SFO must ensure settlements are more precise, MPs and legal experts say

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By Martin Coyle Legal experts have welcomed calls by MPs for the UK's Serious Fraud Office (SFO) agreements to be more tightly drawn following criticism of its £29.5 million settlement with BAE Systems last year. The MPs also urged the government to look closely at SFO proposals to settle complex financial crime with U.S.-style plea bargaining. The calls came as the solicitor general explored the issue with a view to introducing the changes in the next session of parliament. The International Development Committee's (IDC) report on financial crime and development said that the agreement between the SFO and BAE was in many respects "deficient". The defence manufacturer agreed the multi-million pound settlement in February 2010 following improper book keeping connected to the sale of a military air traffic control system to Tanzania. In July this year the committee criticised BAE after it emerged that the money, which was supposed to go to the country's education budget, had not been paid. "The settlement agreement between the SFO and BAE Systems was deficient in a number of respects… Future settlement agreements of this type should be precise about what is required of those involved and include clear timetables," the report said. Susannah Cogman, a partner at Herbert Smith, said that criticism of the BAE settlement was "entirely sensible". She said that there had been disquiet that the SFO had signed an agreement that appeared to let BAE executives off the hook. "The agreement was an extraordinary document," she told Thomson Reuters. She said that it was right that future SFO settlements needed to be tightened up but warned that the SFO should not go too far in the other direction. "One concern for companies is that the baby does not get thrown out with the bathwater and that we don't have an overreaction to that [IDC] statement whereby the SFO tries to settle cases on the basis of things that are not acceptable," she said. More clarity needed Nick Benwell, a partner at Simmons & Simmons, agreed and said that more clarity was needed in the SFO's approach. He said that the SFO had come a long way in dealing with issues, however. "The SFO has made considerable progress in achieving plea deals in circumstances where the tools it has to work with are limited. There needs to be greater clarity in the tools that are available for the SFO as well as greater certainty for companies about the outcomes they can expect from agreeing settlements," he told Thomson Reuters. Benwell said it was important that companies which self-report internal issues were able to understand what sanction they were likely to face at the end of the process. This is especially true as under EU procurement rules companies face being debarred from bidding for potentially lucrative government work if they are convicted of bribery. The Bribery Act 2010 has this provision but the debarment is not mandatory; hence the need for certainty for companies signing a settlement negotiation. Benwell pointed out that the SFO had suffered setbacks in agreeing civil recovery orders, such as the BAE case, but noted the successful conclusion to the Macmillan Publishers case, which saw the firm pay in excess of £11 million to settle bribery claims in Sudan. At the time, Richard Alderman, director of the SFO, said that civil recovery enabled the organisation, which has had its budget drastically reduced in the last two years, to deal with issues effectively and deliver value for money by removing the need for lengthy investigations and protracted legal proceedings. Alderman has been pushing for the body to be given additional powers to boost its bid to fight financial crime. He said the agency should be granted extensive legislative powers similar to those employed by the U.S. Department of Justice, such as deferred prosecution agreements and wire taps. The SFO's attempt to broker settlements with UK firms was damaged earlier this year in the Innospec bribery case. Judge Lord Justice Thomas said that the SFO had acted beyond its remit in striking a deal with the chemical company and that the $12.7 million was "inadequate". Alderman has since called for a change in legislation to give the SFO more steel in reaching similar settlements. He has said that it would be helpful if the SFO could involve the judiciary in plea bargaining cases at an earlier stage of proceedings. The IDC backed his call and said that the government should respond to his proposal. Doing the rounds The solicitor general, Edward Garnier QC, and Alderman have recently been doing the rounds of City law firms to discuss putting together formal proposals to introduce deferred prosecution agreements to the UK. It is thought that formal proposals could be set out in the new year. Garnier has said that the agreements could provide "a more effective approach to dealing with corporate crime in some cases". Justice secretary Ken Clarke has lent his support to the proposals. The next session of parliament in May would be the earliest time that a deferred prosecution law could take effect. Benwell said that the SFO faced a difficult task when it came to the repatriation of funds tainted by bribery. He said the fact that there is no formal procedure for this process causes a headache for the authorities. The SFO should be commended for ensuring that funds were returned to Tanzania in the BAE case, Benwell said. "The repatriation of funds is morally desirable, but having said that it is difficult to achieve. Certainty is needed that any funds returned will be used appropriately. Overseas governments won't respond favourably to suggestions that they may not deal with the money properly. The way the UK authorities police these funds in the future needs considerable debate," Benwell said. Cogman said more clarity would be needed as the deferred prosecution proposals developed. She said that there were concerns about the basis on which information could be shared between the SFO and individuals and what happens if negotiations break down, as well as confidentiality and admissions issues. "All of these things are pretty critical," she said. Benwell said there was some concern that any changes to legislation might mean that the UK goes too far down the U.S. route. "We want to avoid as much as possible an approach where companies are strong armed into agreeing prosecution deals without any real evidence of wrongdoing," he said. A spokeswoman for the Attorney General's Office said that deferred prosecutions were being considered and that Dominic Grieve, the attorney general, was involved in discussions. The Ministry of Justice, which is taking the lead in this, did not respond to calls for comment for this article. Last week, the Bond Anti-Corruption Group called for the government to do more to tackle the role that UK companies and banks play in fuelling and facilitating corruption overseas. It added that the SFO had too few resources to ensure that the Bribery Act 2010 was a genuine deterrent to stop companies paying huge bribes to foreign governments in return for lucrative contracts. Melissa Lawson, chair of the group, said: "The failure to act here in the UK when it comes to enforcing bribery laws and tackling dirty money has devastating effects on developing countries, undermining good governance and exacerbating poverty."