From today, Deferred Prosecution Agreements (“DPA”s) will be available in the UK to the Serious Fraud Office (“SFO”) and the Crown Prosecution Service (“CPS”) as a method for disposal of corporate criminal cases relating to fraud, corruption and money laundering, without the need for a finding of guilt. However, DPAs will not be available to all. It will be up to the SFO to invite companies to enter a DPA, and only those which act quickly to appropriately deal with allegations of wrongdoing are likely to receive such an invitation. Therefore it is essential that any organisation considering how to react to an allegation of fraud, money laundering or corruption considers the likely DPA qualification process at the earliest possible stage. But what price will organisations have to pay in order to obtain a DPA offer from the SFO and what are the key concerns around the new process?
As explained in our previous OnPoint, DPAs are voluntary agreements between prosecutors and companies, partnerships or unincorporated associations under which a prosecutor will agree not to prosecute subject to successful compliance with a range of conditions. These conditions include the payment of penalties, co-operating with investigators and implementing remediation and compliance programmes.
Prior to today, when deciding how to deal with instances of wrongdoing by a corporate entity, prosecutors could either (i) take no further action; (ii) prosecute; or in the case of the SFO (iii) agree a Civil Recovery Order. DPAsprovide another avenue for the disposal of a criminal case, and one which importantly will not result in a conviction for companies which enter into them.
The SFO has made it clear that although DPAs will be “a welcome addition to the prosecutor's tool kit...” its “preferred option” will be to prosecute. In the SFO’s press release1 accompanying the publication of the joint Deferred Prosecutions Agreement Code of Practice (“DPA Code”)2, David Green QC was keen to emphasise this position and that organisations will have a high bar to reach in order to receive an offer from the SFO. Mr. Green QC said “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 ... are judicial oversight, and unequivocal cooperation from the corporate.”
But let’s not forget about the defendants. Given the requirements expected by Mr. Green and as set out in the DPA Code, together with the current enforcement climate in the UK, which organisations will be willing to navigate an untested process and what price will they have to pay?
Until such time as there are reliable precedents, those going through the process will need to consider the following issues.
What is “unequivocal cooperation”?
The SFO may offer a DPA in circumstances where there has been an internal investigation and self report. Indeed, the DPA Code sets out a number of factors in favour of offering a DPA, which are directly linked to self reporting - in its purest form. These include:
A genuinely proactive approach adopted by the organisation’s management team when the offending is brought to their notice.
The existence of a proactive corporate compliance program at the time of the offending and at the time of reporting.
Within a reasonable time of becoming aware of the offending, self-reporting the offending to the prosecutor. It is important here that the offending in question is otherwise not known by the prosecutor.
Providing a report in respect of any internal investigation, including source documents.
Identifying relevant witnesses, and disclosing their accounts and the documents shown to them to the prosecutor.
Making witnesses available for interview by the investigator.
Taking remedial actions, including compensation of victims.
Completely changing the organisation’s management, disciplinary action being taken against all of the culpable individuals (including dismissal where appropriate), so that the organisation is effectively different from that which committed the offending.
Conversely the DPA Code sets out that any failure by the organisation to act appropriately during the self report process will weigh against a DPA, and potentially lead to a prosecution of the organisation alongside of individuals. Examples include a failure to:
Notify the prosecutor within a reasonable time frame, and/or properly engage with the prosecutor (e.g. in relation to work plans, timetabling and/or to provide information to allow it to open its own investigation into individuals).
Verify reported wrongdoing.
Make a full and frank report (i.e. knowing or believing information to be inaccurate, misleading or incomplete, including withholding material that would jeopardise an effective investigation and prosecution of individuals).
Conduct the internal investigation in a timely manner, which leads to the destruction of or fabrication of evidence.
The DPA Code sets out that almost all information provided to a prosecutor prior to the DPA being finalised can be used in criminal proceedings against the organisation itself, therefore ensuring any self report is completed to the standards set out in the DPA Code will be a key area of concern for companies seeking to avoid a criminal conviction. In the current landscape of money laundering notifications and the rise of the whistle blower, organisations should be particularly mindful that without a timely, full and frank investigation and self report, resolution by way of a DPA could well be off the table.
What about legal professional privilege?
The DPA Code states that “the Act does not, and this DPA Code cannot, alter the law on legal professional privilege”, however the above list of requirements for “unequivocal cooperation” seems to seek to go behind the protection of privilege in some instances. How companies and their advisors, together with the SFO and the courts decide to approach this tricky issue in practice remains to be seen. For example, would a company which refuses to provide legally privileged copies of memoranda of witness interviews taken by an investigating lawyer, be refused a DPA? And is there any ground to challenge the SFO in these circumstances?
Is there enough evidence to warrant a DPA?
The Code sets out that a DPA may be offered in circumstances where the following evidential test is met:
“1) The evidential stage of the Full Code Test in the Code for Crown Prosecutors is met; or
2) There is at least a reasonable suspicion based upon some admissible evidence that the organisation has committed the offence, and there are reasonable grounds for believing that a continued investigation would provide further admissible evidence within a reasonable period of time, so that all the evidence together would be capable of establishing a realistic prospect of conviction...”
For cases falling within the second limb of the test in particular, specialist and experienced criminal legal advice will be invaluable. The DPA Code provides some assistance, as it provides that that during the negotiation stage of the DPA, prosecutors will have an ongoing duty of disclosure to the organisation, which “should have sufficient evidence to play an informed part of the negotiations....to ensure that the negotiations are fair and that the organisation is not mislead as to the strength of the prosecution case”. A statement to this effect will be included in the DPA letter of invitation issued by the prosecutor. This duty of disclosure is an essential step away from the current practice and it will be important for advice to be taken regarding the evidence, how a prosecutor (and criminal court) will view it and what is likely to be obtained through “continued investigation” within a “reasonable period”. Such advice will form a crucial part of the decision by a defendant organisation to agree to enter into a DPA.
In circumstances where neither evidential test is met, the DPA Code suggests that civil recovery action should be considered. Such action allows a prosecutor to recover the proceeds of “unlawful conduct”, which cannot be proved to the criminal standard.
Will the judiciary agree?
As Mr. Green sets out, one of the advantages of the British system of DPAs is that there will be a greater level of judicial engagement and oversight than in the US system. An application to a judge at the early stage of the negotiations between the parties will be made, to provide a ruling in private on whether entering into a DPA is "in the interests of justice" and whether the proposed terms and statement of facts set out in the DPA are "fair, reasonable and proportionate". At this stage, the court can call for more information on the facts and terms of the agreement. Upon further application the judge will re-apply the same tests and approve the DPA package. An indictment will be laid in open court and the judge will formally outline the DPA and its terms. The agreement will then become legally binding. It is envisaged that in most cases, the final DPA will be published on the prosecutor’s website.
The attitude of the judiciary to DPAs will be key. Historically, the British courts have not been in favour of plea bargains or pre-determined sentences (per LJ Thomas in Innospec). The parties to the DPA must therefore be sure to establish that the DPA is warranted in the circumstances, and to ensure the judge that full disclosure has been given. It is notable that all DPA’s will contain a term3 that the persons signing the DPA will be held criminally liable if any information contained within it is inaccurate, misleading or incomplete.
What will the financial penalties be?
Although there is no requirement in a DPA for an organisation to admit to an offence only to an agreed statement of facts, the DPA Code and Sentencing Council Guidelines4 set out that financial penalties available under a DPA should be “broadly comparable” to the fine that the court would impose following an early guilty plea5 . Exactly how the court will reach a determination in these circumstances (where no admission of guilt is made) is not clear. The DPA Code sets out that there is to be a “broad discretion” available to the court in terms of sentencing. It is hoped that this discretion will be applied in favour of companies who undertake thorough investigations (at their own cost) and make a full self report - rather than simply wait for the SFO to find out about wrongdoing, investigate and mount its own prosecution. In this way, the judiciary can encourage via the use of DPAs, ethical business conduct.
Is it a price worth paying?
Ethical companies will want to investigate properly any allegations of wrongdoing within their businesses, but until such time as there is more certainty around the award and sentencing in respect of DPA’s, it will remain a difficult decision for many organisations whether to self report to the prosecutor. However, given the various intelligence and reporting tools available to the SFO (and others) a suggestion that criminal action will remain buried should be discounted. The consequential and collateral damage caused to businesses by an extended investigation and prosecution, followed by a finding of guilt will be disastrous for commercial and governmental contracts, the availability of banking and finance facilities and business reputations.
The emphasis in the DPA Code on compliance and self reporting should be viewed as an incentive to companies to be proactive. If done properly, upon advice from criminal lawyers experienced in interacting with the prosecutors and courts, a self report leading to disposal by way of a DPA will remove unnecessary damage to an organisation, while also ensuring that justice is done in a transparent way. This is a vital step forward for the UK prosecutors and businesses alike, and should be welcomed.