Deferred Prosecution Agreements Now Available in the U.K., Guidance Issued for Prosecutors: Factors Companies Should Keep in Mind

The provisions of the U.K. Crime and Courts Act 2013 relating to deferred prosecution agreements (“DPAs”) entered into force on Feb. 24, 2014.

Under these provisions, DPAs are introduced as an enforcement tool in cases of certain economic crimes see analysis at WSLR, July 2013, page 24.

DPAs are agreements between prosecutors and corporate organisations that charges will be presented but not pursued, provided the organisation in question complies with a set of agreed terms and conditions. Those terms and conditions generally involve the payment of substantial fines and/or the implementation of remediation programmes.

Prosecutors will be able to offer DPAs to companies as an alternative to prosecuting them in respect of a specific list of economic crimes, including offences under the U.K. Bribery Act and money laundering offences under the Proceeds of Crime Act. DPAs will be available irrespective of when the offences occurred so long as criminal proceedings have not yet been initiated.

U.S. companies will be familiar with the concept of DPAs, since they are already used in the United States by the Department of Justice to deal mainly with corporate offenders. Whilst some of the effects of these U.S. DPAs are already felt here in Europe, due to their imposition on companies with a strong European presence, the introduction of DPAs into the English prosecutors’ armoury may be expected to have far deeper impact.

The Deferred Prosecution Agreements Code of Practice

On Feb. 14, 2014, the Director of the Serious Fraud Office (“SFO”) and the Director of Public Prosecutions published guidance for prosecutors on the use of DPAs in the English system in the form of the Deferred Prosecution Agreements Code of Practice (“DPA Code”).

Prosecutors must have regard to the DPA Code at all stages of the process: when the DPA is being negotiated; when it is presented to the court; and when it is monitored after court approval.

The DPA Code sets out:

• that it is for the prosecutor to make the approach to an organisation; the organisation may not initiate DPA discussions;

• the evidential stage at which the prosecutor may initiate DPA discussions and the public interest test to be applied by the prosecutor when considering whether entry into a DPA is appropriate in all the circumstances;

• the factors the prosecutor may take into account when deciding whether or not to enter into a DPA;

• the process for the invitation to enter into negotiations;

• the subsequent permitted use by the prosecutor of information supplied during the DPA negotiation period;

• the disclosure obligations that the prosecutor must satisfy;

• the requirements of the statement of facts to be agreed between the prosecutor and the organisation;

• guidance on the terms to be included in a DPA; how the parties may assist the court in determining any financial penalty to be imposed;

• the normal court procedure that should be followed when making an application for judicial approval of a proposed DPA, and the declaration to be made in open court following the approval (although Section 15 of the guidance relates to making applications in private); and

• the process to be adopted:

• should the prosecutor allege that a DPA has been breached;

• should either party require a variation to a concluded DPA; and

• upon expiry of a DPA.

The advent of DPAs will be broadly welcomed by the business community, but their application in the U.K. will not be without its controversies.

This article considers some of the issues likely to arise as DPAs find their feet in the U.K.

Public Interest versus Economic Interest

It is notable that the DPA Code states that:

A prosecution will usually take place unless there are public interest factors against prosecution which clearly outweigh those tending in favour of prosecution.¹

So what are these public interest factors? In the press release accompanying the publication of the guidance, the Director of the SFO, David Green CB QC, stated:

At present, when a company is convicted of a criminal offence, a court can impose a fine or put it out of business by winding it up. Both these outcomes can cause collateral damage to employees and shareholders who may be blameless. Deferred Prosecution Agreements avoid that collateral damage.

So would public interest include the economic interests of the company’s shareholders and employees? It would appear so.

However, the DPA Code also makes it plain that prosecutors must have regard to the U.K.’s commitment to abide by the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Article 5 of which states that prosecution of the bribery of a foreign public official should not be influenced by considerations of national economic interest.²

What is currently unclear is the line between national economic interest (which must not influence the decision) and the interests of shareholders and employees (which positively should be an influence), particularly when the company involved is, for example, listed on the FTSE 100.

The DPA Code also states that “the risk of harm to the public, to unidentified victims, shareholders, employees and creditors and to the stability and integrity of financial markets and international trade”³ are indicators of seriousness which mitigate in favour of prosecution. The question, therefore, is whether such factors, which arguably touch on national economic interests, are to be considered in cases of private commercial bribery but not in cases of bribery of a foreign public official.

Total Immunity

The judgment following the plea negotiated by the SFO and BAE Systems is an indication that courts are unlikely to endorse a term in a DPA which gives a corporate defendant effective immunity from all wrongdoing before a certain date or in a certain country. In that case, the judge said that he was “surprised to find a prosecution granting blanket indemnity for all offences committed in the past, whether disclosed or otherwise.”

Thus, it should be assumed that the terms of the DPA will normally relate only to the offences particularised in the counts of the draft indictment. For that reason, the company will want to ensure that any indictment document tied to a DPA contains the broadest possible language in order to reduce the risk that certain offending conduct disclosed in the course of the DPA negotiations is later deemed to fall outside the ultimate DPA. If other offences not covered by the DPA were committed, the company could be prosecuted, as this conduct would be outside the scope of the DPA.

With respect to Bribery Act offences, where the company discovers a long history of multiple and widespread offences, certainty that the DPA will be an effective agreement to avoid future prosecution is most likely to be obtained if the prosecutors agree that the most appropriate charges include a conspiracy to pay bribes.

Conspiracy may also be an appropriate charge in respect of other offences in the fixed list of economic crimes for which DPAs may be available.

DPAs and the Conduct of Internal Investigations

Where a company becomes aware of potential wrongdoing which it intends to investigate, the issue of DPAs needs to be considered from the very start.

A bad internal investigation can potentially be more damaging to the company than no internal investigation being done at all. The DPA Code states:

the prosecutor will critically assess the manner of any internal investigation to determine whether its conduct could have led to material being destroyed or the gathering of first accounts from suspects being delayed to the extent that the opportunity for fabrication has been afforded. Internal investigations which lead to such adverse consequences may militate against the use of DPAs.⁴

So, “do your investigation properly or don’t do it at all” would seem to be the message.

Another key consideration from the beginning of any investigation is its scope. Companies should consider carefully the scope of any internal investigation before work begins.

On the one hand, an internal investigation which goes far beyond the scope of the allegations or information which triggered it may lead the company into difficulties if further and unanticipated wrongdoing is uncovered. Cooperation with the prosecutor is a prerequisite for a DPA, and such cooperation means providing a report in respect of any internal investigations. A company may, therefore, find that it becomes required in the DPA process to report to the prosecutor additional offending which the prosecutor was neither aware of nor seeking to investigate.

On the other hand, the DPA Code⁵ states that incomplete reporting of the wrongdoing is a factor in favour of prosecuting. An internal investigation with an overly narrow scope may, therefore, present two problems: First, if it is discovered by the prosecutor during negotiations that the internal investigation’s scope was incomplete or inadequate, there may be a decision to prosecute the company instead; second, if the inadequacy is discovered after the DPA is entered into, such a DPA will be of little value to a company.

Companies should think long and hard about the scope and procedure for such investigations and keep their decisions under review throughout the life of the investigation.

Waiver of Privilege

The DPA Code states that a necessary element of DPA negotiations will be the company providing reports in respect of any internal investigations. An internal investigation report is frequently a privileged document, and there are repeated assertions in the DPA Code that neither the act introducing DPAs, nor the DPA Code, alters the law of legal professional privilege. It therefore appears that the cooperation necessary to obtain a DPA may require the company either waiving privilege over its internal investigation reports and handing them to the prosecutors or producing a separate report for the prosecutors. Stated differently, the need to cooperate and disclose fully in reports provided to prosecutors may create a tension with respect to protecting privileged communications or observations by counsel in many cases. This may provide a contrast to the Office of Fair Trading and its guidance on approaches for leniency, which clearly states that no waiver of legal privilege is required.

Waiving privilege is an uncomfortable position for a company to be in when, should the DPA negotiations fail, such reports and any other legally privileged material with respect to which the company has waived privilege and provided to prosecutors (such as witness statements prepared by the company’s lawyers) may be used against it in subsequent prosecutions.

DPAs Where Prosecution Is Not an Option

It remains a concern that, under the DPA Code, the prosecutor need have only “a reasonable suspicion based upon some admissible evidence that [the company] has committed the offence, and there are reasonable grounds for believing that a continued investigation would provide further admissible evidence within a reasonable period”⁶ before approaching a company to initiate discussions on a DPA.

Whilst the prosecutor can be expected to be careful not to overstate its case in these negotiations, the company may not be any further along, at the negotiation stage, in getting to the bottom of what has happened than the prosecutor, who does not have sufficient evidence to prosecute. A company may feel pressure to negotiate a DPA without being clear about whether and what it has done wrong, rather than miss the opportunity to secure a DPA.

A concern sometimes expressed by some U.S. lawyers is that their clients are pressured to enter into DPAs in circumstances where it is far from clear that the prosecutors would ever be able to get a conviction. It remains to be seen whether this becomes a complaint voiced by U.K. lawyers too.

The Statement of Facts

There is no requirement that the organisation make any formal admission of guilt, but there must be an agreed statement of facts. In the event that the defendant company is later prosecuted (because the DPA is not approved by the court or is later terminated), the prosecutor will be able, subject to the normal rules of evidence, to rely on that statement in that prosecution, and in any prosecution against individuals.

This factor needs to be taken into consideration when negotiating with the prosecutor. A company may be tempted to agree to the facts as framed by the prosecutor to move the process forward and secure a DPA, even where it does not consider all points are correct and it believes that there are other explanations for the evidence relied on. This may be the case particularly if the company is entering into a DPA not because it is convinced of its own guilt but because it is not willing to bet the company by taking the matter to trial.

Such companies may live to regret factual concessions made for the purposes of agreeing to a DPA, since in any subsequent prosecution they may need to convince the court that the agreement does not represent the true facts. Such arguments may create uncomfortable credibility questions for companies.

Outlook

The above are just a few of the points for consideration as we enter a new age of DPAs in the United Kingdom.

It will be some time before the first U.K. DPAs see the light of day in the U.K. courts. Until then, we will be watching announcements by the SFO carefully for indications of how such issues and tensions are likely to be resolved.

Elizabeth Robertson is a Partner, Laura Atherton is a Senior Associate and Sasi-Kanth Mallela is Special Counsel at K&L Gates LLP, London. They may be contacted at elizabeth.robertson@klgates.com, laura.atherton@klgates.com and sasi-kanth.mallela@klgates.com.