November 2019 Issue
Since they were first introduced into the UK in spring 2014, deferred prosecution agreements (DPAs) have divided opinion. To some, the fact that only five DPAs have been completed over the last five years suggests that they may not be an effective mechanism.
However, the number of DPAs entered into by the Serious Fraud Office (SFO) has remained low for a number of reasons. “The length of time DPAs take to agree, the lack of certainty of outcome and a comparatively low likelihood of conviction for corporates in the UK versus the US, make a UK DPA significantly less appealing than its US counterpart,” says Hannah Laming, a partner at Peters & Peters Solicitors LLP. “The discrepancy between corporate admissions when entering a DPA, and the prosecution’s failure to secure the conviction of key individuals, has also proved controversial, particularly in relation to offences, unlike UK Bribery Act offences, where it is necessary to establish that senior officers were involved in misconduct for the corporate to be criminally liable. These factors have impacted on the perceived desirability of securing a DPA.”
In April 2017, Tesco Stores Limited entered a DPA with the SFO 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. The Tesco decision has generated a number of questions about the future of DPAs in the UK. For some analysts, the Tesco, Rolls-Royce and Sarclad decisions have suggested that DPAs may not be suitable for the UK market.
DPA guidance
Under a DPA in the UK, a prosecutor charges a company with a criminal offence but proceedings are automatically suspended if the DPA is approved by the judge. According to SFO policy, a company would only be invited to enter DPA negotiations if there was full cooperation with the SFO’s investigations. Under such agreements, penalties could include a financial penalty, compensation to aggrieved parties and continuing cooperation with respect to prosecutions of individuals. The SFO’s director, Lisa Osofsky, has spoken about the value of corporates cooperating with her agency and the need to speed up investigations.
“DPAs were supposed to offer a fast, efficient conclusion to what could be long-running, complex investigations. However, these benefits have not yet materialised.”
DPAs were supposed to offer a fast, efficient conclusion to what could be long-running, complex investigations. However, these benefits have not yet materialised. And while guidance from the SFO around corporate cooperation provides a clearer picture of what the SFO expects once the DPA process commences, there are still problems. “It sheds very little light on when a corporate should report to the SFO, or the factors relevant to that decision, and it seems likely that each case will continue to turn on its own facts,” says Jo Rickards, a partner at Mishcon de Reya LLP.
Yet despite criticism of the process, the first five years have demonstrated that DPAs can provide a pragmatic way for companies to resolve criminal investigations. “Though the number of DPAs entered in to is, in reality, quite limited, precedents have been created that allow companies facing criminal liability issues and their legal advisers to make sensible assessments of whether or not a DPA may be an appropriate disposal,” says Kathleen Harris, a partner at Arnold & Porter. “Perhaps the most important of these is the lower threshold for self-reporting and cooperation as a prerequisite for a DPA.”
“If the DPAs involving Tesco, Sarclad and Rolls-Royce have taught us anything, it is the value of a company looking beyond the obvious and immediate attractions of a DPA,” says Azizur Rahman, a senior partner at Rahman Ravelli. “All three of these companies admitted wrongdoing to secure a DPA, only for the evidence they were based on to prove inadequate to secure a conviction of individuals.”
Moving forward
Though some questions remain over the suitability of DPAs in the UK, the SFO has indicated that it would be in favour of extending the ‘failure to prevent’ offence to other forms of economic crime, which may expand the application of DPAs in the UK. “Further, we would expect a longer process to get to a DPA and in particular a longer period of prosecutorial and judicial scrutiny in relation to being satisfied that the evidential test is met,” notes Pamela Reddy, a partner at Norton Rose Fulbright LLP.
However, other changes may be necessary. The failure to successfully prosecute any individuals has led some commentators to argue that the problem could be solved by extending the DPA regime to individuals, but to date the SFO has not supported that suggestion. “It would seem however, to be a sensible evolution of the regime and one that might both ease the pressure on the SFO and lead to more organisations being willing to self-report,” says Jeremy Summers, a partner at Osborne Clarke. “The regime is still in its infancy in the UK and undoubtedly will evolve, but the authorities do need to restore some confidence after the failed prosecutions.”
With the introduction of the Corporate Cooperation Guidance, the SFO has underlined its commitment to the DPA regime, which it hopes will further encourage companies to self-report, and to cooperate with the agency once an investigation commences. “How this long-awaited guidance will affect the regime remains to be seen,” says Iskander Fernandez, a partner at BLM. “But what it does signal is a more codified and transparent approach by the SFO that corporates have called for when considering whether to self-report suspected wrongdoing.”
© Financier Worldwide
BY
Richard Summerfield