Deferred Prosecution Agreements - 8 lessons so far
Deferred Prosecution Agreements have been available for commercial organisations suspected of economic crime since 24 February 2014. Two have been concluded, in the cases of ICBC Standard Bank (Standard Bank) and XYZ Ltd, a company which remains anonymous pending further criminal proceedings arising from the case. A further company which sought a DPA and was refused one, Sweett Group plc, has been convicted and sentenced.
So what have we learnt so far about DPAs?
- The economic benefits may be greater than first thought. Schedule 17 to the Crime and Courts Act 2013 states that the fine imposed as part of a DPA should be “broadly comparable” to the fine that the court would impose upon an early guilty plea. This was widely felt to limit the incentive for companies to self-report in the hope of getting a DPA. But in the judgment approving the second DPA, in the case of XYZ Ltd, Leveson LJ applied a discount of 50% to the fine, not the 33% set down in the Sentencing Council’s Reduction in Sentence for a Guilty Plea Guideline. Leveson LJ said this was “appropriate not least to encourage others to conduct themselves as XYZ has when confronting criminality”. It appears that the judiciary may interpret “broadly comparable” as giving them a wider discretion to reduce the applicable fine than previously thought.
David Green, the Director of the Serious Fraud Office (SFO), said in evidence given to the Justice Committee on 25 October 2016 that he is in favour of “having a look” at the degree of incentivisation for self-reporting companies. In support of this, he cited the announcement in May 2016 by the US Department of Justice that for a 12 month period it has agreed to discount fines by 50% for self-reporting companies.
- There may be more DPAs than anticipated. The fact that there have been two DPAs so far may seem to indicate that they will be relatively rare. Indeed, comments by the SFO and the judiciary have suggested that this will be the case. However, convictions of commercial organisations for economic offences have themselves historically been rare, a situation that the Bribery Act aimed to change, by removing the need for a “controlling mind” of the company to be involved. As the flow of cases commenced under the Bribery Act increases, it appears that DPAs will be a key way of resolving many of these cases.
- Self-reporting and cooperation is the key to getting a DPA. The Prosecutors’ Guidance on DPAs made clear that DPAs would be offered only to those commercial organisations that cooperated fully with the authorities and rarely in cases where the prosecutors had learnt of the misconduct other than through a self-report from the organisation. This has been reiterated in the two judgments approving DPAs handed down so far. In the case of Standard Bank, the judgment praised the extent of cooperation the bank had given the SFO, the speed with which it self-reported after becoming aware of the facts and its efforts to improve it own compliance programme. In contrast, in the case of Sweett Group plc, where no DPA was offered, the company’s approach to the investigation was heavily criticised, and in particular what appeared to be efforts to cover up what had occurred.
Following a timely self-report, cooperation is likely to involve closely involving the SFO in any internal investigation, providing first accounts of witnesses, identifying and making available current employees for interview, providing information and material in a timely fashion and allowing access to the document review platform.
- Providing summaries of witness accounts may suffice. There has been a great deal of heated debate about the SFO’s stated policy of requiring companies to hand over notes of interviews with witnesses created during internal investigations, regardless of any claim to privilege the company might have over such documents. The SFO has threatened to treat any refusal to provide such documents as a sign of a lack of cooperation, thereby effectively removing a company’s chances of being offered a DPA. However, in the two cases resolved by DPAs to date, the company has provided oral summaries of these interview notes and not the notes themselves. In both cases, this has not prevented the company from being considered fully cooperative.
- A DPA is unlikely to be the end of the matter. Another point made in the Prosecutors’ Guidance on DPAs was that the defendant company would be expected to assist the prosecutor in pursuing individuals implicated in the wrongdoing. Such ongoing cooperation, including with overseas authorities, was a term of Standard Bank’s DPA. XYZ Ltd is also obliged to cooperate with the authorities under its DPA and the fact that the identity of XYZ Ltd has not been made public is most likely due to ongoing criminal proceedings against individuals in the UK.
- Corporate structures are unlikely to help avoid prosecution. In the case of XYZ Ltd, Leveson LJ commented that the parent company’s involvement and support in resolving the case were important factors in allowing a DPA to be used. The parent company voluntarily disgorged profits of XYZ that it had innocently received as dividends. More strikingly, the judge went on to state that in any case where a subsidiary appeared to have been used or even established to insulate the parent company from bribery, the parent would be prosecuted under section 7(1) of the Bribery Act, and any plan to behave corruptly through a subsidiary would be treated as a seriously aggravating feature.
- The length of a DPA can be flexible. DPAs were widely expected to have durations of up to five years during which the defendant organisation would need to comply with the requirements. This has been borne out in the two DPAs approved so far, but in the case of XYZ Ltd, the duration was left flexible, between three and five years, apparently depending upon when the financial obligations are fulfilled.
- Ability to pay will be an issue. The judgments approving both DPAs to date made clear that in an appropriate case, a company could have a fine imposed upon it that would render it insolvent, but that this will be done only where the company is so corrupt that its continued existence is of no value. In other cases, the impact upon employees and counterparties of putting a company out of business will be taken into account in setting the fine, which will take into account the defendant company’s ability to pay, in the same way as any criminal fine does. In the case of XYZ Ltd, the company would have been rendered insolvent by the fine if imposed at the normal level - the fine was reduced from a starting point of £16.4m to £8.2m for the 50% adjustment already mentioned, then to just £352,000, based on an analysis of the available cash reserves of the company after the disgorgement of £6.2m of profits arising from the corrupt contracts. However, the ability of the judge to “stand back” from the sentence and ensure it meets the objectives of sentencing will equally allow fines to be increased where the level arrived at would have an insufficient economic impact on a major corporate.
It may not be long before we see further DPAs, perhaps in cases of greater scale and complexity. Given the discount of 50% to the fine in the XYZ Ltd case, we may also see renewed calls for the legislation and guidance to be clarified as to the scope of potential discounts available for companies that self-report and are offered a DPA.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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