The reach of Deferred Prosecution Agreements ("DPAs") has been broadened to include the new offences of failing to prevent the facilitation of UK or foreign tax evasion – strengthening the DPA regime yet further as a weapon in the fight against corruption.
From 30 September 2017, it will be an offence under sections 45 and 46 of the Criminal Finances Act 2017 ("CFA17") if a company fails to prevent the facilitation of UK or foreign tax evasion respectively. These new offences have been added to Schedule 17 of the Crime and Courts Act 2013 ("CCA13") – therefore DPAs can now be offered in respect of these two offences.
The template for the new offences
The template for these new offences is the corporate offence of failing to prevent bribery, which is found in section 7 of the Bribery Act 2010 (“BA10”). This makes it an offence if a person associated with a company (such as an employee or agent) bribes a third party. This is a strict liability offence – that is, if the offence has been committed the company is automatically guilty. However the BA10 also states that a company would not be liable if – and only if – it “had in place adequate procedures designed to prevent persons associated with [the company] from engaging in such conduct.”
The fact that this offence is one of strict liability means that – unlike corruption offences predating the BA10 – prosecuting authorities do not have to show that the “directing mind and will” of a company knew of the bribe, which has often been difficult to prove (especially for larger, more complicated, companies).
This strict liability approach has been adopted with the two new offences in the CFA17 of failing to prevent the facilitation of UK or foreign tax evasion. That is, a company will be guilty of an offence if it fails to prevent the facilitation of tax evasion by an employee, agent, or anyone else acting for or on behalf of the company. These offences have very broad extraterritorial reach, applying to non-UK as well as UK companies.
As with section 7 of the BA10 the only defence is if the company had “prevention procedures” in place. Interestingly, whereas section 7 of the BA10 requires a company to have “adequate procedures” in place to prevent bribery, the CFA13 states that a company needs to have “such prevention procedures as it was reasonable in all the circumstances to expect [it] to have in place”. Whilst the defence in the CFA13 seems less stringent than the defence in the BA10, we will have to wait and see how the Courts interpret these tests.
Importantly, however, one thing that the offences of failing to prevent the facilitation of UK or foreign tax evasion have in common with the offence of failing to prevent bribery is that they are now listed in Schedule 17 of the CCA13 as offences for which a DPA can be agreed.
The DPA regime
A DPA is an agreement between a prosecutor and a company (and only a company) which is approved by the Court and effectively suspends prosecution for an agreed period of time. The agreement is subject to certain conditions and, if these are fully complied with for the life of the DPA, the prosecution is withdrawn. Under a DPA, the company will still be liable for the punishment it would have been subject to had the SFO pursued a successful prosecution against it, including disgorgement of profit, payment of the SFO’s costs and remediation of any flaws in control and compliance policies. This being said, a company can obtain a discount on the financial penalties.
There have been 4 DPAs since they were introduced in 2014, all relating to bribery and other corruption offences. The most high-profile DPA is the agreement with Rolls-Royce pursuant to which Rolls-Royce had to pay a penalty in the UK totalling £497 million (plus the SFO’s costs of £13 million) after an investigation which lasted for 4 years. Whilst this penalty was the highest of the DPAs to date, even this was after Rolls-Royce had obtained a 50% discount to reflect what the Court described as its “extraordinary cooperation” with the SFO’s investigation.
As more DPAs have been agreed and approved by the Court, it has become clear that these are a weapon that the SFO and the Courts believe can help in the fight against corruption. Sir Brian Leveson, the judge who has approved all of the DPAs to date, has repeatedly highlighted that a DPA will likely incentivise the exposure and self-reporting of wrongdoing by organisations, demonstrating that he sees DPAs as being the ‘carrot’ working alongside the ‘stick’ of prosecution.
The importance of DPAs as a weapon in the fight against corruption has been emphasised not simply by the increasing number but, crucially, the size of the fine imposed in the Rolls-Royce DPA (for which the scope of offences which ranged in time from 1 January 1989 to 31 November 2013). This demonstrated that whilst DPAs are a ‘carrot’, they can cause a company pain.
The new offences and DPAs
It is in this environment that the offences of failing to prevent UK or foreign tax evasion are added to the list of offences for which a DPA can be agreed. With this development, Parliament is reinforcing the fact that DPAs are here to stay. Whilst the timing of the Rolls-Royce DPA and the CFA17 may have been coincidental – the Rolls-Royce DPA was approved on 17 January 2017, the CFA17 was enacted on 27 April 2017 and the new offences will come into force on 30 September 2017 – it may also be propitious, demonstrating Parliament’s support for the DPA regime.
It may well be the case that in the future other new corporate offences will be eligible for DPAs, further entrenching DPAs as a weapon in the fight against bribery and corruption supported by the Courts, the legislature and the prosecuting authorities.