The Serious Fraud Office has announced that a Deferred Prosecution Agreement (DPA) with Serco Geografix Limited (SGL), a wholly-owned subsidiary of the Serco Group, has been approved in principle by Justice William Davis. On Thursday 4 July 2019, the SFO will apply for final approval of the DPA before the same Judge at Southwark Crown Court.
If approved, the DPA will result in a payment by SGL of £19.2 million as well as payment of the SFO’s costs. Compensation to the victim of the conduct, the Ministry of Justice (MoJ), has already been paid by Serco as part of a £70 million civil settlement in 2013.
Accompanying the DPA with SGL is an undertaking in which Serco Group assumes certain obligations including ongoing co-operation with the SFO and further strengthening of its Group-wide ethics and compliance functions, as well as annual reporting on its Group-wide assurance programme. Separately, Serco has agreed that this Annual Report will be provided to the Cabinet Office.
In entering the DPA, SGL has taken responsibility for three offences of fraud and two of false accounting arising from a scheme to dishonestly mislead the MoJ as to the true extent of the profits being made between 2010 and 2013 by SGL’s parent company, Serco Limited (SL), from its contract for the provision of electronic monitoring services. The scheme was designed to prevent the MoJ from obtaining information to which it was entitled and from using this to decrease SL’s revenues under that contract.
The SFO has agreed in principle to this resolution based on a number of factors, including SGL’s prompt and voluntary self-disclosure of the conduct giving rise to the above charges, its substantial co-operation with the SFO’s investigation and its significant remedial efforts – achieved through company-wide efforts undertaken by Serco Group. These include prompt and complete disgorgement and compensation paid to the MoJ, the implementation of a multi-year, Group-wide Corporate Renewal Programme, a complete change of senior management and the agreement of Serco Group – despite not being a party to the DPA – in order to guarantee SGL’s performance of its obligations under the DPA and to commit to substantial co-operation, self-reporting and compliance-related obligations of its own.
Investigation into Serco
The matters that are the subject of the DPA were reported to the SFO by Serco in late November 2013. This followed the launch in October 2013 of an investigation into Serco and its employees in respect of the electronic monitoring contract, which initially focused on the question of whether SL had improperly invoiced and been paid by the MoJ for electronically monitoring subjects where no actual monitoring of those subjects had taken place.
These matters are not the subject of the DPA and, having been fully investigated, no criminal charges are to be brought against Serco based upon them.
Lisa Osofsky, director of the SFO, said: “SGL engaged in a concerted effort to lie to the Ministry of Justice in order to profit unlawfully at the expense of UK taxpayers. The SFO will pursue those who engage in this sort of criminal conduct so that they’re held to account.”
Osofsky continued: “This resolution not only ensures such accountability, but also recognises SGL’s voluntary self-reporting of the misconduct, its and Serco Group’s substantial co-operation with our investigation and Serco Group’s extensive corporate reform and other remediation. It also provides substantial assurances regarding the future corporate integrity of Serco Group, which is one of the UK’s largest Government contractors. These measures are designed to achieve the goal of fair and transparent dealing with the Government and other market participants.”
The full reasons for and the terms of the agreement will be given in open court at the public hearing of the application to approve the DPA, subject to any reporting restrictions ordered by the Judge to protect potential future criminal proceedings against individuals. Should the Judge approve the DPA, the SFO will publish it.
The hearing will take place at the Southwark Crown Court at 10.00 am on Thursday 4 July 2019.
First DPA relating to public contracts
Aziz Rahman, senior partner at business crime-focused solicitors Rahman Ravelli, told Risk Xtra: “By entering into the DPA, SGL has taken responsibility for three offences of fraud and two of false accounting. What’s most significant here, though, is that this is the first DPA to relate to public contracts. That’s why Serco has done so well to avoid a conviction. This was a company that was profiting on a large-scale from Government contracts. Many companies found to be defrauding the public purse would very likely face conviction and a ban on bidding for any other such contracts. The fact that this has not happened here can be down to a number of factors.”
Ravelli added: “The company has paid £19.2 million and the SFO’s costs. Compensation to the Ministry of Justice has also been paid as part of the £70 million civil settlement in 2013. Serco has co-operated with the SFO, made changes to its senior management and revised its approach towards ethics and compliance. Such actions can be vitally important for a company looking to enhance its chances of gaining a DPA in order to avoid a damaging prosecution.”
Ravelli continued: “The company has clearly implemented a culture change regarding its approach to such offences and how they should be handled moving forward. The significant factor from here onwards may well be the ongoing monitoring of the company’s internal controls and compliance programmes. What will be of huge interest now is whether the individuals who were involved during the period of offending will be prosecuted or not.”
Embellishing that last point, Ravelli concluded: “In the past year, the SFO has failed to convict anyone in relation to the wrongdoing that led to the Tesco DPA. It has also decided to bring no charges over the bribery that led to the Rolls-Royce DPA. Many will be watching this case to see exactly what happens next.”
*News Update: Thursday 4 July 2019 SFO completes DPA with Serco Geografix Ltd