The Director of the Serious Fraud Office (“SFO”) and the Director of Public Prosecutions have jointly published a draft Code of Practice for Deferred Prosecution Agreements (“DPAs”) under the Crime and Courts Act 2013 (“CCA”) (click here for the SFO’s press release). As and when the relevant CCA provisions come into force, DPAs will allow the prosecutor to agree not to press charge for criminal offences, in return for which the corporate agrees to terms, all subject to the English court’s approval. DPAs will be available for corporates but not individuals.
The draft Code provides guidance to prosecutors as to whether a DPA is appropriate, how to conduct negotiations, what financial penalties and other terms might be sought, how to involve the courts and how to enforce the DPA. Much of this is procedural, or based on the provisions of the CCA (click here for our recent client alert “Will Companies “Buy and Comply” Their Way Out of Prosecution?”) and should be studied as and when potential concerns arise. However, a number of points are worth considering now.
Offering a DPA is in the discretion of the prosecutor. The draft Code sets out public interest factors particular to DPAs which tend in favour of prosecution, including: a history of similar conduct; conduct alleged to be part of established business practices; an ineffective compliance programme; previous warnings or criminal charges; and a failure to report wrongdoing fully and properly and in a reasonable time.
The draft Code also sets out factors tending against prosecution, many of which are the converse of the above factors, including: a genuine pro-active approach by management, such as self-reporting the wrongdoing and taking remedial action; a genuinely proactive compliance programme; isolated or historic wrongdoing; or wrongdoing under previous management.
As to financial penalties, the draft Code envisages any or all of: compensating victims; a financial penalty; prosecutors’ costs; charitable donations; and disgorgement of profits. The penalty should be “approximate” to the sanction if the corporate had pleaded guilty at trial (see below).
As to other terms, the draft Code includes provisions for the appointment of an “appropriate” monitor, at the corporate’s cost, to advise and observe on compliance enhancements.
The message in the draft Code is clear: DPAs will more likely be offered where the corporate has made past and continuing efforts to be a “good corporate citizen”. This should provide a further incentive to corporates to review their compliance procedures. However, even where it is offered, a DPA will seek to impose financial penalties approximate to a fine on a guilty plea, and an admission of wrongdoing. It remains to be seen how much of an attraction this will present to a corporate which might otherwise be minded to fight for an acquittal.
The consultation closes on 20 September 2013.
The Sentencing Council (an independent UK public body) has published draft Sentencing Guidelines for fraud, bribery and money laundering offences, including for corporate offences such as the offence under s7 Bribery Act 2010 for failure to prevent bribery (http://sentencingcouncil.judiciary.gov.uk/get-involved/consultations-current.htm). The guidelines will inform both sentences following conviction and the potential content of agreed fines within a DPA.
Although the guidelines also deal with custodial sentences, we concentrate here on financial penalties for corporates. The draft guidelines propose a two stage assessment of (a) the harm caused and (b) the culpability of the offender to give various ranges of fines and custodial sentences, after which the sentencing will depend on ordinary factors such as guilty pleas, assistance to prosecutors, and the impact on employees, customers and local economy.
The concept of “harm” is critical, and will vary according to the offence. For example, harm in fraud offences is based on the financial loss either caused or intended to be caused to the victim; in money laundering offences by the value of the money laundered; and in bribery offences normally the offender’s gain, but potentially affected by inflated transactional costs, loss to bona fide competitors, inferior goods or services, and risks to health or public functions.
Culpability is categorised as high, medium, or lesser, and will depend on the offender’s role and motivation, and the sophistication with which the offending was carried out. These factors can cause fines to rise from 100% to 400% of the harm in certain cases.
The draft guidelines provide a useful tool to predict potential financial penalties for corporates when considering DPAs.
The consultation closes on 4 October 2013.