Corporate confessions to serious fraud office almost double in last year

14 Jan 2013 | 11:07 am | 3 min. read

The number of businesses self-reporting white collar crime to the Serious Fraud Office (SFO) has almost doubled in the last year, jumping from 7 reports in 2010-2011 to 12 in 2011-2012*, says international law firm Pinsent Masons.

Recently, Rolls-Royce became the latest major corporate to self-report to the SFO, following a request by the SFO for information relating to its operations in the Far East.

Pinsent Masons explains that the July 2011 introduction of the Bribery Act isa key reason behind the spike, with corporates increasingly concerned about the consequences of not coming clean to the Serious Fraud Office and increased awareness of bribery concerns.

Punishment for breaching the Bribery Act can be severe. Businesses may be fined or blacklisted from government or EU contracts, while individuals can face imprisonment. Corporates can be liable for prosecution even if they were unaware of wrongdoing in their company.

However, corporates have a chance of a lighter punishment if they self-report corporate wrongdoing.

Barry Vitou, Partner at Pinsent Masons, says: “The Bribery Act is already having a big impact on corporate attitudes towards rooting out and self-reporting white collar crime. The harsh penalties associated with the Bribery Act have greatly increased the incentives for corporates to self-report rather than risk being caught out by a hostile SFO investigation.”

“Self-reporting won’t let a corporate avoid prosecution, but it could help reduce the risk of receiving the most severe punishments. Corporates know they have a chance of limiting the damage if they’re up front with the SFO.”

Barry Vitou adds: “Burying its head in the sand is not a long-term solution for a corporate that suspects wrongdoing. The SFO has plenty of sources of information at its disposal and is investing in intelligence, so the net can close in very quickly, with or without a company’s co-operation.”

Just two companies self-reported white collar crime to the SFO in 2008-9.

Pinsent Masons adds that the number of self-reports has increased despite the high standard of evidence and documentation required for a self-reporting corporate.

Corporates self-reporting to the SFO must provide reports setting out the nature and scope of any internal investigations, as well as supporting evidence including copies of emails, banking records, and witness accounts.

The SFO further tightened the self-reporting process with surprise new guidance in early December this year.

Barry Vitou says: “The SFO is playing hard ball on self-reporting. The process is now a lot more robust and transparent, and it will be challenging for corporates to comply with the new rules.Themore rigorousprocess has been published after there were criticisms about deals done behind closed doors.”

“The SFO attaches huge importance to self-reporting, but it can launch a prosecution with or without a self-report. The onus is on a corporate to come clean to the SFO if they want to have a chance of avoiding the heaviest sanctions, even if it means jumping through extra hoops.”

Barry Vitou adds: “The Rolls-Royce self-report was prompted by an SFO enquiry following a whistleblower posting on an internet forum. This underscores the increased risk of getting caught out. The SFO, under its new director, has been warning corporates of the risks they could run by trying to hide things. Corporates should not kid themselves that they can get away with it.”

Pinsent Masons adds that the risk of being ‘caught out’ is heightened by the high level of whistleblowing that takes place in the UK.

Between November 2011 and 2012, the SFO received 3,265 letters, emails, or phonecalls to report financial crime, according to figures released by the solicitor-general.

Pinsent Masons research found that the SFO whistleblower hotline ‘SFO Confidential’ was receiving over 100 calls per month in the first three months of 2012, although the hotline was scrapped in June 2012 for cost reasons.

US Securities and Exchange Commission figures show that the UK was the most common source of non-US financial crime tip-offs in the 12 months to 30 September 2012, representing 23% of non-US leads (74 out of 324 tip-offs).

Barry Vitou says: “Corporates need to remember that the SFO might have information about wrongdoing in a corporate other than evidence from aself-report. The whistleblowing culture is alive and well, so corporates can’t assume that the SFO doesn’t know about something if they haven’t yet reported it. Rolls Royce appears to be a good example of what can happen.”

“And, if a corporate does go down the road of Self Reporting it’s very important for corporates to provide full and frank details of what they know so that the SFO has no reason to suspect a cover-up.”

*Year end 31 March

Number of companies self-reporting white collar crime to the Serious Fraud Office

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