The Crime and Courts Act 2013 (the “Act”) received Royal Assent in April 2013, and makes provision for the introduction of deferred prosecution agreements (“DPAs”) in the U.K. The relevant provisions of the Act are likely to come into force early next year. The proponents of DPAs argue that they will provide a new tool for prosecutors to encourage self-reporting, provide certainty to corporations under investigation and promote efficiency in the criminal justice system. The opponents of DPAs highlight the statistics of their use in the U.S. to cast them as a blunt instrument of government coercion.
Overview of the Crime and Courts Act 2013
A DPA is defined as an agreement between a designated prosecutor (which includes the Director of the Serious Fraud Office (“SFO”) and the Director of Public Prosecutions) and a (i) body corporate, (ii) a partnership, or (iii) an unincorporated association, under which the prosecutor agrees to refrain from bringing criminal proceedings pending successful compliance of the entity with certain conditions. The range of permissible conditions is broad, and can include financial penalties, compensation, charitable donations, disgorgement of profits, compliance undertakings and payment of prosecution costs. Significantly, the Financial Conduct Authority (“FCA”) is not currently listed as a designated prosecutor, and DPAs are not available to individuals, leaving the door open to the prosecution of officers and employees implicated in any wrongdoing. DPAs are also only available in respect of certain offences; principally economic crimes such as bribery, fraud, theft and money laundering related offences.
The obvious „carrot‟ for entering into negotiations for a DPA is the potential for commercial organisations to avoid the substantial reputational damage associated with a criminal conviction. Other tangible benefits include avoiding the costs of a lengthy criminal trial and the potential to avoid disbarment from tendering for public contracts. However, the overall economic benefits from entering into a DPA may be marginal because paragraph 5(4) of Schedule 17 to the Act provides that any financial penalties agreed to must be commensurate to the fine a Court would impose upon conviction, with an appropriate discount for a guilty plea (up to a third). That being said, commercial organisations should at least be able to obtain an indication of the range of likely outcomes in advance of entering into negotiations for a DPA, based upon sentencing guidelines and comparable cases where available.
Prior to the Act coming into force, the Director of the SFO and the Director of Public Prosecutions are required to issue joint guidance for use in determining whether a DPA is likely to be appropriate. The Ministry of Justice has previously identified a range of relevant factors, including the nature and seriousness of the offence, the extent of the wrongdoing and any steps taken by the organisation after its discovery. Ultimately, it will be for the courts to decide whether a DPA is appropriate, based upon the requirement to provide declarations that it is “in the interests of justice” and that its terms are “fair, reasonable and proportionate”. The provisions for the negotiation and approval of DPAs are detailed and heavily prescriptive, but the essential feature is that they provide for judicial involvement and scrutiny from an early stage. All initial hearings are to be conducted in private, although any final declaration is required to be made in open court and supported by reasons.
Once a DPA is concluded, if a prosecutor believes that there may have been a breach at any stage, the prosecutor is at liberty to make an application to the court. The court must then decide “on the balance of probabilities” whether the commercial organisation has failed to comply with the terms of the DPA. If so, it may invite the parties to agree to proposals to remedy the breach or terminate the DPA, whereupon it is almost inevitable that a full criminal prosecution for the alleged offence would result. A DPA is required to contain an agreed statement of facts, which may include any admissions made. In any subsequent criminal proceedings for the alleged offence, the statement of facts is to be treated as proved by formal admission under section 10 of the Criminal Justice Act 1967.
In the event that negotiations for a DPA break down, or the DPA is not approved by a court, the Act provides that any drafts of the statement of facts or other materials created solely for the purpose of preparing the DPA may potentially be used in any prosecution where the commercial organisation makes a statement inconsistent with the material. It may also be used in evidence against the commercial organisation for an offence of providing inaccurate, misleading or incomplete information.
Analysis and Commentary
It is estimated that the cost of fraud in the U.K. is £73 billion per annum. The SFO last year recovered around £50 million of ill-gotten assets from twenty cases, comprising seventeen prosecutions and three civil settlements. The current annual budget of the Serious Fraud Office (“SFO”) is £38.7 million, with an average case costing £669,000 and lasting between four and six years. By comparison, in the U.S. where DPAs are an established part of the criminal justice system, around US$9 billion was recovered in 2012 through the use of 35 DPAs and Non-Prosecution Agreements (“NPAs”) alone. On a statistical basis, therefore, the justification for expanding the range of enforcement options available to the SFO to include DPAs is compelling.
Proposals to introduce DPAs into the U.K. have been under active consideration for a number of years. Richard Alderman, the former Director of the SFO, encouraged companies to self-report, in part due to a pragmatic recognition that the under-resourced SFO was reliant upon co-operation. In exchange, prosecution was unlikely. In the first year of Mr. Alderman‟s tenure, from 2008 to 2009, only two companies self-reported. Mr. Alderman was, therefore, keen to expand the range of tools available to facilitate self-reporting, including DPAs. The position is to be contrasted with that of the current Director of the SFO, David Green, who recently emphasised that the organisation exists to “investigate and prosecute,” and is “not there to offer deals and a special easy path for white collar criminals”.
There are other driving factors behind the planned introduction of DPAs. Much uncertainty arose around self-reporting and the legitimacy of plea agreements following the sentencing remarks of Lord Justice Thomas in R v. Innospec Limited. Such remarks were followed more recently by the comments of the O.E.C.D. in relation to foreign bribery actions where it was said that there was over-reliance by the U.K. on Civil Recovery Orders “which require less judicial oversight and are less transparent than criminal plea agreements”. In both instances, the clear import was that there was a need to redress the balance of power between the U.K. prosecution agencies and the judiciary in favour of the latter, with increased judicial oversight of the settlement process from an early stage.
The requirement for judicial scrutiny of DPAs is an important safeguard, and is a commendable feature of the new legislative regime. Within the U.S., the courts play a more limited role of approving settlement agreements once they have been drafted. It is also a feature of the U.S. regime that the Department of Justice ("DOJ") has almost unfettered discretion, with little judicial input, to determine whether a breach of a DPA has occurred. In the U.S., the DOJ has unfettered discretion in issuing and seeking to enforce NPAs. When taken in conjunction with the high rate of plea bargaining in the U.S., there was a widely held perception in the international community of the DPA being used as a tool of coercion; it being better to settle rather than run the gauntlet of a criminal trial.
The former head of the DOJ‟s Criminal Division, Lanny Breuer, described DPAs as a “mainstay of white collar criminal law enforcement”. Rather than viewing DPAs as a blunt instrument of government coercion, he regarded them as having a “truly transformative effect” on corporate culture, and in fostering compliance. In a speech to the New York City Bar Association in September 2012, Mr. Breuer observed that DPAs had to be earned by organisations through openness and co-operation, and, that it was a flawed strategy for organisations to open negotiations by demanding a DPA at the outset. Another important difference between the U.K. and U.S. regimes is the availability of DPAs as a means to address offending by individuals. In the U.S., the availability of DPAs and NPAs to individuals has led to accusations of individual wrongdoers benefiting from a favourable corporate resolution.
For commercial organisations, an enactment which offers an opportunity to avoid the reputational damage and potential fallout from a criminal trial is to be broadly welcomed. Although commercial organisations may not obtain material advantages in terms of the financial penalties that any wrongdoing may otherwise attract, the collateral advantages are potentially significant. The publication of the joint guidance will be an important step, and should hopefully provide clarity on the use that can be made of materials and information shared by the parties to the negotiation of a DPA. While there may be a number of „lessons learned‟ that organisations can adopt from the U.S., there are a number of clear advantages to the U.K. regime, not the least of which is the early involvement of the judiciary.