Further Lessons to be Learned from DPAs
In our February newsletter we reported on the terms of the first Deferred Prosecution Agreement (DPA) secured by the Serious Fraud Office in the case of R v Standard Bank.
Since the first Deferred Prosecution Agreement was secured in the case of R v Standard Bank, on 11th July 2016 final judgment was delivered in the second DPA: R v XYZ. XYZ was purchased by ABC, an American company. After ABC purchased XYZ the fact that corrupt activity had taken place was revealed. Through its lawyers, XYZ self-reported in 2012 and there followed a prolonged investigation by the SFO in which the company cooperated. Of note is the fact that the company asserted proper claims to Legal Professional Privilege whilst providing the SFO with summaries of the accounts given by witnesses.
The key feature of the XYZ DPA is the level of the financial penalty imposed. ABC has entered into an agreement to loan XYZ the money required to satisfy the terms of the DPA. It has also returned to XYZ nearly £2,000,000 (apparently equivalent to the benefits innocently received by ABC, the criminal nature of which it was unaware). It is apparent that without the support of its parent company, XYZ would risk failing, but the court emphasised that ABC had no obligation to provide such support.
Conflicting Commentary on Incentives to Seek DPAs - A Reduction in Penalties?
The Standard Bank DPA levelled penalties which were perceived by many observers and professionals as unlikely to encourage other companies to press for similar treatment.
Speaking at a conference in June, Sir Brian Leveson PC QC confirmed that companies who are entitled to a DPA following an early self-report should be entitled to much more than a one-third discount in their penalty. Despite the fact that he couched his comments in terms that he was not expressing an opinion on behalf of the Judiciary, his comments carry significant weight. He was the judge who presided over the first two DPA proceedings and is therefore an authoritative voice in the country’s, so far limited, jurisprudence on the development and application of DPAs.
A one-third discount to the penalty imposed is identical with the discount afforded to a defendant who enters a guilty plea at its first Crown Court hearing. However, significantly greater investigation and court resources are avoided by a DPA rather than by a company requiring prosecutors to build a case only to plead guilty at the first Crown Court hearing and it would be reasonable for the "credit" to be reflected in the terms of DPAs.
It remains to be seen whether subsequent DPAs and the judges reviewing them adopt the proposals made by Sir Brian Leveson, and how subsequent DPAs will manage the difficult balance of deterrence of corruption against incentivising self-reporting and the early detection of criminal conduct.
Funding and the SFO’s Future
Despite some high profile successes this year the risk that the SFO will be subsumed into the NCA remains. Teresa May, now Prime Minister, had previously supported such a move.
The HMCPSI report concluded that the "blockbuster funding" model did not represent value for money and prevented the SFO from building future capability and capacity. Recent experience shows the SFO’s core budget to be insufficient, with requests for an average of £26.6 million extra per year over the last three years. If the core budget of the organisation were increased, this could mean that applications to HM Treasury for extra funding would be reserved for exceptional cases.