SFO Secures Deferred Prosecution Agreement and LIBOR Convictions
The UK Serious Fraud Office (SFO) will be celebrating after securing two significant public wins last week; its long awaited second Deferred Prosecution Agreement (DPA), and the conviction and sentencing of four individuals for LIBOR manipulation.
After months of speculation, it was announced on Friday that a second entity in the UK had entered into a DPA. The company, which cannot be named due to ongoing criminal proceedings relating to a number of its former employees, will pay financial orders of £6.5 million (comprising a £6.2million disgorgement of gross profits and a £350,000 financial penalty). This sum includes a 50% discount on the sentencing guidelines' financial penalty starting point, together with further discount to recognise the precarious financial position of the company. £1.9 million of the disgorgement will also be paid by the company's US registered parent company (without any liability, but effectively as repayment of a significant proportion of the dividends that it received from its subsidiary over the indictment period).
In addition to the financial terms of the agreement, the company has agreed to continue to cooperate fully with the SFO and to provide a report addressing all third party intermediary transactions, and the completion and effectiveness of its existing anti-bribery and corruption controls, policies and procedures within twelve months of the DPA and every twelve months for its duration. Friday's DPA followed the SFO's success last Thursday in securing stiff sentences for four individuals for their role in LIBOR manipulation. HHJ Leonard QC sentenced the former Barclays Bank employees to a total of 17 years in prison, with the individual sentences ranging from six and a half years to 33 months. The four individuals join Tom Hayes, convicted last year, who is serving 11 years for his role in LIBOR manipulation.
- Last week's developments demonstrate the continued march of the criminal law into the business sphere. We note in particular the following: the possibility of a business obtaining through a DPA a discount on a financial penalty exceeding the usual one third discount for a guilty plea. The Crime and Courts Act 2013 provides in schedule 17 paragraph 5(4) that: "The amount of any financial penalty agreed between the prosecutor and P must be broadly comparable to the fine that a court would have imposed on P on conviction for the alleged offence following a guilty plea." The Code of Practice for DPAs, at paragraph 8.4, records that "current guidelines provide for a one third discount for a plea at the earliest opportunity". This is the discount that Standard Bank secured through its DPA, leading some commentators to question the desirability of a DPA as opposed to prosecution and an early guilty plea. Friday's DPA extended the 30% discount to 50% by way of additional mitigation as the admissions were made "far in advance of the first reasonable opportunity" after charge. The prospect of additional mitigation leading to discounts of up to 50% opens up the possibility for businesses of securing a more advantageous outcome through a DPA than a guilty plea (which can only take place after charge). As a result DPAs become a potentially attractive option.
- the Court's recognition that further discounts may be available if it is not considered to be in the interests of justice for a company to be put into insolvency. In this case the company had dismissed staff, self-reported the issue promptly, and cooperated with the SFO, so that it was "effectively a different entity from that which committed the offence". The impact of a financial penalty on the company's remaining staff, customers and local economy in these circumstances were then also relevant factors in identifying a penalty that was fair, reasonable and proportionate.
- a willingness for juries to interpret as "dishonest" (and therefore criminal) conduct in business which was widespread, and perhaps tacitly accepted at the time by others in that business. The test for dishonesty which the jury assesses involves an objective element, being that of ordinary reasonable and honest people. The Court of Appeal in the Tom Hayes case confirmed that the standards of the LIBOR market or a group of traders in that market is not relevant to that objective standard. Applying that test to the former Barclays Bank employees the jurors found that 3 of them were dishonest (the fourth having already pleaded guilty). This in the context of behaviour which was in plain sight, and without any direct personal gain for the individuals. A stark reminder that reasonable and honest people may consider as dishonest, activity which market participants do not necessarily consider so.