UK: Approval Of UK's Fifth DPA Concludes SFO Investigation Into Serco Companies

Last Updated: 16 August 2019
Article by Susannah Cogman, Daniel Hudson and Hanne Gundersrud
Most Read Contributor in UK, August 2019

On 4 July 2019, Mr Justice William Davis approved a Deferred Prosecution Agreement ("DPA") agreed between the Serious Fraud Office ("SFO") and Serco Geografix Ltd ("SGL"), a wholly-owned subsidiary of outsourcing company Serco Group plc ("Serco Group"). SGL has agreed to pay £22.9 million, comprising a financial penalty of £19.2m and the full amount of the SFO's investigative costs of £3.7m. This is in addition to the £12.8m in compensation Serco paid to the Ministry of Justice as part of a £70m civil settlement in 2013.

Following the introduction of DPAs in the UK in 2014 and the conclusion of the first DPA with the SFO in November 2015, the Serco DPA is the fifth and latest in a growing body of DPA case-law and confirms the importance placed by the SFO on the use of DPAs in tackling financial crime.

In this briefing, we provide some background on DPAs generally, an overview of the Serco DPA and discuss some of the emerging themes relating to DPAs and the SFO's approach to enforcement.


By way of background, and as set out in our briefing from 2016 in relation to the UK's second DPA, DPAs provide a means, in appropriate cases, of resolving offending by corporate entities for fraud, bribery and economic crime. Under a DPA, a company agrees to certain conditions which are likely to include a financial penalty, compensation to victims, disgorgement of profits, payment of any reasonable costs of the prosecutor in relation to the alleged offence or the DPA itself, cooperation in any investigation related to the alleged offence, and measures to prevent future offending. The company and the SFO will also agree a public statement of facts setting out the company's wrongdoing. In return, and provided the conditions of the DPA are met, the company will not face prosecution. DPAs are public, and must be applied for and approved by a court before coming into effect. A court will approve a DPA which it considers to be in the interests of justice, and which has fair, reasonable and proportionate terms.

SFO v Serco Geografix Limited

On 4 July, Mr Justice William Davis in Southwark Crown Court approved a DPA agreed between the SFO and SGL. SGL's business was the manufacture and supply of electronic monitoring equipment (tags) used to monitor persons accused or convicted of criminal offences who are subject to a curfew condition. The UK Government was one of SGL's key clients. Since January 2018, SGL has been a dormant company with no expectation of future trading, though a significant part of the operation of Serco Group continues to involve work with the public sector in the UK.

The DPA related to three counts of fraud and two of false accounting arising from a scheme to dishonestly mislead the Ministry of Justice ("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. Specifically, the offences include SGL:

  • invoicing the MoJ for monitoring services in respect of non-existent individuals and other costs not genuinely incurred, thus permitting SGL and SL to retain profit which might otherwise have been clawed back by the MoJ;
  • falsifying accounting records to overstate revenue earned and costs incurred; and
  • falsifying its Annual Report and Financial Statements for the year ending 31 December 2011 by reporting an additional £7.5m of purported revenue.

The judgment notes that, although the scheme was devised by management within SL, no "directing mind" of SL could be shown to have been involved in the devising and putting into effect of the fraud. On the other hand, there was evidence of "directing minds" within SGL having knowledge that SL reported fabricated cost figures to the MoJ. On that basis, only SGL was a party to the DPA.

The terms of the DPA (which will remain in place until 2022) require SGL to:

  • cooperate with the SFO and other relevant foreign and domestic law enforcement and regulatory authorities;
  • pay a financial penalty of £19.2 million;
  • pay the costs incurred by the SFO, amounting to £3.7 million;
  • report evidence of fraud by itself or related companies and individuals; and
  • enhance and report annually on the effectiveness of its ethics and compliance programme.

SGL was credited for payments made pursuant to the Settlement Agreement between SL and the MoJ in 2013, which fully offset the £12.8 million in compensation and disgorgement of profits SGL would otherwise have been required to pay.

The DPA is also accompanied by an undertaking from SGL's ultimate parent company, Serco Group, pursuant to which the Group agrees to:

  1. ongoing cooperation with relevant authorities;
  2. report evidence of fraud by itself or related companies and individuals;
  3. any necessary strengthening of its Group-wide Ethics and Compliance functions; and
  4. annual reporting on its Group-wide assurance programme.

Public interest

A court will approve a DPA only if it finds that the DPA is in the public interest. The Deferred Prosecution Agreements Code of Practice (the "Code of Practice") sets out a list of factors to be considered in this context.

Seriousness of conduct

The more serious the offence, the more likely it is that the public interest will demand a prosecution and the less likely it is that a DPA will be in the interests of justice.

The first DPA (SFO v Standard Bank plc) concerned a failure to prevent bribery where it was not suggested that the Bank was complicit in the corruption alleged. The second DPA (SFO v XYZ Ltd) involved more serious misconduct both in terms of type and scale. It allegedly involved systematic offer and payment of bribes to secure contracts in foreign jurisdictions and a small but important number of XYZ Limited's employees were aware of this.

These were followed by the third DPA (SFO v Rolls-Royce plc), which was described by the judge considering its approval, Sir Brian Leveson QC, as involving the "most serious" breaches of the criminal law, aggravated by the fact that the conduct was persistent, multi-jurisdictional, numerous, spread across Rolls-Royce's businesses, involved substantial funds and displayed careful planning.

The present case, which is the SFO's fifth DPA, was described by Mr Justice Davis as "a substantial fraud" reflecting business practices "apparently ingrained in the company" and which was compounded by the serious impact the conduct had on the integrity of the process of outsourcing public functions to private companies.

Nonetheless, other strong countervailing public interest factors outweighed the seriousness of the conduct, therefore justifying a DPA rather than immediate prosecution.


Previous DPA cases have placed a lot of importance on companies' self-reporting and cooperation, and the present case is no different. Mr Justice Davis emphasised Serco Group's "very substantial cooperation", which included: (i) proactively disclosing material which came to light, even after an initial SFO investigation had found no evidence of any dishonest or fraudulent activity; (ii) cooperating with the SFO's request not to engage in any internal inquiry by way of interviewing witnesses whilst the SFO was conducting its investigation; (iii) instructing an independent law firm to conduct a full document review and provide the SFO with a detailed report of the findings; (iv) notifying the SFO of any developments within the business which could have an impact on the criminal investigation; (v) giving the SFO unrestricted access to e-mail accounts of current and former employees; and (vi) waiver of privilege in respect of certain accounting material.

Other factors

It was noted that, since 2013, Serco Group has undergone a complete change of senior management. It has also subjected itself to numerous forms of internal and external review and audit and set up a continuing corporate renewal programme to strengthen and improve the operating practices of all companies within the group structure.

Mr Justice Davis stated that he was "troubled" by the issue of proportionality, given that SGL had engaged in "quite deliberate fraud" against the MoJ in relation to the provision of services vital to the criminal justice system. On balance, however, he concluded that his approval of the DPA would not be the determining factor in a political decision of whether SL and Serco Group could continue to supply services to government departments. In reaching that conclusion, he referred to the fact that, on the morning of 4 July, the Government confirmed to the SFO and the court that it considered the self-cleaning measures adopted by Serco Group to have been such that there was "no current reason why Serco should not continue to be a supplier to [HM Government]". It was also of relevance that any conviction would be a conviction of SGL, which is a dormant company.

Perhaps the most important factor in the judge's approval of the DPA, however, was the undertaking by Serco Group to accept obligations mirroring the requirements imposed on SGL by the DPA. The court noted that, with SGL being a dormant company, the obligations imposed on it under the DPA were of limited value, whereas the undertakings given by the Group were "of genuine and substantial effect" and a key component of the DPA, without which "it is very unlikely that the goals of a DPA could have been achieved" in the circumstances of the case.


Taking into account the above factors, the court concluded that it was "satisfied that these matters amount to significant remedial measures" and that it would therefore be appropriate and in the public interest to approve the DPA.

Calculation of financial penalty

As set out in the Code of Practice, any financial penalty imposed by a DPA is to be broadly comparable to a fine that the court would have imposed upon a company following a guilty plea. This enables the courts to have regard to relevant pre-existing sentencing principles and guidelines in determining the appropriate level for a financial penalty. The total amount to be paid to the SFO includes not only a financial penalty, but also disgorgement of any profits following from the conduct in question and the SFO's legal costs.


The Sentencing Guideline for Corporate Offenders: Fraud, Bribery and Money Laundering (the "Guideline") requires the removal of all gain, as well as appropriate punishment. Accordingly, the approved DPA required disgorgement by SGL of profit in the sum of £12.8 million, which the judge found represented a reasonable estimate of the loss suffered by the MoJ as a result of SGL's offences. However, because there had already been a compensation payment of £20 million to the MoJ following the 2013 Settlement Agreement, it was held that it would not be proportionate for the DPA to provide for compensation or impose a term requiring further disgorgement of profits.

Financial penalty

As set out in the Guideline, the usual starting point in calculating a financial penalty is to establish the consequential "harm" from the offending. Mr Justice Davis noted that there was sustained offending by a company in a position of trust in relation to the public and that, given the high culpability involved, the starting point for the multiplier for harm was 300%. Aggravating factors included attempts made to conceal the fraudulent activity and substantial harm to the integrity of government procurement processes.

The penalty in the DPA, before discount, therefore amounted to £38.4 million.


The court proceeded to apply a discount on the basis of SGL having pleaded guilty at the earliest opportunity, referring to the fact that in all but one of the earlier instances of approval of DPAs, the financial penalty has been discounted by 50% rather than one-third, as would be required by the Sentencing Guidelines Council on Guilty Pleas. This was found to "encourage corporate responsibility in terms of early reporting of criminal conduct".

The discount of 50% resulted in a penalty of £19.2 million. The discount applies only to the penalty and is not applied to the SFO's costs of £3.7 million.


This DPA is significant because it is the first occasion on which undertakings of the kind made by Serco Group have been made by a parent company in relation to a DPA entered into by one of its subsidiaries. Mr Justice Davis described this as "an important development in the use of DPAs", in particular given the nature of modern corporate structures, where it may be problematic to show that a controlling mind of the parent company was involved in the criminality carried out by a subsidiary, even where the benefit of the criminality tended to accrue to the parent.

The decision also re-emphasised the importance of self-reporting and cooperation. In his concluding comments, Mr Justice Davis noted that any cynicism about the process by which a corporate entity can take advantage of a DPA "is not well-founded" as approval will only be given where there is the "clearest possible demonstration of integrity" on the part of the relevant company, and that this would require self-reporting, full cooperation with the investigation, a willingness to learn lessons and acceptance of an appropriate penalty. He added that a willingness to learn lessons must be shown via "real, substantial and continuing remedial measures".

The case confirms the increasing importance placed by the SFO on the use of DPAs in tackling financial crime and illustrates how DPAs constitute a significant incentive on corporates to go to great lengths to demonstrate their extensive cooperation with an SFO investigation.

Finally, it is worth noting that the judge postponed publication of the Statement of Facts agreed between the SFO and SGL so as not to prejudice the SFO's investigation into potential criminal offences by individuals arising out of this matter. The SFO expects a charging decision to be taken by 18 December 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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