A recent case involving a UK-based, internationally operating company, the U.K. Serious Fraud Office and the U.S. Department of Justice highlights the key considerations in determining whether a Deferred Prosecution Agreement should be made available to a company facing charges of foreign bribery and corruption.
Mr. Justice William Davis, a judge of the High Court of England and Wales, prepared a judgment shedding light onto his assessment of whether a DPA would be appropriate in this case.
What is a Deferred Prosecution Agreement?
A Deferred Prosecution Agreement (DPA) is potentially available to companies for certain economic or financial offences. It does not apply to or protect individuals.
It provides a mechanism whereby, subject to the approval of the court, prosecution of the company can be avoided by entering into an agreement on negotiated terms with a prosecutor.
In order for the agreement to be approved, a private hearing must be held in which the court ascertains and declares that the proposed DPA is likely to be in the ‘interests of justice’ and that its proposed terms are ‘fair, reasonable and proportionate’.
The case of Guralp Systems Limited
Guralp Systems Limited (GSL) is a relatively small U.K. company which specialises in the development and sale of systems for seismic measurement, used in a variety of applications such as civil engineering projects, oil exploration and extraction. Its systems are deployed throughout the world, and many of its contractual relationships are with public bodies, both national and international.
The previous management
The corrupt conduct in question concerns three individuals who previously held key roles within the company:
- Dr Cansun Güralp – GSL was incorporated in 1987 by Dr Güralp, who was an active director of the company until January 2015.
- Natalie Pearce – employed by GSL from October 1997 onwards. Though she was not a company director, she attended board meetings and held the title of Head of Sales by 2010.
- Andrew Bell – joined GSL in 2010 until his resignation in July 2015. Initially he was the finance director and from November 2013 he acted as managing director.
The new management: Setting the record straight
In December 2014 Dr Christopher Potts was appointed as Executive Chairman of GSL. By the middle of 2015 he had assumed the roles of Chief Executive and Chairman of the company.
During the course of implementing an anti-bribery and corruption program, Dr Potts formed suspicions around the relationship between GSL and an individual named Dr Chi who had held various positions with a government funded research institute in the Republic of Korea.
Dr Potts terminated all relationships existing between GSL and Dr Chi. and instructed a firm of solicitors to undertake an internal review.
As a result of that review, on 23 Oct. 2015 GSL reported its concerns to the U.K. Serious Fraud Office (SFO) and to the United States Department of Justice.
The SFO conducted its own thorough investigation to establish the nature and extent of the criminality involved.
The facts explored
Dr Chi, between 1999 and 2015, held senior positions at the Korea Institute of Geoscience and Mineral Resources (KIGAM). In July 1999 he introduced himself via email to Dr Güralp. During a visit to the GSL offices in the U.K., a corrupt relationship was formed in which Dr Chi agreed to provide support and advice to GSL in the seismological market in the Republic of Korea and to recommend GSL products to those requiring seismology equipment and expertise, for a ‘technical advice fee’ of $500.
Both Andrew Bell and Natalie Pearce were instrumental in the facilitation of these payments and were aware of the nature of the arrangement. Bell and Pearce agreed on a deliberately opaque wording to be used on invoices submitted by Dr Chi: “Invoice for technical consultancy on parametric information and product development”. In an e-mail sent to Pearce, who had devised the form of words, Bell said “perfect, noone will ever understand any of that”.
Over the course of the following 12 years GSL made payments to Dr Chi totalling over $1 million to a U.S. bank account, to avoid scrutiny by the Korean Government. Eight separate cash payments totalling over $70,000 were handed over during on-site visits or at the airport.
In return for these payments, Dr Chi recommended GSL’s products to other Korean companies, advised GSL on local pricing strategy and public sector procurement practices, and provided confidential information to GSL such as a presentation provided by one of GSL’s competitors to KIGAM and details of a rival company’s pricing policy. Dr Chi was also in a position to influence the technical specifications required of seismic equipment because KIGAM was responsible for issuing certificates for such equipment. The requirements were set so that they corresponded with the specifications of GSL’s equipment.
Due to this corrupt relationship, GSL’s revenue from contracts in the Republic of Korea grew by over £2 million between 2003 and 2015.
In 2017 Dr Chi was tried in the United States for and convicted of a money laundering offence relating to the corrupt payments he had received from GSL and another company based in the United States. He was sentenced to a period of imprisonment.
In the U.K., Dr Güralp, Ms Pearce and Mr Bell have been charged with conspiracy to make corrupt payments to Dr Chi. At the time of the preparation of the judgment (22 Oct. 2019) their trial is about to commence.
Is a DPA appropriate?
Mr. Justice William Davis outlines a number of matters in the judgment which balance in favour of a DPA:
- GSL reported the making of the corrupt payments to U.K. and U.S. authorities. They engaged an independent law firm to assess the position, and openly disclosed all findings.
- Those responsible for the corrupt payments are no longer associated with GSL. Those now in charge of running the company are those who reported the criminal activity to the authorities.
- GSL had not previously or otherwise engaged in criminal conduct.
- GSL has introduced a new compliance program and taken proactive measures to mitigate corruption risk, including terminating relationships with 5 distributors due to concerns raised through investigations.
- A DPA will help to ensure that GSL continues to actively cooperate with authorities.
The terms of the proposed DPA
- The duration of the agreement is to be 5 years.
- GSL is required to pay £2,069,861.00 (the gross profit attributed to corruption) prior to the end of the agreement.
- If payment cannot be made prior to this date, application may be made to vary the agreement, or the company may be prosecuted.
- The agreement does not provide for payment of any financial penalty. The SFO was satisfied that GSL cannot reasonably meet any penalty over and above the disgorgement sum, and that the interests of justice did not require the company to be pursued into insolvency.
- The agreement does not provide for payment of any costs.
- The DPA provides for annual reports in relation to the corporate compliance program and its implementation to be submitted to the SFO.
Mr. Justice William Davis concluded that a DPA meets the interests of justice, and that the terms are fair, reasonable and proportionate.