What does SFO v ENRC mean for Deferred Prosecution Agreements?

Now the fuss over the decision in SFO v ENRC decision has died down, it is worth focussing on comments the Court of Appeal made about the interplay between privilege and Deferred Prosecution Agreements (DPAs).

ENRC’s eligibility for DPA was not a matter in issue before the Court (see our discussion of Court’s findings here). Nonetheless, in his leading judgment Sir Brian Leveson took the opportunity to comment on the impact of the decision on the scheme for DPAs in England and Wales. Sir Brian has presided over all of the DPAs negotiated by the SFO and the FCA and approved by the Court since the scheme came into force and is therefore particularly familiar with its operation.

In paragraphs 116 - 117 of his judgment, Sir Brian recognised that, where wrongdoing is suspected, it is in the public interest to allow a company to conduct a privileged internal investigation and seek legal advice prior to reporting its concerns to the SFO. However, he also expressly acknowledged that, once those concerns have been reported, a company’s decision to co-operate with the SFO by waiving privilege over documents produced during the internal investigation is a factor that is relevant to whether it is in the interests of justice for the company to enter a DPA.

Sir Brian’s comments were made in the context of a now established practice whereby the SFO seeks disclosure of internal investigation material from a self-reporting company, including notes of interviews conducted by the company or its lawyers before the SFO was involved. As can be seen from the case of SFO v ENRC, where adversarial proceedings (including a criminal investigation or prosecution) are in “reasonable contemplation”, a company may withhold disclosure of those interview notes on the grounds that they are privileged. In those circumstances the SFO cannot require a company to waive its claim, however it may ask it to do so voluntarily and thereby demonstrate that it has co-operated in a way that is “genuinely proactive“, and meets the threshold expected of a company seeking a DPA. According to the Code of Practice, this includes “identifying relevant witnesses, [and] disclosing their accounts and documents shown to them”.

Must a company waive privilege to be co-operative?

In his judgment at paragraph 117, Sir Brian refers to Rolls-Royce plc as an example of a company willing to co-operate with the SFO in this way. The steps taken by that company were particularly wide-ranging and included:

  • Disclosure of a significant volume of interview memoranda on a limited waiver of privilege basis;
  • Deferral of internal investigation interviews until the SFO had completed its own interviews;
  • Agreeing to audio recording of internal investigation interviews, at the SFO’s request;
  • Voluntary disclosure of multiple internal investigation reports and the findings of a review of the company’s relationships with third parties; and
  • Providing a significant volume of un-reviewed digital material (over 30m documents) and agreeing to the use of digital methods to identify potentially privileged documents for subsequent independent counsel review.

Rolls Royce’s co-operation was described by the Court in that case as “extraordinary”, and clearly represents a high watermark in terms of the measures a company could take to demonstrate co-operation with an SFO investigation.

In contrast, there are cases where the Court has approved DPAs with companies who did not waive privilege over internal investigation material - both Standard Bank Plc and XYZ Ltd entered into DPAs despite refusing to disclose privileged interview records to the SFO. However, those were amongst the first agreements entered into under the regime (in November 2015 and July 2016 respectively) and may not reflect what is now expected from a company seeking a DPA.

The recent case of AL v SFO in particular casts the approach taken in the XYZ Ltd case into significant doubt. In this case, AL, a former employee of XYZ Ltd being prosecuted by the SFO for bribery, sought disclosure of the records of interviews of four senior executives conducted by external lawyers for XYZ Ltd. At the time of the SFO’s investigation into XYZ Ltd, although it had disagreed with the company’s claim to privilege over the interview records the SFO had permitted its external lawyers to give an “oral proffer” of their contents rather than requiring it to disclose them. Consequently the SFO did not have the interview records in its possession and, as later requests for disclosure from XYZ Ltd were also refused, could not disclose them to AL. AL then brought an application for judicial review against the SFO in respect of a decision not to pursue XYZ Ltd for breach of its duty of co-operation with investigation and prosecution of individuals under the terms of the DPA, arising from its refusal to disclose the interview records.

The Administrative Court refused AL’s application on the basis that the challenge had been pursued in the wrong forum - the matter was essentially a disclosure dispute that should have been dealt with in the Crown Court. Notwithstanding that, the Court chose to give a detailed judgment accusing the SFO of “material public law errors” and expressing strong criticism of its failure to pursue XYZ Ltd where (i) it did not accept XYZ Ltd’s claim to privilege; and (ii) XYZ Ltd had a specific contractual duty to disclose material pursuant to the DPA (where such material was not protected by a valid claim to privilege)1. The Court also found that the “highly artificial” oral proffer process undertaken by XYZ Ltd had resulted in a waiver of privilege over the underlying interview records. Since there was no evidence of any consideration by the SFO and XYZ Ltd of the scope of any such waiver, it was found to be unlimited.

What steps should a company expect to take?

In light of Sir Brian Leveson’s comments in ENRC, the criticisms levelled against the SFO in the case of AL and the SFO’s strong view on the value of first witness accounts to its investigations, companies who wish to show co-operation should expect to waive any well-made out claims to privilege over notes of interviews which have already been conducted and disclose them to the SFO. Where a company gives that waiver on a limited basis it should expect it to extend to disclosure of the notes to individual defendants in later related proceedings. If the company has not yet conducted any interviews it should expect to be asked to defer them until after the SFO has conducted its own interviews, and/or structure the interviews so as not to attract claims to privilege over their records (ie have them conducted by a non-lawyer).

Seeking to avoid disclosure of interview records by offering an oral proffer or summary of their contents is no longer likely to be a viable course of action. Following the findings of the Court in AL, the SFO is highly likely to demand disclosure of the underlying notes, and in fact risks criticism if it does not do so. Where the notes contain a mixture or relevant and irrelevant content or include references to legal advice given to the company, the better approach would be to provide disclosure of the notes on a limited waiver of privilege basis, with redactions applied to any specific legal advice or extraneous information.

A company’s decision to disclose or withhold privileged interview records is not necessarily determinative of its eligibility for a DPA - the DPA Code of Practice provides for “genuinely proactive” co-operation to be demonstrated in a number of ways. However, it is clear that a decision to waive privilege will be very helpful to a company in seeking to demonstrate that it has co-operated sufficiently with the SFO. Conversely, where a company does not take that step there is a significant risk that it will be viewed as uncooperative and may lose out on the opportunity to resolve its issues through a DPA.

1 Following the Court of Appeal’s judgment in SFO v ENRC, it is possible that XYZ Ltd would have a valid claim to privilege over the interview records. The Court in AL rejected the basis of its claim applying the rationale from the High Court’s judgment in ENRC, which was overruled.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.