US style Deferred Prosecution Agreements (DPAs) are due to be introduced into the UK early next year. The draft Code of Practice issued yesterday by the UK authorities gives us the first real insight into how DPAs in the UK will work in practice. A key question still remains as to whether DPAs will encourage corporates to self-report to the UK authorities.
The draft Code of Practice is available here.
Background: what is a DPA?
DPAs have formed part of the armoury of US prosecutors for almost two decades and have been increasingly used in relation to offences under the Foreign Corrupt Practices Act. The reason for importing DPAs into the UK is that they are intended to provide a cheap and fast means of resolving financial crime. However, unlike its US counterpart, the UK version will require active judicial consideration and approval of the DPA at the outset and end of the negotiation process.
A DPA is a voluntary agreement between a prosecuting authority and a commercial organisation that is accused of committing an economic crime. It involves charging the company with the crime but then suspending the proceedings in return for a range of sanctions. The company avoids prosecution provided that the conditions set out in the DPA are fulfilled. Those conditions are likely to include a fine, compensation for victims, implementation of a compliance programme and cooperation with an investigation into the offence.
In relation to the size of potential corporate fines, it is worth noting that the Sentencing Council has also just published a consultation (available here) on sentencing guidelines for fraud, bribery and money laundering. The Sentencing Council suggests that fines "must be substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law. Whether the fine would have the impact of putting the offender out of business will be relevant; in some bad cases this will be an acceptable consequence."
So what are the key developments?
The draft Code of Practice emphasises that it "is a matter for the prosecutor’s discretion" as to whether a DPA is appropriate.
However, before proceeding with a DPA a prosecutor must be satisfied of two matters:
- that there is sufficient evidence to convict, or "at least a reasonable suspicion that the commercial organisation has committed the offence, and there are reasonable grounds for believing that a continued investigation would provide further evidence within a reasonable period of time", and
- that there are public interest factors against prosecution which clearly outweigh those tending in favour of prosecution.
So the key messages for a corporate are that to have any chance of being eligible for a DPA you must show that:
- you have an adequate compliance programme in place,
- you have been "genuinely" proactive since discovering the misconduct,
- this was an isolated incident and that there is no history of similar conduct,
- the conduct is not part of the established business practice of the company, and
- the misconduct was reported promptly.
The reference to the need for a corporate compliance programme is particularly significant in the light of the fact that companies are required under the Bribery Act 2010 to have "adequate procedures" to prevent bribery by their employees and others acting on their behalf (so-called "associated persons"). A company without such adequate procedures can be found automatically liable for bribes paid by its associated persons if the bribes are made for its benefit.
Finally, the draft Code of Practices envisages that it will be "almost always necessary" for the Court approval process to take place in private, rather than in open Court. However, once the process has been completed, the Court will give its reasons in public and the finalised DPA will be published.
Perhaps inevitably, the draft Code of Practice is non-prescriptive and leaves prosecutors considerable leeway to decide whether a DPA is appropriate. The list of factors weighing in favour of prosecuting as against negotiating a DPA is largely drawn from existing prosecutorial guidance. As such, the draft Code of Practice continues to leave corporates with considerable uncertainty over whether a decision to self-report suspected criminal conduct may lead to a prosecution. That uncertainty will only be laid to rest once DPAs start to be used in practice.
The draft Code of Practice is now subject to a consultation process which will close on Friday 20 September 2013. We will be submitting our own comments. Do let us know if you have your own comments that you wish us to feed into the consultation.