Deferred Prosecution Agreements - what you need to know

Deferred Prosecution Agreements - what you need to know

Published:

Author: Jeremy Bouch

On 24 February 2014 Deferred Prosecution Agreements ('DPAs') legislation was finally brought into force in respect of a wide range of criminal conduct.

DPAs cover bribery, money laundering, theft, false accounting and fraud to offences under legislation as diverse as the Financial Services and Markets Act 2000, Value Added Tax Act 1994 and the Companies Act 1985.

The Attorney General insists that he is 'confident that DPAs will enable prosecutors to take appropriate action against commercial organisations involved in economic crime, and that they will work well alongside existing methods' whilst the Director of the SFO, David Green QC, asserts that the SFO will be a formidable prosecutor with renewed vigor to tackle corporate crime.

The gut instinct however is that the bark may be worse than the bite. Focusing on the SFO, who have a statutory obligation to investigate and prosecute cases involving serious or complex fraud, they would find it challenging to run more than a handful of costly and complex investigations at any one time.

In the Tchenguiz probe the High Court in 2012 commented that they did not have the 'proper resources, both human and financial' and as it stands today their budget is only £3 million (Annual Report and Accounts 2012-13) with a total civil service staff of 300 who are already tasked with the LIBOR case and enormous high profile investigations in respect of alleged wrongdoing by G4S, Serco and Rolls Royce.

Introducing the DPA, a new toolkit for the prosecutor.

Stage one: awareness of a potential DPA

The prosecutor will become aware of a potential corporate crime in different ways:

  • through a self-report by the company
  • as a result of a whistle-blower
  • by information acquired through data sharing with organisations such as the National Crime Agency or Intelligence Services

Any of these situations will lead to dialogue between an organisation and the Prosecutor but importantly the former cannot insist on the protection of a DPA prior to opening discussions as logically the Prosecutor would not bind itself until it knows the full extent of the criminality.

Stage two: potential DPA

If the prosecutor invites an organisation to enter into DPA negotiations it will outline the basis on which negotiations will proceed. During this stage the particulars of the alleged offending will need to be established, ostensibly through the disclosure of evidence including access to witnesses.

After disclosure, terms will be discussed which will normally comprise a financial order, the payment of the reasonable costs of the prosecutor and co-operation with the prosecution of any individuals involved in the wrong-doing. If the negotiations fail or either party withdraws then whether the investigation proceeds is a matter for the Prosecutor.

Stage three: court approval

The proposed DPA is put before a judge with an opportunity to suggest modifications to the proposed terms or in fact the Judge can reject the proposed DPA if they do not feel it is in the interests of justice for one to be granted to the organisation for the criminal conduct concerned.

Concerns

Even with a successful DPA, the Prosecutor's guidance is that the financial penalty imposed should be comparable to the fine that the court would have imposed following an early guilty plea had the case been prosecuted in Court.

This is enormously different to the genuine encouragement offered to a first applicant for leniency in an OFT cartel investigation who benefits by guaranteed corporate immunity from financial penalties, guaranteed 'blanket' immunity from criminal prosecution for individual employees or officers and guaranteed director disqualification protection.

The likely fixation by the Prosecutor on levels of fines during DPA negotiations is unhelpful as it will allow little scope for discretion to recognise co-operation. Corporate fines in the criminal courts arena have increased substantially as they now use a similar calucation method to the structure used by the FCA. In 2014 we have seen FXCM UK fined £4 million for making 'unfair profits' and not being open with the FCA; HomeServe fined £30m for widespread failings; State Street UK fined £22.9m for Transitions Management failings; and Standard Bank PLC fined £7.6m for failures in its anti-money laundering controls. The landscape of criminal fines for corporates has truly changed.

Conclusion

The DPA initiative emerged against the backdrop of the likes of the SFO coming under pressure to demonstrate greater effectiveness in tackling corporate crime. However, they offer very little incentive in most cases and an organisation will have disclosed evidence that can be used against it where a DPA fails to materialise.

So what then is the benefit for a commercial organisation? Clearly they may provide savings on the amount of costs to be paid , bring about a timely conclusion and salvage reputation through co-operation. However, beyond that there appears to be little offered by a DPA and certainly no immunity from prosecution or substantial or total reduction in fine level.

In most cases there is no legal obligation that an organisation self-reports historic or current criminal conduct and all the factors that favour offering a DPA are just as powerful in arguing against prosecution.

Therefore, whilst a DPA masquerades as a 'Get Out of Jail Free' card, the reality is that they may well turn out to be unavailable in most cases and any organisation that suspects or is suspected of corporate crime must adopt an intelligent and strategic reaction to it which will require the input of specialist legal advice.