interests – it is not a selfless policy – and those of your clients. 

It is perhaps also in yours. I say that because unlike your clients, when one matter is over I imagine from a professional perspective you will want to quickly engage with us again on a new instruction.  I am aware of the effort many of you go to to earn and retain the trust of the Department of Justice from one matter to the next.  It seems to be a feature of the market.  That is bound to come to apply in the UK, too, as more corporate cases continue to make their way through the system.  If you have played the half-hearted cooperation game with us on one case, you inevitably carry that with you.  It is harder for us to build trust on a new case with people who pretended to do one thing, but really did another, on the last one.  Conversely, if we have worked well together on a previous case, then it is going to be easier to get off on the right foot on the next one.

So thank you to those of you who have accepted our offer. I genuinely think we are in an era where a different type of relationship is possible. I can’t say I understand the tactics of those of you who have rejected our offer, but no doubt you have your reasons.

So what about your end of term report then? Well, in recognition of the silent majority, in the spirit of improving this relationship, but after some considerable debate, we give you an A minus. Just. 

Why do we seek cooperation from companies?

Moving to my second point – why do we seek cooperation from companies? I’ve talked about our relationship with you, but this is different, this is the question of why we seek cooperation from your clients. 

First of all, I think it is worth pausing briefly, to think about what it is we are doing when we talk about “cooperation”, “resolutions”, “Deferred Prosecution Agreements”, “relevant conduct”, “compliance irregularities” and all that. There is perhaps a danger of losing sight of the underlying matters that cause us all to debate these issues, in rooms like this, in articles, or in lawyerly correspondence. It is quite wrong, is it not, to debate them as if they exist in a vacuum, no more than sterile points to spar over, annoying when the SFO wins, funny when we lose. 

Our discussion cannot take place at arm’s length from the actual conduct in question, like a synthetic derivative distantly referencing a mortgage portfolio. Just as the truth behind those financial products is actually the lives and homes of real people, so too the truth behind our engagement on corporate corruption is the citizens of states whose officials take bribes. Those who cheat their people for personal benefit, made possible by companies willing to pay them. I’m not going to labour the point, but there can be no doubt those crimes damage people’s lives, and I would be surprised if when you strip away your role in the system, there are many here who disagree with that.  So the reason we seek cooperation from companies is because it can be a quick and certain way of achieving justice for those criminal offences, now that we have the legal machinery to do that.

It has been an interesting time in the UK recently with the introduction of the Bribery Act and then the Crime and Courts Act which created the architecture for DPAs. Both of those things were significant new territory, and they are now embedded, and beginning to mature. We’ve had the second UK DPA, and as with the first the helpful guidance in Lord Justice Leveson’s judgment helps us all begin to understand what an appropriate non-trial outcome for corporate bribery looks like. As a result, many of your clients are now routinely exhibiting the features of cooperation that the DPA Code identifies.  I would note that there is one area that really does still need to improve, and that is the timing of reporting. What we are really looking for is companies to come to us having formed the view entirely independently that they should. A number have, recently, but we are still getting the other type of self-report, if I can call it that, from time to time – the one where the company’s hand has been forced by other factors, and only then does it come in with a defensive move, professing to want to do the right thing after all. That is a bad start, and it needs to get better.

One particularly notable feature of the second UK DPA is the financial penalty. It demonstrates in real life one of the prevailing policy reasons that caused DPAs to be introduced, namely striking the balance on how to deal with good corporate citizens who detect but are willing to resolve problems in their organisations. It is vital that adequate sanction takes place – to remove illegal benefit; to administer an appropriate additional financial penalty to deter others; and wherever it is possibly to identify them, to compensate victims.  But equally if DPAs are to regularly unearth wrongdoing that might otherwise go undetected, there does have to be an incentive for people to come forward.

That creates a tension, and in the UK, even in a DPA the overall sanction is ultimately a matter for the court, not us or the company in question. What we know from our still nascent experience that the court is likely to be sympathetic to arguments about the correct level of financial penalty, both to ensure that innocent parties like employees and pensioners are protected and to incentivise other companies to cooperate with the SFO.

At the SFO, we welcome that and we well understand that the commercial context of a resolution with us is an important factor. So why do we want your client’s cooperation?  We want it not because we particularly want to ‘do a deal’, not because it is really any easier for us than a prosecution would be, and not because we think the underlying offences and the harm they cause are in any respect not serious.  We welcome it for the reasons Lord Justice Leveson identifies – to reach resolutions that are sufficiently severe, but that protect innocent people, and incentivise others to come forward and confront the wrongdoing that has taken place in their organisations.

The latter point – incentivising others to come forward – is an important one, and I want to say a little more about that now. At the SFO we are under no illusion that there is a huge amount of conduct that we do not, yet, know about. I don’t think that’s controversial. We currently have live cases in many sectors – Financial Services, Pharma, Defence, Aerospace, Transport, Construction, Commodities, Natural Resources, Retail, Professional Services and others. In doing that work, nothing makes us think that we know it all – quite the contrary, all the indications are that we are dealing with the tip of the iceberg. There is more work to be done.

Incentives are a key part of our strategy to do that work, which has two limbs.

The first is the prospect of what I’ll call positive incentives. The theme of what I’ve said this morning is we want you, and your clients, to come and tell us. That is unquestionably the most efficient way for us to use our resources, and is the way that the points I made earlier can be achieved most quickly – stripping of illegal gain, deterrence, and compensation of victims.  So we welcome positive incentives for your clients to come forward.  It has long been said that the one third discount on a penalty, being equivalent to the maximum available on a guilty plea, is not sufficiently attractive. As it happens, at the SFO we can see the force in that argument.  It is clear, however, from the second DPA that in the right circumstances the court will support a deeper discount up to 50%, and separately, might take into account other relevant financial matters. If taken together with the other benefits of a DPA, these have the effect of more companies coming forward, then that can only be a good thing in the overall interests of justice. We fully support it and in the right cases would look to build overall resolutions that include more than one third discounts on the financial penalty component.

The second limb is negative incentives – and I’ll finish with this point. What if a company doesn’t come forward, but sits on an issue, playing the odds game. And that brings us full circle back to where I began. For all the talk of relationships and cooperation, we are a prosecutor and where necessary we will and do prosecute. I can’t deny that hiding a matter is a strategy that may well work. It is a gamble; we may never find out. But it’s a high-stakes gamble. There are few things more likely to stir our prosecutorial instincts than coming across a matter that has been suppressed. If you have a client in that situation, you can leave the DPA Code on the shelf, and prepare for old-fashioned defence work. The only dialogue we are likely to be having then is around basis of plea, if they don’t want a trial.

On that, it may interest you to know this. It is true that we are receiving more corporate self-reports now than at any time in the last four years. I think there were three significant matters in one week shortly before I travelled out here. But our self-generated work still accounts for the majority of the cases we take on. At our last tasking and coordination meeting, where we look at the pipeline of work that is going to transfer onto the operational divisions, all of the most pressing cases were ones we’d worked up ourselves. When I took up this post three years ago, you heard a lot in speeches at that time about investment in our intelligence capability. Well, that investment is now really paying off. It is impressive to see how that team operates now, developing sources, handling whistle-blowers, interrogating data, joining the dots from one case to another, and mapping key corrupters in particular jurisdictions or industries. That results in significant new cases involving major companies, and the people who have influence in them.

So as I say, we know there is a lot of work out there for us to do, and we have the strategy and expertise to do it. Whether it’s because your client came to see us, or we came to see them first, at the SFO, we are extremely busy investigating and prosecuting the top tier of fraud, bribery and corruption.  I think it is worth investing time trying to create the best professional context within which that work can take place, and as I said earlier, I genuinely think we are in an era where a different relationship is possible, which is why I am glad to have been invited to address you this morning. 

I hope you have found it useful, and thank you for listening.