Andrew Sanderson of Squire Saunders considers the impact of the introduction of Deferred Prosecution Agreements (DPAs) and whether they will be effective in reducing the number of prosecutions which are not in the public interest
On 24 February this year the Crime and Courts Act 2013 came into force, bringing with it the introduction of Deferred Prosecution Agreements (DPAs) in England and Wales. This means that regulatory enforcement bodies such as The Serious Fraud Office (SFO) and the Crown Prosecution Service (‘CPS’) are now able to apply DPAs to situations where a formal prosecution of a company for alleged economic crimes (such as bribery, money laundering etc) is not in the immediate public interest and could be dropped. The company would have to formally comply with the terms and conditions set out in the DPA.
But what are exact circumstances where a DPA might be applied and what would it mean in practical terms to a commercial organisation facing potential prosecution?
DPAs are a relatively new concept in our legal system. In the US a similar model has been in operation for many years, intended to streamline the judicial process in dealing with alleged corporate infringements.
The director of the SFO, David Green CB QC, noted in 2013 that when a company is convicted of a criminal offence, and a fine is imposed by the courts or the company is even wound up and put out of business, ‘collateral damage’ can be caused to employees and shareholders who may be blameless.
Green’s view is that ‘Deferred Prosecution Agreements avoid that collateral damage and provide a welcome addition to the prosecutor's tool kit for use in appropriate circumstances. But DPAs are not a panacea, nor are they a mechanism for a corporate offender to buy itself out of trouble’.
When to use a DPA?
The use of DPAs, then, is wholly transparent and public, but also tightly controlled by prosecutors. Specific criteria have been set by the Ministry of Justice to determine whether a DPA could be applied. It will depend on the nature and seriousness of the offence; the degree of premeditation and whether attempts were made to conceal the wrongdoing; the extent of any wrongdoing within the commercial organisation; the seniority and number of those alleged to have committed a crime.
When a company is convicted of a criminal offence, and a fine is imposed by the courts or the company is even wound up and put out of business, ‘collateral damage’ can be caused to employees and shareholders who may be blameless
There are also a number of financial and compliance factors which will also have a bearing on the case for using a DPA, such as the likely impact prosecution would have on the commercial organisation and its financial health, and any losses to innocent third parties.
In addition, a prosecutor would take into account any action being taken by the company in relation to wrongdoing in other jurisdictions and its action and determination to resolve issues, aid recovery and restitution of benefits, and improve compliance.
DPAs can only be entered into by corporate bodies, partnerships or unincorporated partnerships. The exact scope of the DPA will vary and alongside requirements for compliance with certain terms and conditions there may be fines or other remedies (such as confiscation). Once a specified time has passed criminal prosecution will be dropped.
Regulatory bodies such as the SFO make it clear that judicial oversight (along with full corporate cooperation) remains paramount and will have considerable bearing on how DPAs are framed and used. In the case of BAE (2010), for instance, the SFO reached an agreement with the company whereby it would plead guilty to failing to keep reasonably accurate accounting records in relation to its activities in Tanzania under section 221 of the Companies Act 1985. BAE agreed to pay a large sum of voluntary compensation (approximately £30m), the payment of which would then offset the amount of any fine imposed. At the Crown Court, BAE was subsequently fined £500,000 with £250,000 of costs. The court took the view that the agreement between BAE and the SFO placed a moral pressure on it to keep the fine to a minimum so that reparation was kept at a maximum.
Without a doubt we can expect the courts to be prepared to set aside agreements reached between a prosecutor and defendant if they do not feel that such an agreement is appropriate in the circumstances.
Full corporate and board-level cooperation is vital for a DPA to be successful. But what of a company pre-empting the situation, by self-reporting a wrongdoing? When DPAs were first mooted, it was suggested that if a company reported itself in relation to one of the offences covered by DPAs, then the use of an actual DPA would be seriously considered. However, for the SFO at least this appears not to be the case.
Current SFO guidance states that self-reporting by a company will be just one of a number of factors that will be taken into consideration when they review whether a DPA should be used. There is at present no evidence that self-reporting is a guarantee that a prosecutor would make use of a DPA.
It is too early to say how exactly DPAs will be used precisely or to identify the exact benefits it will bring.
However, the use of agreements similar to DPAs has been an effective tool for US prosecutors and at the very least has given companies facing the possibility of prosecution a greater degree of certainty of outcome.
With an agreement being reached companies can correct the behaviour which has led to the breach as well as paying compensation directly to those parties affected by their actions. Further there is likely to be some mitigation of the reputational damage when a company is subject to the media glare present during a full trial.
Andrew Sanderson is a specialist in white-collar crime in the litigation team at Squire Sanders www.squiresanders.com