In April 2017, Tesco Stores Limited entered a Deferred Prosecution Agreement with the Serious Fraud Office in respect of one offence of False Accounting. By January 2019, three individuals who were prosecuted for identical offences originally faced by Tesco Stores had been acquitted of those charges.
Are those results inconsistent with each other?
Do they have any bearing on the future of Deferred Prosecution Agreements?
What is a DPA?
A Deferred Prosecution Agreement (“DPA”) is an agreement reached between a prosecutor and an organisation against whom there is sufficient evidence for that organisation to be prosecuted for one or more economic crimes. The DPA suspends any prosecution for a defined period provided the organisation meets certain conditions. It must contain a Statement of Facts relating to the alleged offence that may include admissions of guilt by the organisation, and it must specify an expiry date on which it ceases to have effect.
Terms of the DPA may include, but are not limited to: a financial penalty; compensation; disgorgement of profits; the implementation of a compliance programme; co-operation with the investigation and the payment of prosecution costs.
The DPA scheme came into force on the 24th February 2014 under Schedule 17 of the Crime and Courts Act 2013. A Code of Practice was published in the same month. DPAs were met with a certain amount of scepticism from the press in the UK, who were concerned that organisations who engaged in economic wrongdoing would “cosy up” to the Serious Fraud Office in order to escape proper punishment. In the UK DPAs are concluded under the supervision of a judge who must be satisfied by the prosecutor that the DPA is “in the interests of justice” and that the terms are “fair, reasonable and proportionate.” Judicial approval is intended to provide legitimacy to the process.
To date, all four concluded DPAs (Standard Bank in 2015; XYZ in 2016; Rolls Royce in January 2017; and Tesco Stores in April 2017) have been superintended by the President of the Queen’s Bench Division, Sir Brian Leveson, sitting in the Crown Court at Southwark.
The mechanics of a DPA
Once the Serious Fraud Office has opened an investigation into an organisation, the organisation may be invited by the SFO to enter into DPA negotiations concerning the organisation’s alleged criminal conduct. An invitation to negotiate a DPA is made at the discretion of the prosecutor, having regard to the factors identified in the Code of Practice, including the full co-operation of the organisation. Any organisation wishing to avail itself of a DPA is therefore expected to engage with a prosecutor from the earliest stage of an investigation.
Under a DPA, the prosecutor charges a company with a criminal offence and a bill of indictment is preferred.
The judge must satisfy him or herself that there is at least “a reasonable suspicion based upon some admissible evidence that P has committed the offence, and 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 conviction in accordance with the Full Code Test”. The judge will do this through detailed consideration of the facts and supporting documents provided by the Prosecution.
The negotiation process between the SFO and the organisation can be complex. In the case of Tesco Stores, the negotiations and drafting of the DPA took eight months, considerably longer than the subsequent trials.
Once agreement is reached between the SFO and the organisation, the prosecutor makes a written application for the first of two hearings before the court.
The first, a preliminary hearing held under paragraph 7 of Schedule 17, is heard in private. The justification for this is that the DPA is by no means a ‘done deal’ merely because the parties both want the resolution. The prosecutor invites the court to make a declaration that:
- entering a DPA with the organisation is likely to be in the interests of justice; and
- that the proposed terms of the DPA are fair reasonable and proportionate.
It is at this stage that the court scrutinises the proposed agreement and satisfies itself that there is a case to answer and that the company has conducted itself in a manner commensurate with a DPA resolution rather than prosecution.
If, at the conclusion of the paragraph 7 hearing, the court is satisfied that a DPA is appropriate, the SFO then applies for a public hearing for approval under paragraph 8. This final hearing takes place in open court during which the SFO sets out publicly the evidence in the case and why it considers it appropriate for the organisation to enter into a DPA.
Once the DPA has been approved by the judge at a paragraph 8 hearing, criminal proceedings against the organisation are suspended in accordance with the terms of the DPA. Upon the approval of the court, the SFO must publish on its website:
- The DPA, which includes the Statement of Facts.
- The declaration of the court under paragraph 7 with reasons.
- The declaration of the court under paragraph 8 with reasons.
Publication may be postponed if it is necessary to avoid a substantial risk of prejudice to the administration of justice in any legal proceedings. In the Tesco case, publication of the DPA and Statement of Facts was postponed until the conclusion of the trial of the individual defendants. At that point, the DPA and Statement of Facts had to be published by virtue of paragraph 8(7) of Schedule 17 of the Crime and Courts Act 2013.
Conflict between Tesco Stores Ltd and the individual defendants
Paragraph 9 of the Statement of Facts agreed between Tesco and the SFO reads as follows: “Members of TSL’s senior leadership team who were aware of and dishonestly perpetuated the misstatement leading up to the trading update…were…” and went on to name the three defendants in respect of whom not guilty verdicts were later entered.
The three defendants understandably felt aggrieved at being named by their former employer as being guilty. However, theirs was by no means a unique or previously unknown situation. In multi-handed indictments, defendant A may plead guilty on a written basis, implicating defendant B. If B is later acquitted, A will present mitigation, which can be reported in the press, indicating B’s guilt.
To the extent that it is relevant when considering the company’s position and the DPA, the results of the two trials relating to the three individual defendants do not amount to a finding that there was no evidence of fraud and false accounting.
The first trial was presided over by the Recorder of Westminster, who determined that there was a case to answer in respect of all three defendants in respect of fraud and false accounting.
The case then had to be aborted when the first defendant was taken ill and the third defendant successfully applied for the jury to be discharged. The retrial proceeded in respect of the two other defendants in front of a different Judge, Sir John Royce. Before the retrial there were renewed applications to stop the case, which were rejected. Similar arguments were made at the conclusion of the prosecution case in the retrial, and Sir John Royce allowed the submissions at that stage. Sir John Royce ruled that: “There was evidence of a fraud on which a properly directed jury could convict,” but the evidence that the two defendants knew about the fraud/false accounting was weak. That decision was upheld on appeal, with Hallett LJ observing that, “The proper response to a submission of no case to answer is one on which two judges may differ…the fact of a different result does not import a mistake by one or the other.”
The two defendants were acquitted and, having considered the terms of the Court of Appeal ruling, the prosecution offered no evidence against the other defendant who had not been well enough to stand trial.
The defendants sought to prevent the detail of the Statement of Facts agreed by Tesco and the Serious Fraud Office being made public. They each applied to be heard by Sir Brian Leveson in respect of the DPA proceedings which had concluded almost two years previously and submitted that it would be unjust for the prohibition on the publication of the Statement of Facts in the DPA to be lifted. They faced a number of problems. First, Tesco objected to any alteration of the Statement of Facts, which had taken so long to conclude. The Statement was a document agreed by two parties and the three individual defendants played no part in the DPA process. Secondly, the Press objected on the basis that the DPA regime required publication on the open justice principle. The only basis for the postponement of its reporting was the impending trials of the individual defendants and those had concluded. Thirdly, the Court had no power to vary the DPA. Sir Brian Leveson ruled: “I have no doubt that I have no jurisdiction now to alter or modify either the terms of the DPA or its supporting Statement of Facts. Having approved the agreement, the role of the Court is limited to enforcing its terms.”
Does the outcome of the trial of the three Tesco individuals have any detrimental effect of the future of DPAs? It is suggested not. DPAs remain an attractive outcome for corporate defendants as an alternative to potential prosecution. Certainly, they are preferable, cheaper and less damaging to an organisation’s reputation.
The remedy to avoid the sense of grievance felt by the Tesco three is simple. It does not involve dispensing with the carefully drafted DPA regime but merely to limit the identification of individuals in the Statement of Facts. Names and even job descriptions are unnecessary as long as the court and the public are made aware of the level of seniority of those within the organisation. This enables the company to accept its corporate wrongdoing without harming the reputation of individuals who go on to maintain their innocence.