New guidance about what to expect if self-reporting to the SFO
16 August 2019
The Director of the SFO, Lisa Osofsky, confirmed back in April of this year that she would “soon be issuing guidance for corporates and their legal advisers to provide them with added transparency about what they might expect if they decide to self-report fraud or corruption to my office.”
This Guidance was published as an additional chapter to the internal SFO handbook guidance last week.
A contrast to the DoJ approach regarding no further action
At the outset, the new Guidance refers to the pre-existing Guidance on Corporate Prosecutions and confirms that cooperation will be a relevant factor in respect of the SFO’s decisions on charging organisations.
However, given that the Guidance has been issued at a time when some practitioners and in-house legal teams operating in this area are questioning the benefits of Deferred Prosecution Agreements (DPAs) and self-reporting wrongdoing, it is of note that the Guidance does not confirm that there may be circumstances in which, even if the evidential test is met, a decision to self-report can lead to no further action against an organisation. This is in contrast to the DoJ’s FCPA Corporate Enforcement Policy, which creates a rebuttable presumption, in some circumstances, where an organisation has voluntarily self-disclosed (including where wrongdoing has been uncovered during the M&A process), that the DoJ will grant a declination (ie no further action).
No published details of the self-reports that have led to no further action
The circumstances in which DPAs have been agreed with various organisations recently suggest that one of the key factors against prosecution, as set out in the Guidance on Corporate Prosecutions, that:
where the offending is not recent in nature and the company in its current form is effectively a different body to that which committed the offence
has not, in itself, led to the SFO discontinuing its investigations or seeking Civil Recovery Orders against the organisations, despite the SFO pursuing in most cases investigations and prosecutions of the former directing minds and employees of the cooperating organisations. Instead, the SFO has agreed DPAs with these organisations.
The SFO does not publish any details about the self-reports that have led to it deciding, despite the evidential test having been met, not to seek DPAs or prosecutions of corporates on public interest grounds. Such decisions, and the reasons for them, would be a helpful resource for those advising organisations on the benefits or otherwise of self-reports to the SFO.
The list of declinations that the DoJ produces is a helpful guide for organisations considering whether to self-report FCPA violations in the U.S., as the accompanying documents set out in detail the underlying reasons for these decisions by the DoJ. A similar approach by the SFO might offer more certainty around decision-making to organisations that uncover historic wrongdoing by former employees and are seeking to, or have already, remediated the conduct. However, the SFO’s reluctance to rely on Civil Recovery Orders to recover the gross profit gained as a result of the conduct is likely to be one of the main issues here.
Putting all of that aside, the Guidance does contain some points of note for organisations that are considering self-reporting in order to avoid a criminal prosecution.
New guidance on timing – when to report?
Lisa Osofsky’s predecessor, David Green QC, had suggested that self-reports should occur “as soon as the company realises it has a problem”. The new Guidance appears to offer more flexibility, referring to the need for “reporting within a reasonable time of the suspicions coming to light; and preserving available evidence and providing it promptly in an evidentially sound format.” This “reasonable time” requirement is similar to the requirement within the DPA Code, although the Code refers instead to a report “within reasonable time of the offending conduct coming to light (rather than the “suspicion”). The test within the Guidance is arguably therefore more time sensitive, given that knowledge of offending conduct is likely to occur some time after suspicions first arise.
Guidance on the SFO’s stance on interviewing witnesses prior to self-reporting
During our ‘fireside chat’ at the GIR Live, Women in Investigations conference, I asked Lisa Osofsky for clarification of what the SFO’s stance is on interviewing key witnesses during internal investigations, prior to any potential report to the SFO. She responded that she does not expect a self-report before a company has done some “leg work to see if there is a real issue or not”. The “leg work” though has to be limited; at this stage it is not a full investigation; there is “a difference between doing some leg work and sitting down with key witness A twenty times”.
The Guidance tightens up this message, stating that to avoid prejudice to the investigation, organisations should “consult in a timely way with the SFO before interviewing potential witnesses or suspects, taking personnel / HR actions or taking other overt steps” (emphasis added).
The most recent example of this approach is contained in the judgment in the Serco DPA, in which Mr Justice Davis notes the SFO request that Serco Group PLC should not interview witnesses during the criminal investigation, commenting that “there was and continues to be full compliance with that request” as a mark of Serco’s cooperation. Although it is unclear on the face of that comment whether Serco conducted any interviews of witnesses prior to its report to the SFO, it would appear not from the observations that follow (paragraph 24).
DPA Code of Practice – an inconsistent message on interviewing witnesses prior to self-reporting?
Yet the new Guidance also recognises the reality, as reflected in Lisa Osofsky’s comments at the GIR conference, that “in conducting internal investigations, some organisations will have obtained accounts from individuals”. It then goes on to consider the DPA Code of Practice, which does not include a similar requirement to the new Guidance not to interview potential witnesses or suspects, but instead states at 2.8.2i that cooperation will include “identifying relevant witnesses, disclosing their accounts and the documents shown to them”.
So which guidance takes precedence: the DPA Code or the SFO Guidance?
Given the decision to produce the new Guidance as a chapter in the handbook, it contains the disclaimer that it is for “internal guidance only and is published on the SFO’s website solely in the interests of transparency”. In contrast, the DPA Code is issued by the Director of Public Prosecutions and Director of the SFO pursuant to the Crime and Courts Act 2013. The introduction confirms that prosecutors should have regard to this DPA Code when negotiating DPAs.
Of course, not all self-reports will lead to the SFO inviting organisations to consider DPAs. However, organisations that are considering cooperating should primarily have regard to the Guidance on Corporate Prosecutions and DPA Code, with the SFO Guidance relied on as an additional reference point as to how the question of cooperation will be approached on a practical basis.
Conclusion on interviews of witnesses?
The new Guidance, while not referring in the same terms as David Green QC to concerns about “trampling over the crime scene”, does come close to this analogy. It states that genuine cooperation is inconsistent with “putting suspects on notice and creating a danger of tampering with evidence or testimony”.
It is of note that the new Guidance is so prescriptive in its message that the SFO should be consulted in a timely way before interviewing potential witnesses or suspects. Of course there may be situations where a review of the documentary evidence is sufficient to take an initial view on potential corporate or individual liability. There may also be situations where conducting interviews of the key witnesses could lead to a loss of evidence (and corresponding lack of control by the organisation, which could also impact on any subsequent regulatory investigation). Yet there will also be situations where there will be a need for organisations to conduct interviews of witnesses in order to understand what the potential issues are, and whether a self-report should be made, prior to making any approach to the SFO.
Varying approaches of different investigating authorities
It is important to be sensitive to the varying approaches of different investigating authorities and regulators, although many have a stance on witness interviews in internal investigations.
For example, the FCA expects a firm to consider notifying it of a decision to investigate conduct concerns at “the earliest opportunity”. It recognises that witness interviews are a key area of risk, and suggests that firms be alive to the possibility that their own investigation could prejudice or hinder a subsequent FCA investigation, and that firms should discuss this with the FCA before taking action. A firm should therefore consider its regulatory obligations when assessing if, and when, to consult its regulator regarding any proposed witness interviews.
The CMA’s primary concern in anti-trust matters is for the organisation to avoid taking action that might “tip off” a party to the infringement. The CMA asks potential leniency applicants to keep their internal investigations to the minimum necessary to establish the grounds for a leniency marker to be awarded by the CMA (which requires a low evidential threshold).
In terms of interviews, the CMA recommends that former employees are not approached at the pre-leniency stage, other than in exceptional circumstances. For current employees, the CMA recommends a careful approach, avoiding questioning ‘high risk’ individuals at all, or in such a way to increase the chance of tip offs. If an individual needs to be interviewed, the CMA suggests that organisations consider keeping the approach “low key” with a view to establishing the facts, rather than briefing the individual on the full leniency context.
No size fits all – but internal investigations need to be conducted with care
The key message for organisations is to have a clear objective for any internal investigation, and to consider carefully the expectations of any regulator or criminal authority before starting. As set out clearly in the DPA Code, internal investigations that lead to the adverse consequences of prejudicing an investigation (through leading to the destruction or fabrication of evidence) may be a factor that weighs against an organisation seeking to obtain a DPA.
Privilege over first witness accounts
What of the situation where the organisation does decide to conduct interviews in advance of speaking to the SFO? The new Guidance confirms that if seeking credit for cooperation by providing witness accounts, organisations should “additionally provide any recording, notes and / or transcripts of the interview and identify a witness competent to speak to the contents of each interview.”
The ‘first account’ that a witness gives can be crucial in assessing the weight of their evidence against subsequent accounts and witness statements given to the regulator. There have been disagreements about whether or not the notes of these interviews are privileged in the hands of the organisation conducting the internal investigation. As the Court of Appeal recently found in SFO v ENRC, the answer depends on whether or not litigation privilege can be said to apply, and this will be specific to each case. It depends on whether litigation is reasonably in contemplation at the time of the interview, and what the dominant purpose of the interview is. The comment in the new Guidance that “even full, robust co-operation does not guarantee any particular outcome” may well be helpful when it comes to claims of litigation privilege.
The SFO was recently criticised by the High Court for failing to obtain the first account of interviews of key witnesses from Sarclad. Speaking some months after the judgment was handed down in that matter (and after the ENRC appeal, which impacts on some of the reasoning in the High Court decision), on 28 November 2018, at the 35th International Conference on the Foreign Corrupt Practices Act in Washington DC, Lisa Osofsky commented that “there is significant case law in England and Wales about the importance of giving ‘first witness accounts’ to individuals who are later charged with crimes. These ‘first accounts’ are sometimes the very interviews that you do in the course of your internal investigations. In other words, be acutely aware that your investigative steps may create issues of, on the one hand, what you believe are privileged communications and, on the other hand, what a court believes MUST be provided to a criminal defendant to ensure a fair trial. Don’t simply blunder into this and then be distressed and offended if we seek those interviews because a court wants us, as a matter of fairness, to provide this material to a defendant in the dock. That is not cooperation.”
So while the SFO may feel that the ENRC decision has weakened in some circumstances the arguments it may wish to make that internal investigation interviews do not attract privilege, the duties the SFO is under as prosecutor mean that the SFO is under pressure to obtain waivers of privilege over these internal investigation interviews. The new Guidance is consistent with the DPA Guidance which refers to disclosure of accounts of relevant witnesses as a factor amounting to cooperation. The Guidance goes further, though, and confirms that the SFO may seek witness summonses to obtain information. It also states that where privilege is claimed, it will require a schedule of material withheld for privilege (including the basis for the claim) and organisations will “be expected to provide certification by independent counsel that the material in question is privileged”. These latter two requirements have not previously been put into written guidance by the SFO.
Waiver of rights on jurisdiction?
The new Guidance sets out that ‘good general practices’ include providing “relevant material that is held abroad where it is in the possession or under the control of the organisation”. The question of what is in the possession or control of an organisation will no doubt be difficult where organisational structures are complex. Just as we have seen wrangles in the past over the reach of Section 2 Notices (see the KBR judgment – decision under appeal), there will no doubt be negotiations over the extent of this requirement.
Identifying material that may undermine any criminal prosecution
Importantly, the Guidance confirms that the organisation should assist in identifying material that might reasonably be considered capable of assisting any accused or potential accused or undermining the case for the prosecution. This is to be welcomed in an era where the SFO and other regulatory agencies are out-sourcing the heavy lifting on their investigations to organisations and their external lawyers. Those conducting internal investigations should be alive to the Criminal Procedure and Investigations Act 1996 and Attorney General’s Guidelines on Disclosure and brief those conducting document reviews that it is important that evidence that points both away and towards the potential wrongdoing is marked as relevant.
A concluding thought on employee interviews
Finally, the SFO Guidance refers to the requirement for cooperating organisations to “make employees and (where possible) agents available for SFO interviews, including arranging for them to return to the UK if necessary”. The DPA Code includes a “where practicable” test to the making available of witnesses for interview when requested. The DoJ corporate enforcement policy similarly limits its requirement to situations “where appropriate and possible” and “subject to the individuals’ fifth amendment rights”. These limitations must surely be read into the Guidance, as, without them, it has the potential to throw up a number of legal considerations for organisations and their employees.