Acquittal of Sarclad executives: a further nail in the coffin for DPAs?
Last week three former executives of Sarclad, a company that designs and manufactures technology based products for the metals industry, were acquitted of conspiracy to corrupt and conspiracy to bribe. The jury found the three accused men not guilty of conspiring with sales agents based overseas to agree bribes in relation to 28 separate contracts between June 2004 and June 2012, which earned Sarclad a gross profit of £6.5 million.
The majority of the implicated contracts (24 out of the 28) predated the Bribery Act 2010, and although four of the contracts post-dated the 2010 Act in two of these, the agreement to make the 'improper' payments would have been concluded prior to 1 July 2011 (the date the Bribery Act 2010 came into force). Despite the change in law during the indictment period, the Serious Fraud Office (SFO) was satisfied that there was sufficient evidence to secure a realistic prospect of conviction against Sarclad for both the pre-2010 conduct and post-2010 conduct. Sarclad entered into the UK's second deferred prosecution agreement (DPA) with the SFO on 6 July 2016 after making a self-report to the SFO through its solicitors, following which the charges against its three executives were brought. It is worth noting that the Statement of Facts in the DPA (agreed by the SFO and Sarclad on 13 April 2016) specified that the SFO were not able to demonstrate whether the various Sarclad agents actually paid bribes to either named or unknown individuals. Due to reporting restrictions on the identity of a company while criminal proceedings are underway, the counterparty to the DPA dated 6 July 2016 was previously known as "XYZ Limited".
Under a DPA, a prosecutor charges a company with a criminal offence but proceedings are automatically suspended for a defined period of time if the DPA is approved by a judge. As part of the DPA the company will be required to adhere to a number of conditions which may include cooperating with ongoing SFO investigations and paying a significant financial penalty. If the company breaches the conditions of the DPA, the prosecution may resume. Under the terms of the DPA which Sarclad entered into in 2016, Sarclad accepted charges of bribery and corruption and agreed to pay financial orders of over £6.5 million (comprising of a £6,201,065 disgorgement of gross profits and a fine of £352,000). The DPA also required Sarclad to fully cooperate 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, every twelve months for the duration of the DPA.
Whilst it is generally accepted that it is easier to convict an individual than a corporate due to rules around corporate criminal liability, this is the second time (following Tesco) that the individuals who were held out as being responsible for the wrongdoing forming the basis of a DPA have been prosecuted but not convicted, in the case of Tesco the charges against them being dismissed, and in the Sarclad case being found not guilty by a jury. This also follows the SFO dropping its investigation into Rolls Royce in February of this year and announcing that there will be no prosecutions of any individuals despite Rolls Royce accepting liability for wrongdoing and entering into a DPA in 2017 (paying a fine of almost £500 million).
By way of comparison to the Sarclad case, Barclays did not accept the charges in relation to bribery claims regarding its Qatar fundraising by way of either a guilty plea or a DPA and it was subsequently prosecuted. However, all charges of conspiracy to commit fraud against the corporate entities were eventually dismissed. GlaxoSmithKline also did not accept the allegations against it regarding its "commercial practices" and the investigation opened in 2014 was closed earlier this year with no prosecutions. It should, however, be noted that the Sarclad case differs from Tesco and Barclays in that this was a jury acquittal (rather than a dismissal by a Judge due to there being no case to answer).
Nevertheless, in light of recent events, companies must be asking themselves whether it is worth entering into a DPA, under which they will have to pay significant sums and accept liability, when recent cases suggest that it may be better to take their chances with an investigation or even prosecution.
See our blog posts regarding the Tesco DPA (here) Barclays (here) and Rolls Royce DPA (here).