On 06 August 2019, the SFO published Corporate Cooperation Guidance for companies considering whether to self-report fraud or wrongdoing. We review the SFO’s expectations and potential implications for privilege and parallel proceedings.
In April 2019, Lisa Osofsky promised to provide companies and their legal advisers with “transparency about what they might expect if they decide to self-report fraud or corruption to [the SFO]”. On 06 August 2019, the SFO published an update to the Corporate Cooperation Guidance section of its Operational Handbook; guidance that will be crucial reading for companies as they weigh up whether to disclose wrongdoing.
In its Guidance, the SFO asks companies to go “above and beyond what the law requires” in order to be deemed “co-operative” - a designation that then entitles a company to (potentially) avoid prosecution or be offered the chance to enter DPA negotiations. Specifically, the Guidance provides a non-exhaustive, and certainly onerous, list of “good” practices that companies may be expected to take, which we discuss further below.
The SFO reminds companies that their cooperation benefits the public and interests of justice, by allowing the SFO more quickly and reliably to understand the facts and other evidence underpinning a case, and progress an investigation. That is certainly true, but it is also true that disclosure to the SFO, and the burden of ongoing cooperation, is hugely costly, can lead to further liability in parallel proceedings and may undermine trust in legal counsel.
The SFO - in providing increased transparency about the requirements for cooperation – has also made transparent the risks of doing so. Companies, in our view, face a difficult assessment of cost, certainty and integrity in deciding whether to self-report.
Indicators of good practice
The Guidance sets out good practice under the subject headings of (a) preserving and providing material; and (b) witness accounts and waiving privilege.
It is perhaps obvious that the SFO wants companies to preserve both physical and digital relevant material in a manner that prevents the risk of documents being damaged or destroyed, and that digital integrity is preserved. Some of the more burdensome expectations are in the detail, and may prove hugely costly to companies under investigation, for example:
- providing, in a useful and structured way, compilations of selected documents as requested by the SFO
- identifying material in the possession of third parties (and helping the SFO to get it)
- providing material held abroad “where it is in the possession or under the control of the organisation” (a nod to the difficulties in the KBR case, although we await the appeal to the Supreme Court)
- assisting in “identifying material that might reasonably be considered capable of assisting any accused or potential accused or undermining the case for the prosecution” (in other words, telling the SFO what material it will be required to disclose to the defence pursuant to s.3 of the Criminal Procedure and Investigations Act)
- providing details of search terms, seed sets and methodologies applied to identify digital material, and
- creating and maintaining audit trails of the acquisition and handling of both digital and hard copy materials, and identifying a person to provide a witness statement covering continuity. This last request may reflect the issues raised by the Judge in the recent (failed) Sarclad prosecution.
On the privilege front, we expected waiver to feature in the Guidance following Lisa Osofsky’s speech in April 2019, in which she said:
“….waiving privilege over that initial investigative material will be a strong indicator of cooperation and an important factor that I will take into account when considering whether to invite a company to enter into DPA negotiations; it also highlights whether a DPA is in the public interest in that case…I say this in light of the comments of Sir Brian Leveson, in the decision of the Court of Appeal in the SFO v ENRC ….”
The Guidance does not demand waiver of privilege – nor could it. But it is unclear what cooperation credit, if any, a company will lose if it does not waive privilege over witness accounts, notes and transcripts. The Guidance states that a company simply will not attain the “factor against prosecution” in the DPA Code, but Osofsky has emphasised waiver to be an “important factor.” Waiver will clearly arise as an issue in DPA negotiations, but its significance to the SFO and Court will have to be tested by companies under suspicion.
Moreover, the Guidance asks companies to provide a schedule of documents over which they are claiming privilege and to include the basis of that claim. Organisations are also expected to provide certification by independent counsel of the privileged status of any documents withheld on this basis. Any legal adviser involved in privilege review will know that this is an enormous and expensive undertaking - one, no doubt, that will be picked over by the SFO before any cooperation credit is awarded.
All in all, the “indicators of good practice” contain many expectations that companies under investigation will be used to dealing with. But there are also some stand out obligations that certainly go “above and beyond” usual investigative practice and will cause companies to consider carefully the repercussions of that initial self-report and ongoing cooperation.
Broader implications of cooperation: parallel proceedings
Beyond the clear cost and resourcing implications of cooperation, companies must also consider the wider impact on civil and regulatory litigation. There is undoubtedly a trend towards civil litigation, and in some cases regulatory proceedings, either in parallel with or following on from an SFO investigation / prosecution. This raises the prospect that even a strictly limited waiver of privilege (in favour of the SFO) could have much broader consequences for the corporate defendant in those separate proceedings.
One such consequence is that in parallel civil proceedings that relate to the same (or connected) subject matter, the claimant may seek disclosure of documents that, although prima facie privileged, may have lost their confidentiality through deployment in criminal proceedings. This may extend not just to the underlying privileged communications themselves, but also to any commentary given on those documents by individuals that are interviewed (a) by the company’s lawyers or (b) by the SFO following the waiver of privilege. The civil claimant’s ability to challenge claims to privilege may be improved if it is able to obtain the schedule of privileged documents that the SFO now expects to be provided by the company under investigation.
Questions around collateral use of documents have come before the courts recently in Omers & ors v Tesco PLC  EWHC 109 (Ch) and Tchenguiz v SFO  EWCA Civ 1409. There are still unresolved questions about the extent to which the confidential character of privileged material may be lost (as against the world) by reason of use in criminal proceedings following a limited waiver. Those facing such issues should proceed with caution.
Another important implication is that, in any parallel FCA / PRA proceedings, the regulator is likely to expect the company to give the same waiver in its favour as was given to the SFO.
Further detailed information on the unique challenges that arise from parallel proceedings
Broader implications of cooperation: privilege
The SFO has stopped short of saying that limited waiver is required as a matter of cooperation. Nonetheless, by describing waiver as a “strong indicator of cooperation”, its expectation is clear. This has broader implications for the legal profession, and for its corporate clients.
While there is a public interest in focused evidence gathering, there are also countervailing public interest considerations in favour of encouraging a company’s employees to seek advice from the company’s lawyers and to provide a full account of matters on which the lawyer’s advice is sought. If employees know that privilege over those communications may subsequently be waived, for the corporate – but not their – benefit, employees are less likely to sound alarms and mitigate risk for their employers, particularly when their conduct is at issue. Privilege waiver may assist the SFO in the short term, but its promotion risks a “chilling effect” on lawyer/client communications to the future detriment of strong corporate counsel.
The SFO’s Guidance at least makes the SFO's expectations regarding cooperation more transparent. That said, companies may be forgiven for asking whether, to get a DPA (or, in extreme cases, a decision not to prosecute), you have to give the SFO its prosecution on a plate. The SFO's expectations are many, and will be costly. With the added prospect of potential parallel proceedings, companies faced with uncovered wrongdoing have a difficult decision to make regarding their self-report.
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.