SFO enters sixth deferred prosecution deal

The Serious Fraud Office (SFO) announced on 20 December 2019 that it had agreed a Deferred Prosecution Agreement (DPA) with UK seismic instrumentation manufacturer, Güralp Systems Ltd (GSL). The announcement was possible once reporting restrictions were lifted following the acquittal of three GSL executives in a related prosecution.

The charges underlying the DPA concerned a conspiracy to make corrupt payments (contrary to s1, Criminal Law Act 1977) and a failure to prevent bribery (contrary to s7, Bribery Act 2010). Both charges related to the company's business in South Korea.

Although GSL has been required to disgorge relevant profits of more than £2million over a five-year period, no other financial penalty was imposed.
GSL also agreed to continue to cooperate with the SFO and to maintain and keep its anti-bribery and corruption (ABC) procedures under review.

The DPA was agreed in October and is the sixth the SFO has ordered since 2015. The SFO views DPAs as an increasingly important tool with which to tackle financial crime. (We look at the DPA process generally in our straight to the point video briefing.)

The facts

GSL is a UK SME that makes seismic measurement equipment and systems used for geo-physical monitoring – including earthquake detection – which are sold globally to private and public enterprises.

The relevant conduct occurred between 2002 and 2015, and involved the three GSL executives who were prosecuted and a Korean national, Dr Chi, who worked for the government-funded body Korea Institute of Geoscience and Mineral Resources.

The Statement of Facts, which was published when the DPA was announced, reveals that Dr Chi agreed to assist GSL in South Korea and received over US$1 million from GSL for doing so. The assistance he provided included recommending GSL products, advising on pricing strategy and providing confidential information relating to competitors. Dr Chi was separately convicted in the US for money laundering relating to the GSL payments.

GSL accepted that in excess of £2 million of gross profit was attributable to the corruption.

Why the DPA was in the public interest

When addressing the interests of justice in approving the DPA – rather than requiring a full prosecution – Mr Justice Davis identified a number of countervailing factors that the court needed to balance. The factors that lent in favour of prosecution included the following:

• The alleged offences involved sustained and planned criminality by senior personnel leading to over US$1 million being paid to a Korean government official.
• The profit resulting from this activity was £2 million, which was substantial in the context of the size of the company.
  GSL had not implemented effective ABC procedures as required by the Bribery Act 2010.

On the other side of the equation, factors in favour of a DPA included that:

• GSL self-reported in the UK, as well as in the US, and cooperated with the SFO.
• The GSL executives responsible for the conduct were no longer with the company.
• There had been no previous criminal conduct by GSL.
• The company had taken substantial steps to improve its compliance culture.

The court also concluded that a full prosecution might have put GSL out of business, which would have impacted on innocent GSL employees. The loss of GSL’s (somewhat unique) services could also have had a detrimental impact on the market.

Taking all factors into account, Davis J concluded that the proposed DPA was in the public interest.

OC comment

The decision reiterates that self-reporting, cooperating with the authorities and ensuring effective remediation are likely to be seen as critical factors by a court if a DPA is to be successfully applied for.

Where those factors are present, as in this instance, a court may be willing to approve a DPA on terms that are framed to enable a commercial organisation to continue in business. Davis J noted that, applying the prescribed Sentencing Council Guideline for Corporates, and allowing for a 50% discount (the maximum allowed in the previous DPAs), a financial penalty in the region of £3 million would have been ordered.

As the judge concluded that the company would not have been able to pay that sanction and remain in business, that financial penalty was not ordered. The court also granted GSL a period of up to five years to pay the £2m ordered by way of disgorgement of profits, while noting that this term might need to be varied if the company is unable to satisfy the condition within the time allowed. This, however, keeps open the possibility of the company facing full prosecution in the future in the event that is not able to comply with the DPA.

The decision is the latest example of the flexibility that the DPA regime can give to both the SFO and the court. The court's approval of conditions calculated to ensure the ongoing viability of the company is a useful reminder that engaging and co-operating fully with the authorities can lead to tangible benefits being obtained. However, the DPA regime is predicated on the successful joint prosecution of relevant individuals – if the SFO is unable to successfully prosecute an individual, this potentially raises the question whether it would have been able to successfully prosecute the corporate for the related corporate offence. The fact that no individual has yet been convicted in connection with any of the DPAs so far ordered therefore continues to be a cloud over the process and may make it less likely that commercial organisations will be willing to come forward in the future.