Serious Fraud Office Issues Draft Code of Practice on Deferred Prosecution Agreements

more+
less-

On 27th June 2013, the UK announced more details of new rules that would introduce Deferred Prosecution Agreements (DPAs) into the UK for corporate offences. DPAs have been the weapon of choice for US regulators when prosecuting bribery and corruption cases, and the hope is that DPAs will bring greater predictability for those wishing to settle a case with prosecutors on both sides of the Atlantic.

A DPA involves a company reaching an agreement with a prosecutor where the company is charged with a criminal offence, but proceedings are automatically suspended. The company agrees to a number of conditions, which may include payment of a financial penalty, payment of compensation, payment of money to charity and cooperation with future prosecutions of individuals. If the conditions are not honoured, the prosecution may resume.

In clarifying how DPAs would work, the Director of the UK's Serious Fraud Office (SFO) and the Director of Public Prosecutions (DPP) [the UK's senior prosecutor who leads the Crown Prosecution Service (CPS)] published a long-awaited draft Code of Practice, setting out their approach to the use of DPAs. Practitioners and companies have been waiting for this proposed guidance since April of this year when the Crime and Courts Act 20131—which introduced DPAs—received Royal Assent. According to the DPA Code, "[a] DPA is a discretionary tool created by the Act to provide a way of responding to alleged criminal conduct" for white-collar offenses like fraud, bribery or money laundering. Under a DPA, "[t]he prosecutor may invite [the accused company] to enter into negotiations to agree a DPA as an alternative to prosecution."

The release of the draft DPA Code triggers a comment period from interested individuals and organisations, which closes on Friday, 20th September 2013.

The DPA Code is a manual for prosecutors, which covers:

  1. Negotiating DPAs with an organisation;
  2. Applying to the court for the approval of a DPA; and
  3. Oversight of DPAs after their approval by the court—in particular, variation, breach, termination and completion.

The DPA Code invites comments by way of seven questions regarding seven aspects of DPAs. The topics are as follows:

1. Whether a DPA is a possible disposal of alleged criminal conduct.

This section concerns the basic test to determine whether a DPA is possible. It requires that there be a baseline of at least reasonable suspicion of the offence, as well as a determination that "the public interest would be properly served by the prosecutor not prosecuting but instead entering into a DPA. …"

2. Factors that the prosecutor may take into account when deciding whether to enter into a DPA.

This broad topic covers the public interest aspect of deferred prosecution in some detail. Of course, a basic metric for whether the public would be served by prosecution rather than a DPA is consideration of the seriousness of the crime, as well as guidelines set out by the Code for Crown Prosecutors; the Joint Prosecution Guidance on Corporate Prosecutions; and the Bribery Act 2010: Joint Prosecution Guidance. More detailed criteria—which may be of particular interest to any company encountering the DPA process—include the following:

Additional public interest factors in favour of prosecution:

Additional public interest factors against prosecution:

  1. A history of similar conduct (including prior criminal, civil and regulatory enforcement actions against it).…;
  2. The conduct alleged is part of the established business practices of the company;
  3. The offence was committed at a time when the company had an ineffective corporate compliance programme;
  4. The company had been previously subject to warning, sanctions or criminal charges and had nonetheless failed to take adequate action to prevent future unlawful conduct, or had continued to engage in the conduct;
  5. Failure to report wrongdoing within reasonable time of the offending conduct coming to light (the prosecutor should also consider whether it is appropriate to charge the company officers responsible for the failures / breaches);
  6. Failure to report properly and fully the true extent of the wrongdoing;
  7. An adverse impact on the economic reputation of England and Wales; and
  8. Severe economic harm to victims of the wrongdoing.
  1. A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims. …;
  2. A lack of a history of similar conduct involving prior criminal, civil and regulatory enforcement actions against the company; contact should be made with the relevant regulatory departments to ascertain whether investigations are being conducted in relation to the due diligence of the company;
  3. The existence of a genuinely proactive and effective corporate compliance programme;
  4. The offending represents isolated actions by individuals—for example, by a rogue director;
  5. The offending is not recent in nature, and the company in its current form is effectively a different body to that which committed the offences—for example, it has been taken over by another company, it no longer operates in the relevant industry or market, all of the culpable individuals have left or been dismissed, or corporate structures or processes have been changed in such a way as to make a repetition of the offending impossible; and
  6. A conviction is likely to have unduly adverse consequences for the company under the law of another jurisdiction, including European Law, bearing in mind the seriousness of the offence and any other relevant public interest factors[.] (Footnote omitted.)

3. Disclosures.

The DPA Code has made an impressive effort to ensure that companies under investigation are kept apprised of "sufficient information to play an informed part in the negotiations" and provides that "the prosecutor should ensure that the suspect is not misled as to the strength of the prosecution case." The DPA Code also addresses the tension between the Criminal Procedure and Investigations Act 19962 (CPIA) disclosure requirements and the less-formal DPA provisions:

"Where a DPA is approved by the court at a final hearing and a bill of indictment is preferred upon entering into a DPA, the CPIA will apply. However, the immediate suspension of the indictment will have the effect of immediately suspending with it the disclosure obligations imposed. The statutory disclosure obligations and standard directions providing time limits for compliance will only apply if the suspension is lifted in the event of termination of the DPA and prosecution. …"

4. Terms.

The SFO and DPP invite comments regarding the terms of a DPA. Term requirements are set out in a non-exhaustive list, which includes, for example, that the agreement must:

  1. [S]et out clearly the measures with which [the organisation] must comply. …
  2. [B]e proportionate to the offence and tailored to the specific facts of the case.
  3. [S]pecify the start and end date of the DPA.
  4. [R]ecord that the DPA relates only to the offences particularised in the draft indictment.
  5. [I]nclude a warranty provided by [the organisation] that the information provided to the prosecutor … contains no inaccurate, misleading or incomplete information. …
  6. [R]equire [the organisation] to notify the prosecutor and provide where requested any documentation or other material that it becomes aware of when the DPA is in force … relevant to the offences particularised in the draft indictment.
  7. [F]inancial terms may include but are not confined to: compensating victims, payment of a financial penalty, payment of the prosecutor's costs, donations to charities that support the victims of the offending and disgorgement of profits. There is no compulsion to include any or all of these terms, all of which are a matter of negotiation with an organisation and are subject to judicial oversight.

5 & 6. Use of a Monitor.

Organisations will not be left to their own devices once a DPA is in effect. The UK intends to follow another common feature of US DPAs by the power to appoint a monitor to oversee the company's conduct. The Code says: "A monitor's primary responsibility is to assess and monitor [the organisation's] internal controls and advise of necessary compliance improvements that will reduce the risk of future recurrence of the conduct subject to the DPA. An important consideration for entering a DPA in the first place is whether [the organisation] has already a genuinely proactive and effective corporate compliance programme. The use of monitors should therefore be approached with care." The DPA Code includes examples of terms to be included in a monitor agreement, such as: a code of conduct, a training and education programme, procedures for reporting conduct issues, processes for identifying key strategic risk areas, safeguards to approve the appointment of representatives and payment of commissions, a gifts and hospitality policy, due diligence policies, procurement procedures, express contractual obligations and remedies in relation to misconduct, internal management and audit processes, and policies and processes for an organisation's subsidiaries. The use of monitors generally is not without its critics. Monitorships can be expensive and involved. In some cases, the court's approval of a suitable monitor has delayed approval of a DPA.

7. Financial Penalty.

Finally, though they do not correspond to any particular question, the DPA Code addresses the following procedural issues:

  • Preliminary hearing;
  • Final hearing;
  • Breach of a DPA—Including alleging and proving breach of a DPA, termination following breach of a DPA and post termination process;
  • Variation of a DPA due to a breach or a likely breach;
  • Discontinuance of a DPA;
  • Applications in private; and
  • Publishing decisions and postponement.

The DPA Code will change the way corporate crimes are dealt with in the UK. Businesses facing corruption allegations often value some form of certainty when approaching prosecutors. Prosecutors, in turn, would like to be able to deal with cases proportionately and concentrate resources where they can have the greatest effect. The DPA system proposed in the UK is not identical to the regime that exists in the US, however. UK DPAs will have more judicial involvement than is typically the case in the US. Prudent legal counsel may still be needed when planning a settlement in the UK and the US. The proposed DPA Code does, however, address some of the issues and should give a good indication of how DPAs will operate in practice—likely affecting how white-collar criminal matters are litigated for decades to come. All concerned should consider carefully reviewing its proposals and commenting accordingly. The SFO anticipates that the tool will become available to prosecutors in February 2014.

Notes

  1. http://www.legislation.gov.uk/ukpga/2013/22/contents/enacted.
  2. http://www.legislation.gov.uk/ukpga/1996/25/contents.