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A return to monitoring in UK DPAs?

Posted on 21 July 2020

The announcement and release on 17 July 2020 of the Deferred Prosecution Agreement (DPA) entered into between the Serious Fraud Office and G4S Care and Justice Services (UK) Limited (G4S C&J) marked the 8th to be finalised since DPAs came into being in 2014.

G4S C&J, a subsidiary of G4S plc, provided electronic monitoring services to the Ministry of Justice (MoJ) between 2005 and 2013. In December 2013 the MoJ raised concerns with G4S C&J that the company had not complied with its obligations in relation to financial reporting. In January 2014 G4S C&J self-reported to the SFO bringing to its attention that they had discovered material which indicated that the company had failed in its financial reporting to the MoJ. G4S C&J ultimately accepted responsibility for three offences of fraud against the MoJ in respect of its profits between 2011 and 2012.

As well as being ordered to pay a financial penalty of £38.5m and the SFO’s costs of £5.9m, the DPA includes a provision that SFO will select an independent external reviewer (monitor), shortlisted by G4S C&J, who will report and recommend an implementation plan to the SFO by the end of 2020.The monitor will then continue to review, assess and recommend improvements to the compliance programme throughout the DPA's duration.  By 4 months from the end of the DPA they are required to report again to the SFO to assess G4S C&J's efforts implement its recommendations and its compliance programme.

The appointment of a US-style independent compliance monitor to oversee the implementation of a corporate's programme of remediation is more onerous and far reaching than the provision, seen in most previous DPAs, that the company agrees to review its own compliance procedures, sometimes with the assistance of their auditors. Monitorship is also more active and ultimately allows the SFO greater oversight.

In his judgment approving this DPA, Mr Justice William Davis said (para. 43) of the external scrutiny that it "is greater than in any previous DPA" and is necessary and appropriate "given the exposure of both G4S C&J and the parent company to government contracts" and to provide "reassurance to the SFO, to relevant government departments and to the wider public that both companies have proper controls in place to ensure the integrity of their accounting and governance processes."

This case marks a shift from the position a decade ago when monitor provisions received heavy criticism from Lord Thomas in his judgment in Regina v Innospec Limited in which he was unconvinced by such a measure. Then the Judge described monitors as “an expensive form of ‘probation order’" which, he felt, utilised funds which would otherwise fall to be available for confiscation or compensation in that case. It seems clear though that in future any corporate entering into a DPA that is reliant on government contracts should expect to have to sign up to stringent and expensive external monitoring measures. This case may also encourage the current Director of the SFO to seek monitors more generally in future DPAs to ensure the policing of ongoing compliance at no cost to the taxpayer.

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