24 February 2014
Practice Group(s):
Government
Enforcement
Global Government
Solutions
Today Deferred Prosecution Agreements (“DPAs”)
come into force in the UK
By Elizabeth Robertson, Laura Atherton & Sasi-Kanth Mallela
DPAs are agreements between prosecutors and corporate organisations that charges will
be presented but not pursued, provided the organisation complies with a set of agreed
terms and conditions. Those terms and conditions generally involve payment of
substantial fines and/or the implementation of remediation programmes. Once in force,
prosecutors will be able to offer DPAs to corporates as an alternative to prosecuting them
in respect of a specific list of economic crimes including offences under the UK Bribery
Act and money laundering offences under the Proceeds of Crime Act. DPAs will be
available irrespective of when the offences occurred so long as criminal proceedings
have not yet been initiated.
US corporates will be familiar with the concept of DPAs since they are already heavily
used in the United States by the Department of Justice to deal mainly with corporate
offenders. Whilst some of the effects of these US DPAs are already felt here in Europe,
due to their imposition on companies with a strong European presence, the introduction
of DPAs into the English prosecutors’ armoury may be expected to have far deeper
impact.
The DPA Code
On the February 14, 2014, the Director of the Serious Fraud Office and the Director of
Public Prosecutions published guidance to prosecutors on the use of DPAs in the English
system.
Prosecutors must have regard to the Deferred Prosecution Agreement Code of Practice
(“DPA Code”) at all stages of the process: when the DPA is being negotiated; when it is
presented to the court; and when it is monitored after court approval.
The DPA Code sets out:
1. That it is for the prosecutor to make the approach to an organisation; the organisation
may not initiate DPA discussions;
2. The evidential stage at which the prosecutor may initiate DPA discussions and the
public interest test to be applied by the prosecutor when considering whether entry
into a DPA is appropriate in all the circumstances;
3. The factors the prosecutor may take into account when deciding whether or not to
enter into a DPA;
4. The Process for invitation to enter into negotiations;
5. The subsequent permitted use by the prosecutor of information supplied during the
DPA negotiation period;
6. The disclosure obligations that the prosecutor must satisfy;
7. The requirements of the statement of facts to be agreed between the prosecutor and
the organisation;
Deferred Prosecution Agreements (“DPAs”) come into
force in the UK
8. Guidance on the terms to be included in a DPA. How the parties may assist the court
in determining any financial penalty to be imposed;
9. The normal court procedure that should be followed when making an application for
judicial approval of a proposed DPA, and the declaration to be made in open court
following the approval (although section 15 of the guidance relates to making
applications in private); and
10. The process to be adopted:
a. Should the prosecutor allege that a DPA has been breached;
b. Should either party require a variation to a concluded DPA; and
c. Upon expiry of a DPA.
The advent of DPAs will be broadly welcomed by the business community but their
application in the UK will not be without its controversies. We consider below some of the
issues likely to arise as DPAs find their feet in the UK.
Public Interest versus Economic Interest
It is notable that the DPA Code states that:
“A prosecution will usually take place unless there are public interest factors against
prosecution which clearly outweigh those tending in favour of prosecution.”1
So what are these public interest factors? In the press release accompanying the
publication of the guidance, the Director of the SFO David Green CB QC, stated
“At present, when a company is convicted of a criminal offence, a court can impose a fine
or put it out of business by winding it up. Both these outcomes can cause collateral
damage to employees and shareholders who may be blameless. Deferred Prosecution
Agreements avoid that collateral damage…”
So would public interest include the economic interests of the company’s shareholders
and employees? It would appear so. However, the DPA Code also makes it plain that
prosecutors must have regard to the UK’s commitment to abide by the OECD convention
on “Combatting Bribery of Foreign Public Officials in International Business
Transactions”, Article 5 of which states that prosecution of the bribery of a foreign public
official should not be influenced by considerations of national economic interest.2 What
is currently unclear is the line between national economic interest (which must not
influence the decision) and the interests of shareholders and employees (which positively
should be an influence), particular when the company involved is, for example, FTSE 100
listed?
The Code also states that “the risk of harm to the public, to unidentified victims,
shareholders, employees and creditors and to the stability and integrity of financial
markets and international trade”3 are indicators of seriousness which mitigate in favour of
prosecution. The question is therefore whether such factors, which arguably touch on
national economic interests, are to be considered in cases of private commercial bribery
but not in cases of bribery of a foreign public official.
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2.5 DPA Code of Practice
2.7 DPA Code of Practice
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2.4 DPA Code of Practice
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Deferred Prosecution Agreements (“DPAs”) come into
force in the UK
Total Immunity
The judgment following the plea negotiated by the Serious Fraud Office and BAE
Systems is an indication that courts are unlikely to endorse a term in a DPA which gives
a corporate defendant effective immunity from all wrongdoing before a certain date or in
a certain country. In that case,the judge said that he was “surprised to find a prosecution
granting blanket indemnity for all offences committed in the past, whether disclosed or
otherwise.”
Thus, it should be assumed that the terms of the DPA will normally relate only to the
offences particularised in the counts of the draft indictment. For that reason, the
corporate will want to ensure that any indictment document tied to a DPA contains the
broadest possible language in order to reduce the risk that certain offending conduct
disclosed in the course of the DPA negotiations is later deemed to fall outside the
ultimate DPA. The prosecutor will be under no obligation not to prosecute for such
offending if conduct if it is not covered by the presented indictment.
With respect to Bribery Act offences, where the corporate discovers a long history of
multiple and widespread offences, certainty that the DPA will be an effective agreement
to avoid future prosecution is most likely to be obtained if the prosecutors agree that the
most appropriate charges include a conspiracy to pay bribes.
Conspiracy may also be an appropriate charge in respect of other offences in the fixed
list of economic crimes for which DPAs may be available.
DPAs and the conduct of internal investigation
Where a corporate becomes aware of potential wrongdoing which it intends to
investigate, the issue of DPAs need to be considered from the very start.
A bad internal investigation can potentially be more damaging to the corporate than no
internal investigation being done at all. The Code states:
“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. Internal investigations which lead to such adverse consequences may
militate against the use of DPAs.”4
So, “do your investigation properly or don’t do it at all” would seem to be the message.
Another key consideration from the beginning of any investigation is its scope.
Corporates should consider carefully the scope of any internal investigation before work
begins.
On the one hand, an internal investigation which goes far beyond the scope of the
allegations or information which triggered it may lead the corporate into difficulties if
further and unanticipated wrongdoing is uncovered. Cooperation with the prosecutor is a
prerequisite for a DPA and such cooperation means providing a report in respect of any
internal investigations. A corporate may, therefore, find that it becomes required in the
DPA process to report to the prosecutor additional offending which the prosecutor was
neither aware of nor seeking to investigate.
On the other hand, the Code5 states that incomplete reporting of the wrongdoing is a
factor in favour of prosecuting. An internal investigation with an overly narrow scope may,
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2.9.2 DPP Code of Practice
2.8.1 vi DPA Code of Practice
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Deferred Prosecution Agreements (“DPAs”) come into
force in the UK
therefore, present two problems: First, if it is discovered by the prosecutor during
negotiations that the internal investigation scope was incomplete or inadequate there
may be a decision to prosecute the corporate instead; second, if the inadequacy is
discovered after the DPA is entered into, such a DPA will be of little value to a corporate.
If other offences not covered by the DPA were committed, the company could be
prosecuted as this conduct would be outside the scope of the DPA.
Corporates should think long and hard about the scope and procedure for such
investigations and keep their decisions under review throughout the life of the
investigation.
Waiver of Privilege
The Code states that a necessary element of DPA negotiations will be the corporate
providing reports in respect of any internal investigations. An internal investigation report
is frequently a privileged document and there are repeated assertions in the Code that
neither the Act introducing DPAs, nor the Code, alters the law of legal professional
privilege. It therefore appears that the cooperation necessary to obtain a DPA may
require the corporate either waiving privilege over its internal investigation reports and
handing them to the prosecutor or producing a separate report for the prosecutors.
Stated differently, the need to cooperate and disclose fully in reports provided to
prosecutors may create a tension with respect to protecting privileged communications or
observations by counsel in many cases. This may provide a contrast to the Office of Fair
Trading and their guidance on approaches for leniency, which clearly states that no
waiver of legal privilege is required.
Waiving privilege is an uncomfortable position for a corporate to be in when, should the
DPA negotiations fail, such reports and any other legally privileged material with respect
to which the corporate has waived privilege and provided to prosecutors (such as witness
statements prepared by the corporate’s lawyers) may be used against them in
subsequent prosecutions.
DPA where prosecution is not an option
It remains a concern that under the Code the prosecutor need only have “a reasonable
suspicion based upon some admissible evidence that [the corporate] has committed the
offence, and there are reasonable grounds for believing that a continued investigation
would provide further admissible evidence within a reasonable period.”6 before
approaching a corporate to initiate discussions on a DPA.
Whilst the prosecutor can be expected to be careful not to overstate its case in these
negotiations the corporate may not be any further along, at the negotiation stage, in
getting to the bottom of what has happened than the prosecutor, who does not have
sufficient evidence to prosecute. A corporate may feel pressure to negotiate a DPA
without being clear about whether and what it has done wrong, rather than miss the
opportunity to secure a DPA.
A concern sometimes expressed by some U.S. lawyers is that their clients are pressured
to enter into DPAs in circumstances where it is far from clear that the prosecutors would
ever be able to get a conviction. It remains to be seen whether this becomes a complaint
voiced by UK lawyers too.
The statement of facts
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1.1(a) DPA Code of Practice
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Deferred Prosecution Agreements (“DPAs”) come into
force in the UK
There is no requirement that the organisation make any formal admission of guilt but
there must be an agreed statement of facts. In the event that the defendant corporate is
later prosecuted (because the DPA is not approved by the Court or is later terminated)
the prosecutor will be able, subject to the normal rules of evidence to rely on that
statement in that prosecution, and in any prosecution against individuals.
This factor needs to be taken into consideration when negotiating with the prosecutor. A
corporate may be tempted to agree to the facts as framed by the prosecutor to move the
process forward and secure a DPA even where it does not consider all points are correct
and it believes that there are other explanations for the evidence relied on. This may be
the case particularly if the company is entering into a DPA not because it is convinced of
its own guilt but because it is not willing to bet the company by taking the matter to trial.
Such companies may live to regret factual concessions made for the purposes of
agreeing to DPA, since in any subsequent prosecution they may need to convince the
Court that the agreement does not represent the true facts. Such arguments may create
uncomfortable credibility questions for companies.
The above are just a few of the points for consideration as we enter a new age of UK
DPAs. It will be some time before the first UK DPAs see the light of day in the UK courts.
Until then we will be watching announcements by the SFO carefully for indications of how
such issues and tensions are likely to be resolved.
Authors:
Elizabeth Robertson
Laura Atherton
Sasi-Kanth Mallela
elizabeth.robertson@klgates.com
+44.(0)20.7360.8255
laura.atherton@klgates.com
+44.(0)20.7360.8322
sasi-kanth.mallela@klgates.com
+44.(0)20.7360.8112
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