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16 May 2018

The ABC of internal investigations from the XYZ deferred prosecution agreement

On David Green QC’s last day in the job as Director, the Administrative Court handed down a decision heavily criticising the Serious Fraud Office’s approach to a prosecution which followed the second deferred prosecution agreement (DPA) secured under the Crime and Courts Act 2013 (CCA). The DPA in question was agreed with XYZ Ltd (a SME which was not named due to the potential, now active, criminal proceedings against individuals) and resulted in financial orders of £6.5million in July 2016. While this and other headline-grabbing fines achieved via the settlement of cases with Rolls Royce and Tesco using the DPA mechanism have won plaudits for the outgoing Director, there remain some very serious questions about the SFO’s approach to investigating large corporate defendants and the individuals who work for them.

In R (on the application of AL) v SFO and others [2018] EWHC 856 the applicant, an employee of XYZ, sought to judicially review the SFO’s decision not to pursue the company’s alleged breach of the DPA; failing  to cooperate with the SFO.  His application fell at the first hurdle as it was held that he had not exhausted remedies in the Crown Court, but the Administrative Court were left baffled by the SFO’s tactics, concluding:   “In short, the SFO: failed to address relevant considerations, took into account irrelevant matters, provided inconsistent and inadequate reasons for its decision, and applied an incorrect approach to the law.”

The DPA regime is still relatively new and the judgment is significant for corporates and their advisors who are in uncharted waters when planning and implementing internal investigations. This is the first case of judicial scrutiny of the processes leading to a DPA from the perspective of an individual who is not party to it. The case highlights the importance of giving careful consideration to the rights of the potential individual defendants when determining what steps to take in an investigation and self-report.

The facts

XYZ’s lawyers had interviewed employees in order to decide whether to self-report suspected corruption to the SFO. AL’s interview had taken place over three days and lasted a total of around 15 hours.  XYZ’s lawyers refused to provide the SFO with copies of their notes of these interviews on the grounds they were privileged. Instead, the SFO were given an oral proffer which was then transcribed resulting in the production of a summary.  Despite the length of AL’s interview, the proffer summary was only five pages long. Following further investigation by the lawyers and the SFO, XYZ entered into a DPA. AL and two others were charged with conspiracy to corrupt and conspiracy to bribe. The summaries of the interviewees were served on the defence by way of disclosure.

AL believed that the full interview transcripts would assist his defence and applied for their disclosure in an application in the Crown Court under section 8 of the Criminal Procedure and Investigation Act 1996 (CPIA).  The Crown Court refused the application on the basis that the notes were not in the possession of the SFO but, in giving judgment, expressed misgivings about the SFO’s position.  The SFO again sought the notes from XYZ and was again rebuffed. The SFO wrote to AL stating that the matter would be taken no further.  AL therefore brought a claim for judicial review of the decision of the SFO not to pursue the company for breach of its duty of cooperation under the DPA.

Three grounds were addressed by the application:

  1. Whether the application should be dismissed because alternative remedies were available in the Crown Court.
  2. Whether the claim should fail because it was a challenge to the exercise of legitimate prosecutorial discretion.
  3. Whether there was no further relevant material in the interview notes and/or whether they could obtain those summaries or whether they were privileged and/or whether it was impractical to review disclosure obligations under the DPA in light of a developments in the law.

Issue 1

As a broad point Green J highlighted that the statutory regime provides for all disputes relating to disclosure to be determined in the Crown Court.  Moreover, disputes relating to criminal trials should be confined to the Crown Court where they could be dealt with more efficiently.

There were several alternatives that the applicant had yet to pursue: (1) a further application for specific disclosure under the Criminal Procedure and Investigations Act 1996; (2) obtain an order under section 2 of Criminal Procedure (Attendance of Witnesses) Act 1965; or (3) an application that the indictment be stayed as an abuse of process. The availability of alternative remedies meant that the application should be dismissed.

Having reached this conclusion, the application was determined and yet Green J went on to indicate what his findings would have been in relation to issues (2) and (3).

Issue 2

The second issue concerns a frequently litigated tension between defendants and prosecutors; whether all reasonable lines of enquiry had been pursued. The SFO contended that they had a broad degree of discretion in their decision making and in the conduct of their investigation.  The applicant referred to the Attorney General’s Guidelines on Disclosure (2013) which outline the “reasonable steps” that a prosecutor should take in order to ensure that an accused has a fair trial, as required by Common Law and Article 6 of the ECHR.   Not only this, the terms of the DPA required XYZ to provide information and material.  In these circumstances, where such disclosure was refused the SFO should not have taken no for an answer. Green J did not characterise the SFO’s powers as a broad discretion, but rather a margin of appreciation, circumscribed by their obligations to ensure a fair trial.

Issue 3

A number of questions were considered in issue (3).  The most significant of these concerned legal privilege and whether the SFO were right to accept that privilege affected their ability to obtain the interviews.

Firstly, the court examined whether the SFO was entitled to take the view that the claim of privilege need not be challenged because “it was not obviously wrong”.   Green J set out the cases which plainly represented the law today, Three Rivers District (No 6), RBS and ENRCThe argument that the law is uncertain pending clarification by further case law in the appellate court is untenable. There now exist judgments… [which] bind the Crown Court.”  The interviews were conducted at a time when the company was deciding whether to report or not and therefore litigation was not likely to have been in contemplation and litigation privilege would not apply to the interviews.

Even if the factual analysis was different and the interviews were privileged, that privilege was waived by the proffer process.  The lawyers making the proffer claimed not to be waiving privilege, but waiver is objective and privilege had in fact been waived by the proffer.  In Green J’s analysis, XYZ’s lawyers knew that it had submitted a document which was inculpatory of AL, that the proffer was made in the context of the investigation into AL, AL may be prosecuted and that the summaries would be disclosed. Green J firmly rejected the idea that the oral proffer did not represent waiver privilege because the provision of the summaries was “squarely in contemplation and was an integral part of the process being undertaken”. There is an obvious coherence to his analysis but it appears that the lawyers, who had resisted several requests from the SFO for the documents, had not reached this conclusion.

Thirdly, even if the claim of privilege was sound and had not been waived through the proffer process SFO policy has been that provision of first account interviews is an obvious sign of cooperation, a quality required of those entities who wish to settle their wrongdoing via a DPA.   

Finally, Green J was not impressed by an argument raised by the SFO that it was “contrary to the interest of finality for the SFO to be required retrospectively to review whether a party to a DOA was in breach of a DPA or not whenever there was a development in [law].”   The SFO had also contended that the shareholders of XYZ had an interest in finality.   These arguments were rejected; the rights of the defence to a fair trial must be the SFO’s paramount consideration. The interest of the corporate or their shareholders was immaterial until the DPA’s term concluded.


Investigators will naturally focus on the individuals who have potentially conducted themselves in such a way to give to criminal liability on behalf of the corporate. However, those investigations should be planned and conducted in such a way that does not prejudice the fairness of those individuals’ trial or trials so that it can withstand scrutiny of the court.  Any agreement or understanding reached between the corporate and the SFO’s case controller about the way the investigation should progress will be vigorously dissected by the tribunal trying the individual. By way of example the decision not to hand over the full interview notes but to give an oral proffer and allow that proffer to be transcribed was described as “highly artificial”. The lawyers acting for the corporate did not believe that they had waived privilege by giving this proffers in Green J’s view this was wrong.

Companies conducting an investigation with the objective of deciding whether to report or reporting with the expectation of reaching a DPA with the SFO must have in mind that this process is part of a continuum which may lead to the prosecution of individuals. Their decisions on disclosure of material to the SFO as part of a process of co-operation are now clearly liable to challenge if a defendant can argue that their right to a fair trial has been prejudiced. The law will develop further later this year when the ENRC case comes before the Court of Appeal; in the meantime, this case provides some indication of the view that may be taken by the higher courts where the SFO chooses not to pursue disclosure in accordance with its own policies.

This article was published in Thomson Reuters Regulatory Intelligence and Fraud Intelligence, behind paywalls.

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