28 Feb 2014

Deferred Prosecutions: A price worth paying?

Deferred Prosecutions are now available for organisations which co-operate with the Serious Fraud Office. What will be the impact on organisations, asks Jonathan Pickworth and Caroline Black of Dechert?

Anibal Trejo Anibal Trejo

From 24 February 2014 Deferred Prosecution Agreements (“DPA”s) became available to the UK Serious Fraud Office (“SFO”) as a way to deal with corporate criminal cases relating to fraud, corruption and money laundering, without the need for a finding of guilt. It is the Director of the SFO who will decide whether to offer a DPA to an organisation and it is clear that only those which act quickly to appropriately deal with allegations of wrongdoing are likely to receive an invitation.  But what price will organisations have to pay in order to be offered a DPA, and will they be worth it?

Voluntary agreements

DPAs are voluntary agreements between prosecutors and organisations under which no prosecution will be pursued, subject to successful compliance with certain conditions such as the payment of penalties, co-operation with investigators and implementing remediation and compliance measures.The SFO has made it clear that its “preferred option” will be to prosecute, and emphasised that organisations will have a high bar to reach to be offered a DPA stating that there will need to be “unequivocal cooperation from the corporate. ”
 “Unequivocal cooperation”

The Deferred Prosecution Code of Practice (“DPA Code”)  describes self reporting in its purest form.  Factors in favour of a DPA include:

• A genuinely proactive approach by management to deal with offending and the existence of a proactive corporate compliance program;
• Self reporting otherwise unknown offending;
• Providing a report of any internal investigation, including witness accounts and source documents;
• Making witnesses available for interview;
• Remedial actions, such as completely changing the organisation’s management and the compensation of victims;
Failures during the self report will weigh against a DPA, including a failure to:
• Make a timely report and/or properly engage with the prosecutor (regarding work plans, timetabling and assisting with the prosecution of individuals);
• Verify reported wrongdoing;
• Make a full and frank report;
• Conduct the internal investigation within a reasonable period, leading to the destruction or fabrication of evidence.
The DPA Code states that there is no change to the law on legal professional privilege; however the requirement for “unequivocal cooperation” seems to go behind privilege in some instances.  How companies and their advisors decide to approach this tricky issue  remains to be seen. 

Almost everything disclosed to a prosecutor before the conclusion of the DPA can be used in criminal proceedings against the organisation.  In a landscape of money laundering notifications and whistle blower reports, organisations should be mindful that without a timely, full and frank investigation and self report, a DPA will be off the table. 
The Judiciary

It is envisaged that there will be a high degree of oversight of the DPA process by the judiciary, and ultimate transparency by way of publication on the internet of the terms of the agreement.   There is some trepidation as historically the British courts have not been in favour of plea bargains or agreed sentences (per LJ Thomas in Innospec).  The parties must therefore clearly establish that it is “in the interests of justice” and “fair, reasonable and proportionate” to enter a DPA.  It is notable that all DPA’s will contain a term  making those signing the DPA criminally liable for any information which is inaccurate, misleading or incomplete.

The DPA Code and new Sentencing Council Guidelines state that penalties under a DPA should be “broadly comparable” to a fine following an early guilty plea , but there is to be a “broad discretion” available to the court.  It is hoped that the judiciary will use the DPA system to encourage ethical business conduct by exercising its discretion in favour of those who undertake (at their own cost) a full investigation and self report rather than wait to be prosecuted.

Is it a price worth paying?

Organisations often suffer huge collateral damage during the course of a criminal investigation and prosecution.  If done properly, upon specialist criminal advice, a self report leading to disposal by way of a DPA will remove the unnecessary harm to the organisation, while also ensuring that justice is done in a transparent way.  This is a vital step forward for the UK and one which should be welcomed by prosecutors and businesses alike.

Jonathan Pickworth is a partner at Dechert and Caroline Black is a senior associate. 

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