Previously published in Westlaw Journal White-Collar Crime, July 2012
Deferred prosecution agreements have been a feature of the U.S. legal system for many years. They have generally been viewed as a success and an invaluable tool in the arsenal of prosecutors in a modern commercial environment, particularly in the field of corruption. Accordingly, their absence from the U.K. legal system has been increasingly questioned. The U.K. solicitor general and the director of the Serious Fraud Office have sought to address this apparent deficiency and have been strongly advocating for the introduction of DPAs into the U.K. This has culminated in the U.K. Ministry of Justice's recently released consultation paper on the subject.1 The U.K. DPA aims to increase self-reporting by corporations by providing a degree of certainty and efficiency. Its broad intention is to take the best of the U.S. system and complement it with the U.K. legal system.
The current position in the U.K. is thought-provoking. Its legal system already contains a myriad of criminal and regulatory sanctions for corporate wrongdoing, especially in relation to fraud and corruption matters.2 But the problem lies not in the lack of applicable law upon which to prosecute; the issue is the relative ineffectiveness and inefficiencies of enforcement of those laws and their lack of flexibility. Whereas the current system has proven relatively reliable, in a modern commercial world, that system gives rise to the following primary conflicts:
Self-reporting: Incentives vs. discouragement
If corporations are to come forward and self-report wrongdoing to the authorities, there must be an incentive in doing so. In the U.S., a company may benefit from a DPA whereby criminal prosecution may be deferred or eventually dismissed provided that the company, for example, pays a fine, pays compensation, accounts for its profits, agrees to work with a monitor and/or accounts to the U.S. Department of Justice for its future actions. To this end, the U.S. system of self-reporting provides corporations with some comfort as to the range of sanctions available to the regulator.
The position under the U.K. system is more stark: Admission or not, one strike and you're out! Save for only a few exceptions, criminal prosecution and conviction as punitive sanctions are the primary options for authorities when presented with an admission. This blunt enforcement instrument positively discourages self-reporting and, conversely, encourages forum-shopping. The Serious Fraud Office's arsenal, for example, is limited in that it must either prosecute with the aim of securing a criminal conviction or proceed under the civil law. Bearing in mind that a conviction for bribing carries with it mandatory debarment from EU contracts,3 it can be viewed as a death sentence for some businesses.
Sentencing: Judicial independence vs. certainty
The independence of the judiciary is the foundation of any modern justice system. In the U.K., it is a well established principle that the sentencing of offenders is solely for the judge.4 That said, prosecutors are expected to assist the judge as to tariffs and guidelines, but no more. There is no mechanism currently to allow for U.S.-style "plea bargains."
Offering offending corporations a degree of certainty as to the potential outcome through plea negotiations is perceived as undermining and/or usurping the sentencing discretion of the judge. Notions of "rubber-stamping" plea agreements come to mind, and any suggestion of endorsing that practice is understandably deplored. That the U.S. courts will not adopt such an approach is evident in U.S. Securities and Exchange Commission cases, where, for example, the court examines the agreement to ensure any deal is "fair, reasonable, adequate and in the public interest."5 Such scrutiny is warranted or else DPAs could evolve in a vacuum of judicial interpretation.6
Plea bargaining has been rarely used in the U.K. due to a lack of legislative powers. Moreover, the courts have made it very (very) clear that they are opposed to agreements that restrict their sentencing powers.7 Even if the courts were to embrace this, under the current system a negotiated criminal plea agreement will not protect the defendant against collateral consequences of a conviction for an offense relating to fraud or corruption, which include, for example, the confiscation of the proceeds of the unlawful conduct and debarment from EU public procuring contracts.
Justice: Openness vs. closed doors
It is a well established doctrine of U.K. law that justice not only should be done, but equally importantly, it should be seen to be done. Public interest is often cited as the principal concern when in camera justice is contemplated by the legislature. Indeed, critics of U.S. DPAs contend that the Department of Justice has not been transparent about its use of DPAs, which undermines the appearance of a fair and equitable justice system.
However, corporations are unlikely to come forward to air their dirty laundry if it is to be done publicly. Few corporations would willingly divulge minor indiscretions that could have significant effects on their standing and/or share prices. There remains the need, or incentive, to allow corporations to self-report and explore, in confidence, options without prejudicing their position.
THE PROPOSED U.K. DPA
The proposed U.K. system seeks to balance the above competing interests and strike a chord with the interested parties. Relevantly, it is intended to afford prosecutors more flexibility while achieving better outcomes for victims, and it is designed to sit alongside existing means of tackling crime, criminal prosecution and civil proceedings.8
Most importantly, the principle of judicial independence and oversight will not be changed. Public interest demands that the judge is the final arbiter of such matters such as the appropriate sentence; this is a cornerstone of the U.K. legal system that cannot be abrogated.
Is a DPA warranted?
The prosecutor will have some discretion in considering whether a DPA should be offered and entered into. Following an investigation, the prosecutor should have regard to factors such as:
- The nature and seriousness of the offense.
- The level of premeditation and whether any attempt was made to hide the wrongdoing.
- How widespread within the commercial organization the wrongdoing was and the seniority and number of the perpetrators.
- Any losses to innocent third parties.
- The likely effect on the commercial organization of prosecution and its financial health.
- Any action being taken in relation to the wrongdoing in other jurisdictions.
- What action has been taken by the commercial organization and the level of commitment to resolving the issues, recovery and restitution of benefits and improving compliance.
- Previous convictions and previous DPAs.9
Forming the DPA
Subject to the parties' voluntarily agreeing to a DPA, the U.K. system contemplates the engagement of the judge at the point at which criminal offenses have been identified and possible charges drawn up. At that point, the corporation and prosecutor would have access to a judge.
In the formative stages of the DPA, the corporation and prosecutor would present to the judge (in private at a preliminary hearing10) essential information such as a statement of agreed facts,11 including a draft indictment, and a time period for the proposed DPA, generally one to three years. Other terms in a DPA would be tailored to the circumstances but would be expected to include:
- Potential financial penalties (including a time within which it is to be paid).
- Restitution for victims.
- Disgorgement of profits (to be paid within a specific period).
- Disclosure to the prosecutor of non-privileged information relevant to matter.
- Replacement of implicated individuals from management and/or withdrawal from markets in which the wrongdoing is admitted.
- Implementation of proper anti-corruption or anti-fraud policies, procedures or training with periodic independent monitoring.12
It is envisaged that the judge will be engaged early in the process and kept properly informed throughout. This enables the judge to direct the steps required so he or she can decide whether the case is suitable to be disposed of by a DPA. To this end, the judge need consider, above all else, whether a DPA would be in the interest of justice.13 At this juncture, it is envisaged the judge would be able to give an indication whether the emerging terms of the DPA are "fair, reasonable and proportionate."14
Subject to preliminary approval by the judge, the parties would then agree the terms of the DPA, which would be presented to the judge in an open court hearing together with the formal laying (but not prosecuting) of the charge or indictment.15 It will be for the judge — not the parties — to determine the final content of the DPA, again having regard to whether its approval would be in the interests of justice and whether the agreement and its constituent parts were fair, reasonable and proportionate.16
Amending or breaching the DPA
In the event of the need to renegotiate the original DPA, or where it has been breached, a similar approach to the above is to be adopted, again with the judge assuming a pivotal role.
Where new circumstances may warrant varying the DPA, those circumstances are presented to the judge, in open court, where he or she may approve the proposed variation in the DPA as suggested by the corporation and prosecutor.
Where there is an alleged breach of the DPA, it will not be for the prosecutor to determine whether a breach has occurred; that question must be put to the judge for determination using the criminal test (that is, beyond a reasonable doubt).17 Assuming proceedings in relation to breaching the DPA were brought, the judge would then determine the breach and then amend, extend or terminate the DPA, or impose additional sanctions if necessary. However, a breach of the DPA itself will not constitute a criminal offense.18
In some circumstances, it may become necessary to terminate the DPA and revive the substantive offense for prosecution. Relevantly, the statement of agreed facts originally presented to the judge would become admissible19; conversely, any compliance by the corporation in the period preceding the breach may be used in mitigation.20
Concluding the DPA
If at the end of the DPA its terms have been fulfilled by the corporation, the prosecutor would write to the court, inform it of such and offer no evidence in relation to the charges that have been adjourned.21
Has the balance been achieved?
The proposed U.K. DPA has only just been formally disclosed in the Ministry of Justice consultation paper and is very much in its infancy. Even so, it has been met with mixed response.
First, the fact that it will only apply to corporations and not individuals is viewed by some as being a revenue-generating exercise in that the corporations have the financial resources to buy themselves out of trouble. In response, the solicitor-general has rejected any such contention and said the fact that corporations cannot be imprisoned means that measured monetary penalties in DPAs serve as an additional deterrent. Furthermore, the Ministry of Justice also suggests that the difficulties prosecutors face in proving the means rea of a sophisticated modern corporation warrant special treatment.22
Secondly, in a climate of information-sharing in multinational investigations, especially in the EU, there remains the risk that a disclosure in one state may lead to adverse consequences in two or more states where the corporation operates. Viewed as a negative by some, potential multinational investigations and information-sharing are viewed as a positive by the Ministry of Justice, given the sophistication and international nature of modern economic crime.23 However, information-sharing treaties may require further consideration and substantive legal principles; for example "double jeopardy" and lis pendens are likely to evolve further through judicial or legislative intervention.
All in all, the benefits of the proposed U.K. DPA seemingly outweigh the negatives in that the proposed system aims to:
- Provide a degree of certainty for prosecutors and business, with the latter avoiding the stigma of criminal conviction, as well as its collateral consequences.
- Reduce government investigation time and resources.
- Facilitate a faster process to resolution.
- Encourage constructive remediation including improved future practices.
- Serve as a public statement and guidance for other businesses.
- Afford corporations a more even playing field when operating in the U.S. or U.K. such that a transgression does not automatically lead to a corporate death sentence.
The proposed U.K. DPA should be viewed as a positive, and its ambition "to ensure a higher proportion of economic crime is identified, investigated and dealt with"24 is difficult to criticize. Though very much at an embryonic stage with any draft legislation not anticipated until this fall (at the earliest), it is hoped the delivered product will result in a system that provides greater transparency in penalties and sanctions, with greater judicial oversight early to ensure certainty and, importantly, fairness. This serves to displace any concerns as to the independence of the judiciary and will hopefully engender an improved culture of corporate cooperation with U.K. regulators, which is essential to developing a constructive DPA system.
The proposal is billed as potentially strengthening the U.K.'s position in enforcing the recently introduced Bribery Act 2010 and providing quicker outcomes for companies under investigation. In times of "austerity," the Serious Fraud Office, and others, cannot rely on their own limited resources to discover, investigate and prosecute such bribery and corruption matters. Accordingly, it is hoped the U.K. DPA will enable the SFO to become more proactive and effective like its U.S. counterparts, which will lead to an improved degree of regulatory comity for international commerce.
1 U.K. Ministry of Justice, Consultation on a new enforcement tool to deal with economic crime committed by commercial organisations: Deferred prosecution agreements, Reference No. Cm 8348, available at https://consult.justice.gov.uk/digital-communications/deferred-prosecution-agreements. Note, the consultation period began May 17, 2012, and closes Aug. 9, 2012.
2 For example, Bribery Act 2010, Money Laundering Regulations 2007 and Fraud Act 2006.
3 The Public Sector Directive (Directive 2004/18) and Utilities Procurement Directive (Directive 2004/17), as implemented by the Public Contracts Regulations 2006 (SI 2006/5) and the Utilities Contracts Regulations 2006 (SI 2006/6), include mandatory requirements for contracting authorities to exclude economic operators (suppliers, contractors and services providers) from public contracts where they have been convicted of certain offenses, including corruption, bribery and fraud.
4 The Criminal Justice Act 2003, s142(1) requires the judge to consider the following when sentencing: punishment, reduction of crime (including by deterrence), rehabilitation, public protection and restitution of victims.
5 SEC v. Citigroup Global Mkts., 2011 WL 5903733 (S.D.N.Y. 2011).
6 Note that over 30 years the Foreign Corrupt Practices Act has only produced two contested corporate cases.
7 See for example, R v. BAE Systems, in the Crown Court at Southwark, Case No.: S2010565, and R v. Underwood,  EWCA Crim 2256; and on civil recovery orders, in R v. Innospec Ltd. 2010 WL 3580845, the judge held that the SFO did not have the power to enter into plea arrangements such as the one in question and stated "no such arrangement should be made again."
8 See Consultation, supra note 1, at 3, paragraph 5.
9 Id. at 24, paragraph 94.
10 Id. at 26, paragraph 105.
11 Note that the organisation would undertaken not to contest the admissions made or facts agreed during any later proceedings: Id. at p23, paragraph 87.
12 Id. at 23, paragraph 88.
13 Id. at 26, paragraph 107.
14 Id. at 28, paragraph 108.
15 Id. at 29, paragraph 117.
16 Id. at 28, paragraph 112.
17 Id. at 33, paragraph 133.
18 Id. at 33, paragraph 135, and 36, paragraphs 152 & 154.
19 Id. at 34, paragraph 141.
20 Id. at 35, paragraph 143.
21 Id. at 30, paragraph 122.
22 Id. at 8, paragraph 26.
23 Id. at 9, paragraph 38.
24 Id. at 4, paragraph 8.
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