On 24 February 2014, Deferred Prosecution Agreements (DPAs), introduced by Schedule 17 of the Crime and Courts Act 2013 (the Act), were made available to prosecutors in the UK.

The DPA is a concept borrowed from the USA. In January 2014 it was reported that the US Department of Justice has entered into 273 publicly disclosed DPAs and Non-Prosecution Agreements since 2000, 252 of which were since 2005. These agreements have resulted in penalties and related payments of over US$40 billion. Seven agreements reached in 2013 included payments of US$100 million or more, including one cross-border settlement that was in excess of US$1 billion. 

The directors of the Serious Fraud Office (SFO) and Public Prosecutions have published a joint code of practice (the Code), which supplements the recently published Sentencing Council’s “Definitive Guideline” on fraud, bribery and money laundering for corporate offenders. At present only the SFO and Crown Prosecution Service can utilise DPAs; it remains to be seen whether the Financial Conduct Authority will lobby to become the third designated prosecutor.

What is a DPA?

When considering whether or not to charge a body corporate, a partnership or an unincorporated association with an economic crime, such as fraud or bribery, a prosecutor may invite an entity to agree a DPA. A DPA is a form of corporate settlement, which allows the entity under investigation to admit wrongdoing, and, in doing so, avoid a criminal trial and/or consequent conviction. A prosecutor will suspend proceedings for a stated period and, provided that the entity adheres to a number of agreed conditions, proceedings may be discontinued altogether. DPAs will be particularly attractive to those competing for government tenders, which would ordinarily be off-limits to companies embroiled in criminal proceedings.

All DPAs must include a statement of facts, which may contain admissions made by the entity. The conditions that an entity may have to agree to may include: paying a penalty; paying compensation to victims; making a donation to a charity or a third party; disgorging profits; implementing, or adapting, a compliance programme; co-operating with any related investigation, or paying any reasonable costs of the prosecutor. Any financial penalty is subject to a discount, similar to that afforded to entities that enter early guilty pleas in criminal proceedings. 

If the entity does not comply with the conditions of the DPA, proceedings may be resumed. On the other hand, if the entity complies with the conditions until the expiry of the DPA, the charges must be withdrawn and the entity will not formally be convicted. Upon expiry, the prosecutor must publish the fact that proceedings have been discontinued, and details of the entity’s compliance. Fresh criminal proceedings may not be instituted for the same offence.

Unlike their US counterpart, UK DPAs will be public documents, approved by a judge in open court. DPAs will only be available to organisations, not to individuals, to enter into voluntarily. In deciding whether or not to approve a DPA, a judge must decide whether it is in the interests of justice and whether its terms are fair, reasonable and proportionate.

Circumstances in which a DPA may be offered

A DPA will only be appropriate if a two-part test is satisfied. 

The first stage is evidential. The prosecutor must be satisfied that the evidential stage of the Full Code test in the Code for Crown Prosecutors is met. If this test is not met, the prosecutor must be satisfied that there is at least a reasonable suspicion, based upon some admissible evidence, that the entity has committed the offence, and that there are reasonable grounds for believing that a continued investigation would provide further admissible evidence within a reasonable period of time, so that all the evidence together would be capable of establishing a realistic prospect of a conviction.

The second stage is the public interest test. The prosecutor must consider that the public interest is best served by entering into a DPA, rather than pursuing formal proceedings.  A DPA is unlikely to be appropriate if an offence is of a serious nature. Any history of similar conduct, evidence of misconduct which is part of established business practice, failure to report the misconduct within a reasonable time, or failure to take remedial steps following a warning will be potentially aggravating factors. A DPA is more likely to be appropriate where an entity has self-reported as soon as practicable, where the offence is old, or if the entity, in its current form, is different to the entity which committed the alleged offence.

Implications for D&O insurers

The DPA is a court-sanctioned agreement between the prosecutor and the entity only.  Directors and officers are not parties to a DPA and will not receive any protection from them. The terms of a DPA are unlikely to have an impact on D&O insurers directly; it is not possible for an entity to pass on any financial penalty imposed by a DPA to an insurer. Nevertheless, DPAs have the potential to change the landscape of D&O insurance:

  • Co-operation: the terms of a DPA may require an entity to 'co-operate in any investigation related to the alleged offence'. This could trigger enquiries into the conduct of directors and officers. D&O insurers will therefore want to consider how their policies should respond in these circumstances. For example, will the negotiation of a DPA constitute a “claim” for the purposes of D&O cover?
  • Documentation: it is proposed that documentation provided during the course of DPA negotiations will be admissible against an individual in any subsequent criminal prosecution.
  • Privileged material: a prosecutor may encourage an entity to disclose privileged documents, which would not ordinarily be disclosed during a normal criminal investigation or admissible at trial. 
  • Statement of facts: admissions made in the statement of facts may lead to increased numbers of cases being brought against individuals; directors and officers will struggle to defend themselves in relation to offences to which the entity itself has already admitted guilt. 
  • Self-reporting: DPAs complement the SFO’s regime for self-reporting. It is expected that by allowing companies to defer, and potentially avoid, prosecution, there may be a rise in self-reporting, which may put directors and officers at greater risk of prosecution. The Code encourages the investigation of and, where appropriate, prosecution of those individuals.
  • Retrospective application: DPAs will still be available in relation to conduct prior to commencement of the Act.
  • Funding: consideration should be given to the availability of funding for directors and officers to obtain legal advice and representation as a result of a DPA being entered into. If DPA negotiations constitute a “claim” under a D&O policy (see above), a director or officer may be entitled to funding. 
  • Multi-jurisdictional issues: it remains to be seen how the UK DPA will interact with its US counterpart, and which will govern in the event that an entity is embroiled in proceedings in the UK and the US. A prosecutor may require an entity to produce documentation from overseas offices, which may make its way into the hands of overseas investigators, exposing entities to multi-jurisdictional enforcement proceedings.


The DPA represents an immediate risk to D&O insurers, as it is possible that companies will use guilty directors as bargaining chips, for the sake of the entity. Given that entering into a DPA is a voluntary process, it remains to be seen how many will be tempted. 

Insurers may need to re-examine and possibly redraft policies to make it clear which types of costs and liabilities arising from DPAs are covered by their policies.