Serious Fraud Office v Serco Geografix Limited  7 WLUK 45
On 4th July 2019 Mr. Justice Davis approved a Deferred Prosecution Agreement (“DPA”) between the Serious Fraud Office and Serco Geografix Limited – the fifth DPA to be approved by the courts.
This case reiterates the importance of cooperation and remedial action by companies wishing to enter into a DPA. It is the first occasion on which undertakings have been made by a parent company (Serco Group PLC) in relation to a DPA entered into by one of its subsidiaries (Serco Geografix Ltd). Without the undertakings of the parent company, it is unlikely that the goals of a DPA could have been achieved in the circumstances of this case. This is an important development, as Mr. Justice Davis noted: “the nature of modern corporate structures means that it may be problematic to show that a controlling mind of the parent company was involved in the criminality carried out by a subsidiary company even where the benefit of the criminality tended to accrue to the parent company. Yet it will be the parent company which necessarily must engage in any compliance programme and co-operate with law enforcement agencies.”
Serco Geografix Limited (”SGL”) was a wholly owned subsidiary of Serco Limited (”SL”) which engaged in the manufacture and supply of electronic monitoring equipment used to monitor curfew conditions imposed on those accused or convicted of criminal offences. SGL serviced two contracts held by SL for the supply of electronic monitoring equipment to the UK Government. SL is a substantial organisation which is wholly owned by Serco Group PLC.
In 2013 the SFO commenced an investigation into the provision of electronic monitoring services by SL. Serco Group PLC had discovered e-mails which appeared to show that there had been manipulation of accounting between SGL and SL designed artificially to reduce the profit margins reported to the MoJ, thus giving rise to a potential fraud on the public purse.
The SFO concluded that the evidential and public interest tests were both satisfied in relation to three offences of fraud and two of false accounting.
Although it was the beneficiary of the fraud, no “directing mind” of SL could be shown to have been involved in the devising and putting into effect of the fraud. There was evidence, however, that the scheme required the knowledge and assistance of SGL’s “directing minds”.
The SFO considered that the public interest was best served by SGL entering into a DPA rather than being prosecuted, for the following reasons:
- The prompt and detailed reporting by Serco Group PLC and its subsidiaries of the fraudulent conduct;
- The substantial co-operation by Serco Group PLC with the investigation. This included a full document review with unrestricted access to e-mail accounts of current and former employees. Serco Group PLC were proactive in disclosing material and notifying the SFO of any developments which could have an impact on the criminal investigation;
- The lack of any history of similar conduct on the part of Serco Group PLC or its subsidiaries;
- The age of the conduct and the remedial measures taken since the matter was reported to the SFO. Since 2013 Serco Group PLC has undergone a change of senior management and subjected itself to internal and external review and audit. It has set up a continuing corporate renewal programme designed to improve the operating practices of all companies within the group structure;
- The disproportionate consequences which might result from a criminal conviction.
Mr. Justice Davis considered that approval for a DPA would not be given if the effective consequence were that SGL could continue to supply services to government departments, whereas the company would not be able to do so in the event of a conviction, as this may amount to a favourable determination of the position of a private company vis-à-vis public procurement. However, he was satisfied that his approval of the DPA would not be a determining factor given that public procurement is subject to statutory regulation by the Public Contracts Regulations 2015, which provide for mandatory or discretionary debarment. This affords a contracting authority the discretion to exclude where the company is guilty of grave professional misconduct which renders its integrity questionable. As such the approval of the DPA is simply confirmation of SGL’s admitted misconduct.
The terms of the DPA, which remains in place for 3 years, included payment of a £19.2 million fine and the SFO’s costs. As SGL had been a dormant company since January 2018, with no expectation of future trading, Serco Group PLC undertook to assume responsibility for payment of the financial terms as well as to:
- modify its compliance programme to ensure it maintains an effective system of internal accounting controls and a rigorous compliance programme incorporating policies and procedures designed to prevent and detect fraud and bribery;
- report annually to the SFO during the DPA in relation to the progress of its compliance programme;
- during the DPA, co-operate fully with the SFO, and any other domestic or foreign law enforcement agencies, in any and all pre-investigations, investigations and prosecutions;
- report to the SFO if it learns of any evidence of serious and complex fraud committed by anyone connected with Serco Group or any of its affiliates; and
- not transfer any substantial part of SGL’s business operations without the written consent of the SFO.
Mr. Justice Davis recognised that “there may be cynicism in some quarters about the process by which a corporate entity can take advantage of a DPA. This cynicism is not well-founded. On the previous occasions when a DPA has been approved, the point has been made that approval will only be given where there is the clearest possible demonstration of integrity on the part of the company concerned once the criminal activity has become apparent. This will require early self-reporting to the authorities, full co-operation with the investigation, a willingness to learn lessons and an acceptance of an appropriate penalty. The willingness to learn lessons must be shown via real, substantial and continuing remedial measures. All of that has been demonstrated by Serco Group PLC in this case.”