Deferred Prosecution Agreements – the UK Model

Since 24 February 2014, designated prosecutors (currently the Serious Fraud Office (SFO) and the Crown Prosecution Service, but notably not the Financial Conduct Authority) can invite commercial organisations to negotiate a Deferred Prosecution Agreement (DPA) as an alternative to facing prosecution. DPAs are available for economic crimes only, including corruption offences, and can be used in respect of criminal conduct that pre-dates their introduction.

The process

The UK process commences with a formal invitation from the prosecutor to discuss a DPA, which is wholly at his discretion, though guidance on factors to consider is included in a Code of Practice on DPAs issued by the Director of Public Prosecutions and the Director of the SFO.  The prosecutor will draw up a draft indictment setting out the charges, though these are likely to be the subject of negotiation between the prosecutor and defendant company.  Other subjects of the negotiations will be include an agreed statement of facts that will be made public if the DPA is concluded and the terms of the DPA itself.

Unlike the US equivalent, it involves a major role for the judiciary in private hearings during the process before a DPA is approved.  The prosecutor and defendant must apply for a declaration that it is “in the interests of justice” that the matter be dealt with by a DPA and that the proposed terms are “fair, reasonable and proportionate”.  A further hearing is held in private once the negotiations have been finalised, to ensure that the final terms are fair, reasonable and proportionate.  If the judge sanctions the DPA, a final hearing is then held in public to approve the DPA and make public the statement of agreed facts as to the criminal conduct.

Once a DPA has been concluded and approved by the court, the company must comply with its terms for the specified period.  A DPA can be amended, but only by order of the court.  If there is an apparent breach of the DPA, the prosecutor can apply to the court to determine whether a breach has taken place and whether to terminate the DPA, in which case a prosecution will be commenced, or whether to invite the prosecutor and company to agree proposals to remedy the breach.

Once the DPA has expired, the charges will be dropped and no further prosecution of the company for the offence can take place unless the company is found to have provided inaccurate, misleading or incomplete information and knew, or should have known, this.

Risks of internal investigations and self-reporting

The Prosecutors’ Code sets out in detail the proposed procedure for DPAs, together with factors to be considered as to whether a matter is suitable for a DPA. A draft code was consulted on in September 2013 and several changes were made in response to submissions made in that process, though many criticisms of the draft were not heeded.

The Code imposes a very high standard upon companies in how they go about investigating evidence of wrongdoing and how they report their findings to the prosecutor. Amongst the factors tending to suggest a DPA is not appropriate and that the defendant company should be prosecuted instead are a failure to notify the prosecutor within a reasonable period of the offending conduct, but also failing to verify what is reported. A company that becomes aware of wrongdoing must therefore investigate it sufficiently, but also report quickly. This is emphasised by the fact that, in order to be considered co-operative, a company is expected to report matters “otherwise unknown to the prosecutor”. If a whistleblower approaches the prosecutor whilst the company is still investigating, any self-report at the end of that investigation may provide little advantage to the company. The suggestion in the Code is that companies should contact the prosecutor early and involve it in the planning of the internal investigation, but most companies will be hesitant about involving the SFO before they know whether there is any substance to an allegation, and there are real practical difficulties in applying the Code requirements.

The conduct of any internal investigation is also crucial in light of the Code. The prosecutor “will critically assess the manner of any internal investigation to determine whether its conduct could have led to material being destroyed or the gathering of first accounts from suspects being delayed to the extent that the opportunity for fabrication has been afforded”. Any internal investigation that is found to have had these effects may militate against a DPA being offered. It can be very difficult in the course of an investigation not to alert individuals involved and an investigation by prosecutors would likely have the same effect. While the prosecutors’ response to the consultation on the Code acknowledges the “intrinsic difficulties of internal investigations” the Code leaves little room for error by those conducting internal investigations.

Privilege

The Ministry of Justice, in its consultation on DPAs in May 2012, stated that the “Code of Practice would include provision for the protection of legal professional privilege, covering both advice privilege and litigation privilege to deal with organisations’ concerns about the treatment of internal investigations, and legal advice or assistance received during the course of such investigations.” In fact, the Code gives no comfort on this, with nothing more than a bare statement that “The Act does not, and this DPA Code cannot, alter the law on legal professional privilege”.

There is much emphasis in the Code on defendant companies providing all relevant material to prosecutors and withholding information is described as a “strong factor in favour of prosecution” where it prevents effective investigation. Co-operation, which improves the prospects of a DPA rather than a prosecution, requires the provision of a report of any internal investigation and source documents. Co-operation has been defined in the Code to include the automatic provision of not only the identity of relevant witnesses, but their accounts given in any internal investigation and any documents shown to them during that process.

Comments since the Code was published by David Green QC, the Director of the SFO, suggest that he doubts the legitimacy of many claims to privilege made by companies over notes of witness interviews and expects to be provided with notes of witness interviews. This leaves employees exposed to having their statements made in interviews with their employer potentially used as evidence against them. The prosecutors have refused to address this concern in the Code, despite it being raised in the consultation on the draft.  The Code merely states that the admissibility of evidence can be dealt with at any trial of the individual.

Breadth of discretion

The Code retains a great deal of discretion for prosecutors in all elements of a DPA. It is clear that whether or not to offer a DPA in the first place is entirely at the prosecutor’s discretion and that DPAs are not to be thought of as the default treatment for companies. The weighing of the factors for and against a DPA is also left to the prosecutor, with no particular weighting being given to any of the non-exhaustive list of factors in the Code. These include the seriousness of the offence, the past record of the defendant company, the past record of its directors and majority shareholders, the level of cooperation it offers prosecutors and the quality of its internal policies and procedures to prevent the relevant offence. A single factor can potentially be enough to decide whether a DPA is appropriate.

Terms of DPAs

The Code provides a list of terms for DPAs, divided between those that will “normally” be included and those that may also be added. The normal terms will be a financial order, payment of investigation costs and co-operation with related investigations and prosecutions. The inclusion of co-operation with related investigations here highlights an important feature of DPAs: it is fully intended that the defendant company should be able to clean the slate with a DPA, but culpable individuals within the organisation will risk prosecution, with their (presumably by then former) employer assisting the prosecutors.  DPAs are not available for individuals.  Given that, with the exception of strict liability offences and section 7 of the Bribery Act, an offence committed by a corporate must involve culpability of a “directing mind”, those individuals will be senior executives and directors. 

The financial order can be made up of separate elements such as a fine, compensation payments and disgorgement of profits, and payment will normally be required within seven days. The fine element will be set at a level representing the fine that would have been imposed by a court upon conviction had the organisation pleaded guilty at an early stage, making clear that DPAs will be no cheaper for a defendant than a conviction. A defendant company may also be required to co-operate with sector-wide investigations, a provision that was included in the draft Code and has survived objections as to its potential breadth and cost.

Compliance monitors are a common feature of US DPAs, but there is no assumption in the UK model that a monitor will be appointed.  If a monitor is to be appointed, the defendant is to name three monitors and indicate its preferred candidate, with the prosecutor and court both able to object. No default length of monitorship has been included, this being left for negotiation in each case.

First DPA

The first DPA in England and Wales was approved on 30 November 2015, between the SFO and ICBC Standard Bank in relation to a charge of a breach of section 7 of the Bribery Act. The terms of the DPA included payment of a penalty of US$16.8m, compensation of US$6m, disgorgement of US$8.4m profits, and payment of the SFO’s costs, as well as to the appointment of a monitor. See our article for more details on this.

Following the conviction of Sweett Group plc for an offence under section 7 of the Bribery Act, it is also possible to compare the outcomes for companies who enter into DPAs as against those that merely plead guilty to an offence at an early stage. See our article for more on this.