U.K. DPAs Could Come With More Strings Attached

U.S. style enforcement of bribery and corruption is heading to Britain, but with more strings attached.

The British government formally approved the use of deferred prosecution agreements in the United Kingdom last week. Now U.K. companies, or those with units there, await guidance on how DPAs will be applied, as well as real-life test cases that put those concepts into practice.

While the U.S. Justice Department has grown increasing reliant on DPAs as a tool to fight corporate bribery and corruption without having to win a conviction in every case, the idea has had little grounding in British law—until now. The Crime and Courts Act, which received Royal Assent on April 25, swept away that roadblock by allowing the U.K. Serious Fraud Office to offer DPAs in exchange for cooperation. But with more judicial oversight of the process, DPAs in the United Kingdom are likely to come with more concessions from companies and stricter compliance promises.

The push to adopt DPAs in Britain has received widespread support from prosecutors, the judiciary, members of the legal profession, and businesses. Responses to a U.K. Ministry of Justice consultation paper published in May 2012, for example, were overwhelmingly positive, with 86 percent of respondents agreeing that DPAs have the potential to improve the resolution process of economic crime committed by companies.

Still, the successful use of DPAs in Britain will ultimately depend on several factors that have yet to be addressed. One of the biggest of those is the extent that judicial oversight will influence the process. In the United States, the judiciary doesn't take part in plea negotiations and only weighs in once the prosecutor and corporate defendant reach an agreement, nearly always approving the arrangement. The British government will require far more judicial oversight.

Under the U.K. system, the prosecutor and corporate defendant would have access to criminal courts at an early stage. This first court proceedings take place behind closed doors, at which point a judge determines whether entering into the DPA is “in the interests of justice” and whether the proposed terms appear “fair, reasonable, and proportionate.” Upon approval of the DPA by the court, the prosecutor must publish the DPA and the reason for its decision in order to make the process as transparent as possible.

Such judicial participation in the process will make it more difficult to reach DPAs, since judges are likely to push for more concessions from companies. “Effectively, the prosecutor won't be able to give companies the assurance they require, because the ultimate sanction power will lie with the judge,” says Kathleen Harris, a partner in the London office of law firm Arnold Porter.

“Effectively, the assurance that companies would require the prosecutor won't be able to give them because the ultimate sanction power would lie with the judge.”

—Kathleen Harris,

Partner,

Arnold Porter

“There is no cut-and-dry, black-and-white answer,” says Louise Delahunty, European Counsel in the London office of law firm Sullivan Cromwell. “It is to be hoped that we won't see tension between prosecutors and the judiciary because the judiciary has been involved in the DPA consultation.”

Getting a DPA approved may be even more challenging for companies that are found in violation of both the Bribery Act and Foreign Corrupt Practices Act. In those cases, it will be important to ensure that entering into a DPA with the SFO also satisfies any DPA that may be reached with the Justice Department.

Managing interactions with the SFO in Britain and the U.S. Justice Department could prove difficult. “You want to be frank and open about the information that you're giving to them,” says Harris.

It's also important to make sure you're keeping each agency appraised of the facts as they happen, she says. “The company and its attorneys need to make sure they've liaised fully with regulators in both jurisdictions,” says Delahunty. 

If a judge decides that a DPA is not the appropriate course of action, however, the SFO could begin criminal proceedings. The idea that any admissions made during the DPA negotiations could possibly be used in any subsequent criminal proceedings is “something that will be of concern to companies,” says Harris.

Irrespective of judicial involvement, uncertainty also remains as to what financial penalties might look like for companies that enter into DPAs in the United Kingdom. So far, the penalties imposed by courts against companies in Bribery Act cases have been practically non-existent, leaving no real sentencing guidelines for criminal offenses.

COURT APPROVAL OF DPA

Below is an excerpt from the Crime and Courts Act, “Court Approval of DPA: Preliminary Hearing.”

(1)After the commencement of negotiations between a prosecutor and a person ( in respect of a DPA but before the terms of the DPA are agreed, the prosecutor must apply to the Crown Court for a declaration that:

(a) entering into a DPA with P is likely to be in the interests of justice, and

(b) the proposed terms of the DPA are fair, reasonable and proportionate.

(2) The court must give reasons for its decision on whether or not to make a declaration under sub-paragraph (1).

(3) The prosecutor may make a further application to the court for a declaration under sub-paragraph (1) if, following the previous application, the court declined to make a declaration.

(4) A hearing at which an application under this paragraph is determined must be held in private, any declaration under sub-paragraph (1) must be made in private, and reasons under sub-paragraph (2) must be given in private.

Court approval of DPA: final hearing

(1) When a prosecutor and P have agreed the terms of a DPA, the prosecutor must apply to the Crown Court for a declaration that:

the DPA is in the interests of justice, and

the terms of the DPA are fair, reasonable and proportionate.

(2) But the prosecutor may not make an application under sub-paragraph (1) unless the court has made a declaration under paragraph 7(1) (declaration on preliminary hearing).

(3) A DPA only comes into force when it is approved by the Crown Court making a declaration under sub-paragraph (1).

(4) The court must give reasons for its decision on whether or not to make a declaration under sub-paragraph (1).

(5) A hearing at which an application under this paragraph is determined may be held in private.

(6) But if the court decides to approve the DPA and make a declaration under sub-paragraph (1) it must do so, and give its reasons, in open court.

(7) Upon approval of the DPA by the court, the prosecutor must publish:

the DPA;

the declaration of the court under paragraph 7 and the reasons for its decision to make the declaration;

in a case where the court initially declined to make a declaration under paragraph 7, the court's reason for that decision, and

The court's declaration under this paragraph and the reasons for its decision to make the declaration, unless the prosecutor is prevented from doing so by an enactment or by an order of the court under paragraph 12 (postponement of publication to avoid prejudicing proceedings).

Source: Crime and Courts Act.

“Clear sentencing guidance is required for corporate crimes—such as fraud, bribery, and money laundering,” says Patrick Rappo, former joint head of bribery and corruption of the SFO and now a partner of law firm Steptoe & Johnson. “Until then companies will have no certainty as to the likely punishment, and without more clarity it is difficult to properly assess risks and options.”

While DPAs are under consideration for use in the British legal system, their close cousin, non-prosecution agreements, are not. The Ministry of Justice rejected the idea outright in the consultation paper. “Despite the effectiveness of the U.S. model, the lack of judicial oversight is likely to make it unsuitable for the constitutional arrangements and legal traditions in England and Wales. We have concluded that non-prosecution agreements are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight,” the paper stated.

Guidance to Come

In the interim, a number of measures will be put into place that will provide greater clarity on many of these lingering issues. The joint Code of Practice that is expected to be released by the Director of Public Prosecutions and the Director of the SFO will give guidance to prosecutors on the factors they should consider in determining whether a DPA is the most appropriate course of action.

The Code may also give guidance on other relevant matters, including the use of information obtained by a prosecutor in the course of negotiations for a DPA; termination of a DPA and steps that may be taken by a prosecutor following termination; and steps that may be taken by a prosecutor when the prosecutor suspects a breach of a DPA.

In addition to the Code of Practice, the U.K. Sentencing Council is also slated to publish sentencing guidance in relation to the areas of law that DPAs are most likely to come into play: bribery, fraud, and money laundering. The Council is due to consider these areas within the next six months.

“As a number of U.K. self-reports have been concluded over recent years, companies are familiar with the idea,” says Delahunty, “and will closely follow any developments in the guidance issued by regulators as to how the more formal DPA system is going to work.”

Don't expect the first DPAs in Britain to be announced in the next few months. While the Crime and Courts Act has received Royal Assent, no date has been set for commencement as yet. It's likely the legislation will not come into full force or be utilized until sometime in early 2014.