For the first time, the SEC has entered into a DPA with an individual. The DPA was agreed in recognition of the individual’s cooperation with a parallel SEC/DOJ investigation into two subsidiaries of US software company PTC Inc for breaches of the FCPA. PTC entered into a non-prosecution agreement with the DOJ and agreed to pay civil and criminal penalties in excess of $28m.
There have been concerns in the US that companies are prosecuted in favour of individuals and it was these concerns which led to the publication of the Yates Memo in September 2015. This was followed in October 2015 by an opinion handed down by Judge Emmett Sullivan in which he described as lamentable the fact that DPAs are not used with individuals as a means of achieving the type of reform advocated by the Yates Memo. Judge Sullivan cited the original purpose of DPAs - to dispose of non-violent criminality by individuals - and compared that with their current use against corporates. He expressed the Court’s disappointment that the US does not use DPAs “to provide the same opportunity to individual defendants [as is provided to companies] to demonstrate their rehabilitation without triggering the devastating collateral consequences of a criminal conviction.” Within weeks, the DOJ agreed DPAs with individuals connected to the collapse of law firm Dewey & LeBoeuf and now the SEC has agreed this DPA in the PTC case.
DPAs were introduced in England and Wales in February 2014 through the Crime and Courts Act 2013. They are an enforcement tool for the SFO and CPS to use against companies who commit bribery, fraud or money laundering offences. There has been one DPA since February 2014; the November 2015 DPA between the SFO and ICBC Standard Bank plc.
English DPAs were always intended to apply only to corporates; they are not available to individuals. During the passage of the Crime and Courts Bill, an amendment to extend DPAs to individuals was proposed in the House of Lords at Committee stage. That amendment was withdrawn following assurances that the Government did not rule it out but that a “narrow, targeted approach [was] the best course of action to begin with.” The position would be reviewed when the DPA scheme came to be examined in the future and primary legislation would be introduced if it was required.
One of the principal reasons for introducing DPAs for companies and not individuals was to circumvent the difficulties that the current law on corporate criminal liability presents to prosecutors and to reduce the time, expense and uncertainty of such prosecutions. This was considered unnecessary for individuals, who could already be prosecuted with relative ease. This belies a misunderstanding of the purpose of DPAs as an enforcement tool which encourages behavioural change to be used in circumstances where defendants can assist and are prepared to admit their behaviour and commit to change. Existing immunity provisions require, in all but the rarest of circumstances, a guilty plea by the individual and a criminal conviction. This means that there exists no satisfactory mechanism to reflect an individual’s cooperation and avoid the consequences of a criminal conviction, in circumstances where that route is available to their employer (or more often, former employer).
The Government should examine now whether there is scope to offer DPAs to individuals in appropriate circumstances. There can be no point of principle against this because similar tools are already available to other prosecuting authorities to achieve an outcome that does not involve a conviction. For example, the Competition and Markets Authority’s leniency programme allows it to issue no-action letters to individuals who admit taking part in a cartel and who cooperate completely and continuously throughout the investigation. Similarly, under Code of Practice 9, HMRC can agree not to prosecute serious tax fraud in exchange for complete disclosure by the individual of their conduct in respect of their tax affairs and payment of all taxes, duties, interest and penalties due. At the lower end of the offending scale, there exists fixed penalty notices, simple cautions and conditional cautions all of which are out-of-court disposals which avoid a criminal conviction.
Individual DPAs would allow for faster resolution of complex economic crime cases while ensuring that individuals are held to account for their wrongdoing through the imposition of conditions, including financial penalties where appropriate. They would still act as a deterrent as they carry the sanction of prosecution should an individual fail to comply. In the Committee stage debate, in support of the amendment to include individuals, former Attorney General Lord Goldsmith referred to the carrot and stick approach stating “If you go forward and you comply with conditions that change your behaviour, you will not find yourself being prosecuted and convicted.” Conversely, those who do not comply will be prosecuted.
There are important safeguards in place with DPAs that are not in place with other current non-conviction resolutions such as those available to the CMA and HMRC. Every DPA has to be approved by either the DPP or the Director of the SFO and is then subject to scrutiny and approval by the Court in order to ensure that the interests of justice are met.
Plainly, DPAs for individuals would not be appropriate in every case but making provision for them would encourage more individuals to report cases of economic crime and cooperate with investigations. It would also encourage companies to self-report and cooperate if they had the comfort that their officers could avail themselves of the same settlement.
DPAs for individuals could, in the right circumstances, be a useful solution that would ensure future good behaviour without the need for a costly trial. They would avoid the devastating consequences of a criminal conviction, allowing a faster route to rehabilitation.