On December 20 a jury in the UK acquitted two former employees of Guralp Systems Ltd, including its founder and former director, of conspiracy to make corrupt payments. This followed an acquittal two days earlier of the former finance chief of the company. On the same day, the Serious Fraud Office published the Deferred Prosecution Agreement it had made with the company on October 22, 2019.
This is the third DPA in the UK where individuals charged with the wrongdoing that formed the basis of the DPA have been acquitted by a court. The SFO is absolutely right to pursue individual prosecutions where it has entered into a DPA. However, this latest set of acquittals will raise serious questions for the SFO about whether its prosecutorial strategy is working and once again, about how effective the UK’s Deferred Prosecution Agreement regime is.
Guralp Systems Ltd (GSL) is a small UK company which designs and sells seismological instruments that have been used among other things for detecting nuclear weapons tests, structural monitoring of dams and public utilities, and earthquake early warning systems.
The alleged conduct, according to the DPA, involved GSL making payments totaling $1 million to a South Korean public official, Dr. Heon-Cheol Chi. Dr. Chi worked at a government funded research institute, the Korea Institute of Geoscience and Mineral Resources (KIGAM). KIGAM is supervised and audited by a government ministry in South Korea and provides certification for seismic instruments used by public bodies in Korea.
Payments made to Dr. Chi were disguised as “technical advice fees.” Dr. Chi used his position at KIGAM to recommend GSL and influence the award of contracts to GSL over a period from 2002-2015. The activity thus spanned both old corruption laws and the Bribery Act in the UK.
Dr. Chi was convicted in July 2017 in the United States on one count of laundering the proceeds of bribes following a four day jury trial. The DOJ press release when Dr Chi was sentenced stated: “The evidence at trial included numerous emails in which Chi admitted that he was acting illegally and that he accepted bribes that exceeded his legitimate income from KIGAM by a substantial margin.”
The fact that Dr. Chi was convicted of laundering bribes from GSL, and the fact that the individuals charged in the UK settled a civil case brought by the company against them, makes the jury acquittal of the individuals particularly surprising and galling for the SFO.
The Guralp DPA – some new features
The DPA with GSL was the first DPA in the UK where the final approval hearing was heard in private rather than public. It is also the first DPA where the company has paid no financial penalty at all, only disgorgement. Further, while GSL has agreed to pay £2 million ($2.6 million) in disgorgement of profit, no timetable has been set within the DPA for its payment. Rather, as the judgment states, GSL will pay the total of the disgorgement by the “fifth anniversary of the date of the agreement.”
Additionally, the DPA unusually allows for the terms of the DPA to be amended if GSL cannot meet the repayment of the disgorgement. The judgment acknowledges that “it is very unusual for a DPA to be approved on the basis that its terms may not be met,” but decided that the circumstances of GSL’s finances were unusual enough for this to be approved.
GSL self-reported the suspected bribery to both the SFO and the U.S. DOJ in 2015 following a new executive chairman taking over at the company and ordering an internal investigation. In August 2018, the DOJ issued a letter of declination to Guralp saying it was closing its inquiry into GSL “notwithstanding evidence of violations of the FCPA arising from GSL’s payments to Chi.” It appears it ceded primacy to the SFO in this investigation. It is unlikely that the wrongdoing would have come to the agencies’ attention without the self-report.
Following the acquittal of individuals in relation to wrongdoing underlying the Tesco and the Sarclad DPAs in the UK, there were calls for review of the DPA regime in the UK. Questions have been raised as to whether the acquittals of individuals undermine the incentive for companies to come forward and self-report. Others have asked whether it is fair for individuals to be named in published Statements of Facts when they have been acquitted by the courts. The acquittals in the Guralp case will no doubt cause all of these questions to be raised again.
What is clear is that the SFO will now need to take a long hard look at its prosecution strategy and just why it is proving so hard to bring these cases home in jury trials. It may well be that the SFO needs to better present evidence to juries about why these kinds of cases matter, and why corruption is so damaging. The SFO shouldn’t stop trying to prosecute individuals that may be responsible for corporate wrongdoing. But it certainly needs to find a way at getting more successful at doing so and be transparent about what it thinks is going wrong.