From February 24 2014, Deferred Prosecution Agreements (DPAs) became available to the UK Serious Fraud Office (SFO) as a way to deal with corporate criminal cases relating to fraud, corruption and money laundering, without the need for a finding of guilt. It is the Director of the SFO who will decide whether to offer a DPA to an organisation and it is clear that only those which act quickly to appropriately deal with allegations of wrongdoing are likely to receive an invitation. But what price will organisations have to pay in order to be offered a DPA, and will they be worth it?
DPAs are voluntary agreements between prosecutors and organisations under which no prosecution will be pursued, subject to successful compliance with certain conditions such as the payment of penalties, co-operation with investigators and implementing remediation and compliance measures.
The SFO has made it clear that its "preferred option" will be to prosecute, and emphasised that organisations will have a high bar to reach to be offered a DPA stating that there will need to be "unequivocal cooperation from the corporate."
The Deferred Prosecution Code of Practice (DPA Code) describes self reporting in its purest form. Factors in favour of a DPA include:
- A genuinely proactive approach by management to deal with offending and the existence of a proactive corporate compliance program.
- Self reporting otherwise unknown offending.
- Providing a report of any internal investigation, including witness accounts and source documents.
- Making witnesses available for interview.
- Remedial actions, such as completely changing the organisation's management and the compensation of victims.
Failures during the self report will weigh against a DPA, including a failure to:
- Make a timely report and/or properly engage with the prosecutor (regarding work plans, timetabling and assisting with the prosecution of individuals).
- Verify reported wrongdoing.
- Make a full and frank report.
- Conduct the internal investigation within a reasonable period, leading to the destruction or fabrication of evidence.
The DPA Code states that there is no change to the law on legal professional privilege; however the requirement for "unequivocal cooperation" seems to go behind privilege in some instances. How companies and their advisors decide to approach this tricky issue remains to be seen.
Almost everything disclosed to a prosecutor before the conclusion of the DPA can be used in criminal proceedings against the organisation. In a landscape of money laundering notifications and whistle blower reports, organisations should be mindful that without a timely, full and frank investigation and self report, a DPA will be off the table.
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 continuing 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.
It is envisaged that there will be a high degree of oversight of the DPA process by the judiciary, and ultimate transparency by way of publication on the internet of the terms of the agreement. There is some trepidation as historically the British courts have not been in favour of plea bargains or agreed sentences (per LJ Thomas in Innospec). The parties must therefore clearly establish that it is "in the interests of justice" and "fair, reasonable and proportionate" to enter a DPA. It is notable that all DPA's will contain a term making those signing the DPA criminally liable for any information which is inaccurate, misleading or incomplete.
The DPA Code and new Sentencing Council Guidelines state that penalties under a DPA should be "broadly comparable" to a fine following an early guilty plea, but there is to be a "broad discretion" available to the court. It is hoped that the judiciary will use the DPA system to encourage ethical business conduct by exercising its discretion in favour of those who undertake (at their own cost) a full investigation and self report rather than wait to be prosecuted.
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.