Some Questioning if DPAs Will Work in the United Kingdom

With the U.K. Serious Fraud Office finally able to offer companies U.S.-style deferred-prosecution agreements, lawyers expect the agency to start enforcing the country's tough Bribery Act 2010 with much greater zeal.

It's almost four years since Britain passed one of the world's toughest anti-bribery and corruption laws, but its main enforcement body, the SFO, has struggled to bring any cases of note. The agency has neither the funds nor the staff it needs to enforce the Bribery Act effectively.

The United Kingdom finished putting the legal mechanisms in place in February to begin reaching deferred-prosecution agreements. DPAs give the SFO and other crime agencies a new tool to help reach plea bargain arrangements with corporate offenders, which bypass costly and resource-intensive trials. The hope is that the availability of DPAs will also encourage companies to self-report wrongdoing in exchange for more lenient treatment, including the possibility of avoiding a criminal investigation and potential prosecution if strict conditions set by a judge are met.

The deal can include payment of substantial penalties and compensation, along with consent decrees requiring compliance reform overseen by an independent monitor. The DPA would be announced in open court, with details of the wrongdoing and sanctions published.

“The SFO is under-resourced and cannot afford major investigations, particularly those with a foreign element, without specific grants of funds,” says Kevin Robinson, a partner in the London litigation practice of law firm Morgan Lewis. “Those funds are difficult to get and are really only available for the most egregious cases,” he says.

DPAs give the SFO the chance to secure some “easy wins,” he believes. If companies take the bait and self-report their wrongdoing, the SFO will be able to claim it is actively enforcing the Bribery Act—and commercial crime generally—without having to use much of its minimal resources.

The ability to negotiate a DPA will also help the SFO dodge one of the legal barriers that makes it hard for U.K. prosecutors to convict companies, says Alan Ward, associate in the regulatory litigation team at lawyers Stephenson Harwood. To bring a case against a company, prosecutors need to show there is a “reasonable prospect” of convincing a jury that its directors—the “controlling mind” of the business—were aware of the alleged wrongdoing. That has proved difficult in the past.

The test for entering into a DPA, however, is much lower. The prosecutor only has to show there is “a reasonable suspicion, based on some admissible evidence, that the company has committed the offence,” says Ward.

More Judicial Oversight

The U.K.'s deferred-prosecution system is modeled on the U.S. approach to plea bargaining, but there are important differences. “In the U.K. framework a judge has several opportunities—from a relatively early stage in the process—to say that the DPA is not in the interests of justice or that the proposed terms are not fair, proportionate and reasonable,” says Ward. Once the prosecutor and company have reached agreement, the deal still needs to be approved by a judge in open court. “In the United Kingdom, the final say belongs to the judiciary,” he adds.

“The SFO is under-resourced and cannot afford major investigations, particularly those with a foreign element, without specific grants of funds.”

—Kevin Robinson,

Partner,

Morgan Lewis

Another important difference is that “there is actually a prosecution which has commenced, which is then put on hold,” says Robinson. “The important element to be aware of is that if the SFO decides that the terms of the DPA have been broken, they can revive the prosecution and use information and evidence provided under the umbrella of the DPA to support that prosecution.”

U.K. enforcement agencies, such as the SFO, will not offer a company a DPA deal just because it has turned itself in. “Any self-report will have to be genuine, proactive, and in particular relate to matters that the authorities might otherwise not have discovered,” says Jeremy Summers, a partner in the business crime and regulation unit at law firm Slater & Gordon.

As such, the first DPAs are likely to cover historic activity that is uncovered, for example, by due diligence inquiries ahead of a corporate takeover, he says. “Another scenario might be where conduct has occurred overseas by third-party agents acting for a company, and so the issue is not really one of improper conduct by the company but rather inadequate oversight, adds Summers.

Ward says a company's approach to the SFO “will require careful engineering and, in particular, careful timing.”  Guidance from the SFO suggests that in most cases companies will self-report after an internal investigation. It doesn't say anything about when a company should actually make a report, but it does say that how early and how fully the company reports the offence will have an effect on whether or not the government offers a DPA deal or not.

SFO ANNOUNCES DPA PLAN

In a press release below, the Serious Fraud Office outlines its new guidance for deferred prosecution agreements.

The Director of the Serious Fraud Office and the Director of Public Prosecutions have today published a joint code of practice on the use of Deferred Prosecution Agreements (DPAs). DPAs become available to prosecutors from 24 February.

A DPA is an agreement reached under judicial supervision between the prosecutor and an organization. The agreement allows a prosecution to be suspended for a defined period provided the organization meets certain specified conditions. DPAs will only apply to organizations in cases of economic crime.

The publication of the code follows an extensive consultation exercise carried out over the summer last year.

David Green CB QC, Director of the SFO said: “At present, when a company is convicted of a criminal offence, a court can impose a fine or put it out of business by winding it up. Both these outcomes can cause collateral damage to employees and shareholders who may be blameless.

“Deferred Prosecution Agreements avoid that collateral damage and provide a welcome addition to the prosecutor's tool kit for use in appropriate circumstances. But DPAs are not a panacea, nor are they a mechanism for a corporate offender to buy itself out of trouble.

“The most important features of the DPA regime outlined in the code are judicial oversight, and unequivocal cooperation from the corporate. Prosecution remains the preferred option for corporate criminality.”

Alison Saunders, the Director of Public Prosecutions, said: “Deferred Prosecution Agreements provide prosecutors with additional powers in the fight against fraud and economic crime. Whilst the circumstances appropriate to the use of DPAs may be quite rare for the CPS, the guidelines published today set out our approach to this new legislative function in an open and transparent way.”

Conditions attached to a DPA may include disgorgement of profits; payment of a fine, compensation for victims and costs; cooperation in any prosecution of individuals; and implementation of a compliance program, if necessary with a monitor appointed.

A DPA may be appropriate where the public interest is not best served by mounting a prosecution. Entering into the agreement will be a fully transparent public event and the process will be approved and supervised by a judge.

Source: Serious Fraud Office.

“The company seeking a DPA will have to balance making a report within reasonable time of the offence conduct coming to light—a factor weighing in favor of a DPA—with taking time to verify suspicions by gathering evidence and conducting analysis in order to ensure a report is not inaccurate, misleading, or incomplete—which may militate against a DPA being offered,” Ward says.

Getting the timing right is crucial, agrees Robinson. “If there is haste to go to the SFO quickly without a full internal investigation, then if any later investigation within the context of the DPA turns up a previously undisclosed link between the offending and the ‘controlling minds,' the DPA could backfire,” he warns.

Cooperation Credit

It is also essential that the company shows a willingness to cooperate with the SFO, its guidance makes clear. This includes “identifying relevant witnesses, disclosing their accounts and the documents shown to them, and making witnesses available for interview when requested."

It will count in the company's favor if it can show that it has tried to improve its compliance efforts since the bribery or corruption took place. In fact, if a company cannot “demonstrate a significant improvement” in compliance since the wrongdoing occurred, that is a factor that will tend toward a prosecution rather than a DPA, says Julian Glass, managing director at FTI Consulting, an accounting forensics and investigations firm.

With the way clear for the SFO to strike plea deals with companies, the big question is whether any will come forward and take the bait. There's no guarantee they will, believes Andrew Durant, also of FTI Consulting.

“DPAs work well in the United States because the authorities there have a track record of being successful,” he says. “There is a high chance that offences will come to light; they run successful investigations and get heavy fines and jail sentences for individuals. So U.S. companies are incentivized to take part, otherwise they risk the very real possibility of jail sentences. In this way, the U.S. adopts both the carrot and the stick.”

Without that track record, however, U.K. prosecutors don't pose the same threat, says Durant. “Here in the United Kingdom we have a poor record of investigating, prosecuting, and imposing fines or jail sentences. Yet we are already adopting the carrot option of DPAs. Perhaps the authorities should persevere with a few high-profile cases, therefore convincing companies of the worth of coming forward early. Without believing that jail sentences are a real possibility, companies won't see the benefits of volunteering their co-operation.”

Publishing his code of practice, SFO director David Green said DPAs “are not a panacea.” He stressed that a full prosecution remained the “preferred option for corporate criminality.” But with a poor track record of securing prosecutions, is the SFO all carrot and no stick?