UK: Deferred Prosecution Agreements - The Solution To Tackling Economic Crime?

Last Updated: 6 September 2012
Article by Olga Tocewicz

On 17th May 2012 the Ministry of Justice ('MoJ') published a consultation paper 'Consultation on a new enforcement tool to deal with economic crime committed by commercial organisations: Deferred Prosecution Agreements' ('the Paper').

Deferred Prosecution Agreements ('DPAs') are an alternative to the options currently available to prosecuting bodies addressing the misconduct of commercial organisations ('COs').

The Consultation closed on 9th August 2012. Responses were received from the City of London Law Society Corporate Crime and Corruption Committee, the Criminal Bar Association and Law Reform Committee (jointly), the Fraud Advisory Panel, GC100 (Association for General Counsel and Company Secretaries of Companies in the UK FTSE 100), the Institute of Chartered Accountants in England and Wales, the Law Society and Transparency International UK.

This article considers some of the Papers most controversial suggestions and assesses the responses provided by the interested parties listed above.

All respondents agreed that there was a need for improvement in dealing with economic crime in England and Wales. However, it was recognised that these would not provide the complete answer and that funding and under resourcing of prosecuting bodies, in particular the Serious Fraud Office ('SFO'), played a central role to the effectiveness of prosecutions.

The Paper suggests that once a DPA has been embarked upon, judicial oversight would be necessary. Upon negotiating an agreed statement of facts to be appended to the DPA, judicial approval of the terms and the timescale (expected to be between one to three years within which criteria by a CO is to be met) of the DPA would be sought. This was to ensure transparency and fairness and also, to ensure that sentencing powers remain within the domain of the courts.

It was recognised by a number of respondents that the introduction of judicial approval of the DPA negotiated introduced an element of uncertainty to a procedure designed to entice a CO into early prosecutorial dialogue by virtue of the controlled nature of the agreement. The appeal of a DPA may be lost in these circumstances.

All respondents did however agree that the Sentencing Council were the right body to develop guidelines for DPAs. This would reign in the degree of uncertainty introduced by judicial intervention.

The Paper suggests that a Preliminary hearing would deal with DPAs and the terms agreed. It is further suggested that such hearings should take place in private. This suggestion was met with mixed views.

Respondents recognised that resolution in private of matters such as corruption would not be conducive to the interests of justice. However, most accepted that the protection to the CO afforded by a private hearing was of paramount importance.

There is a regulatory obligation on listed companies to keep the market informed. Publicity of a possible DPA is likely to undermine the objective of the obligation to provide the market with accurate and up to date information. Further COs, in reaching a satisfactory DPA, will be asked to approach the process with full and frank disclosure. This may include the revelation of commercially sensitive information. The commercial and reputational damage caused by the publicity of a possible DPA would certainly discourage many COs from entertaining the process.

The process is designed to encourage self-reporting of misconduct by COs. Public knowledge of negotiations between a prosecuting body and a CO even before an agreed statement of facts had been established is likely to result in COs avoiding the possibility to the extent that the risk of defending a possible criminal action is perceived to be the lesser of two evils when considering the elongated reputational damage a CO could suffer.

Most respondents agreed that it would be entirely appropriate for the final DPA agreement to be made public and that the final stages of the DPA process should take place in open court.

Admissibility was addressed by the Paper. It is strongly in the public interest that individual DPAs are open and transparent. The Paper suggests that a DPA will be publically available and will receive judicial approval. It is further suggested that the terms of DPA, the fact that a CO agreed to it and any information provided should be admissible in principle in any subsequent criminal proceedings against the CO (the protection afforded by section 78 of the Police and Criminal Evidence Act 1984 will continue to apply).

Where the prosecution is of an individual, information provided by the CO could be used against that person although admissions made by the CO could not.

Further an unsigned DPA could not form the basis of any admissions in subsequent proceedings (whether against at CO or an individual) however a prosecutor could not be precluded from relying on any evidence obtained from enquires made as a result of the admission in an unsigned DPA.

Many of the respondents noted that this would act as a deterrent when considering a DPA. Upon making a revelation, warts and all, a CO would find it increasingly difficult to back out of DPA negotiations where the terms were particularly unfavourable in the knowledge that they had in their efforts, handed to the prosecuting body a dossier of their misconduct.

Perhaps judicial intervention in respect of this aspect is welcome, a Judge extinguishing the efforts of an overzealous prosecutor or placating a difficult relationship particularly when negotiations had been conducted over prolonged and difficult periods.

This aspect clearly opens up a CO (and their insurance policy) to much risk. DPAs are not in their suggested current form designed to encompass all proceedings against a CO in respect of a period of misconduct. A DPA could result in and could be relied upon in civil proceedings against a CO stemming from the agreed statement of facts which form the subject of the DPA.

This may require further assessment by the MoJ, the admissibility proposals may be the hardest for COs to swallow.

The benefits of a DPA, as currently being offered to COs can only be seen if the incentive to self-report and enter into negotiations is sufficient to persuade a CO that a DPA trumps the risk of contesting a criminal prosecution. It is unclear whether the incentives currently envisaged will provide enough motivation for COs to take that route; the concessions that COs are presently expected to make may be one admissible step too far.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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