On 27 June 2013, the Director of the Serious Fraud Office and the Director of Public Prosecutions (“the Directors”) published a draft Code of Practice (“the draft Code”) setting out their proposed approach to the use of Deferred Prosecution Agreements (“DPAs”) and inviting comments from interested people and organisations on the document. DPAs were legalised by virtue of the Crime and Courts Act 2013 (“the Act”) which came into force on 25 April 2013, but will not be available to prosecutors until at least February 2014.
DPAs have been in existence in the US for many years and used to great effect by prosecutors there. Under a DPA, a company that has engaged in unlawful conduct can avoid prosecution by agreeing to and complying with certain conditions which may include, amongst other things, an admission of guilt, payment of compensation to a victim and/or a financial penalty, thus leading to a situation of mutual benefit whereby the company escapes a public trial and possible conviction while the government avoids the expense of prosecution. In England and Wales, DPAs will not be available to individuals, only to organisations (in the US they are available to both), and apply only to economic crimes such as fraud and bribery.
The Consultation will be open until 20 September 2013 so that the Directors can obtain views on eight broad areas covered by the draft Code including the circumstances when a prosecutor should consider a DPA, the criteria to apply when making this decision, and the disclosure approach envisaged.
At the same time the Sentencing Council has issued, for consultation, draft guidelines on sentencing upon conviction for economic crimes including bribery. The draft Sentencing Guidelines contain recommendations on assessing civil penalties for corporates found guilty of economic crime and will assist in establishing the level of any corporate fine for the purpose of agreeing a DPA. Our Guidance Note on the draft Sentencing Guidelines is available here.
This Guidance Note will consider the scope of the draft Code. Please note that reference below to the Serious Fraud Office (“the SFO”) should be taken to include both prosecuting bodies to whom DPAs will be available (the SFO and the Crown Prosecution Service).
There has been widespread speculation about both the impact of DPAs and the content of the draft Code. The main debate surrounds the question: will DPAs provide any greater incentive for companies to self-report? Many believe companies will be discouraged from taking a leap of faith to engage in the process because of (i) the absence, since the revised SFO approach to prosecution in October 2012, of any guarantees that self-reporting would result in the avoidance of a criminal prosecution and/or a major reduction in any financial penalty, and (ii) the obligatory judicial oversight of the process provided for in the Act that also creates some uncertainty. It had been hoped that one outcome of the Code of Practice would be greater certainty as to when DPAs would be used so that companies would be encouraged to self-report.
A number of other areas where there has been debate and where there have been calls for clarification on the use of DPAs include the following:
whether there will be any guidance on the issue of concurrent jurisdiction;
confidentiality of discussions with the prosecutors;
the issue of compensation to victims versus financial penalties;
subsequent use of disclosed materials in future prosecutions;
whether there will be a guaranteed discount on financial penalties for self-reporting and cooperation;
whether the company will be expected to admit guilt in its statement of facts; and
the use of external monitors.
The draft Code provides guidance in relation to some of these matters but uncertainty remains in several key areas.
The draft Code asks for public input on eight areas. We consider those broad subject areas below:
The test for whether a DPA is a possible disposal of alleged criminal conduct
Mirroring the SFO’s statement of its policy on prosecutions in October 2012, in order to determine whether a DPA is appropriate the prosecutor must be satisfied that the case meets the following tests:
evidential: there is enough evidence or a reasonable suspicion that the commercial organisation has committed an offence;
public interest: the public interest would be served by entering into a DPA rather than a prosecution.
If a DPA is appropriate then the SFO will likely issue an indictment which will be suspended pending the satisfactory performance of the DPA (subject to the terms being agreed and approved by the court). If a DPA is not appropriate because neither limb of the test can be satisfied then the prosecutor might consider a Civil Recovery Order or, of course, drop the matter altogether.
Factors that the prosecutor may take into account when deciding whether to enter into a DPA
The wording of the draft Code highlights that the decision to enter a DPA (as opposed to proceeding with a full prosecution) is entirely a matter of the prosecutor’s discretion. The draft Code explains that even an invitation to enter DPA discussions is no guarantee that a DPA will be offered at the conclusion of those discussions.
When considering whether a DPA is appropriate the prosecutor will also consider the following Codes of Practice and Guidance:
The Code for Crown Prosecutors;
The Joint Prosecution Guidance on Corporate Prosecutions;
Bribery Act 2010: Joint Prosecution Guidance;
The DPA Code.
Public interest factors
If the evidential test is satisfied, it is proposed that the prosecutor would then need to decide whether a prosecution rather than a DPA is in the public interest. The draft 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”. The reality is that the draft Code provides no substantive further guidance to corporates (or their advisors) over and above the Joint Guidance relating to the Bribery Act and Corporate Prosecutions as to whether a prosecution is more likely than not. What can be said is that the more serious the offence the more likely a prosecution will be deemed in the public interest: indicators of seriousness include not just the value of any bribe or gain or loss, but also the risk of harm to the public and unidentified victims and to the stability and integrity of financial markets and international trade. Further, factors weighing in favour of prosecution are as follows:
- a history of similar conduct and/or the company had been subject to previous warnings or sanctions and failed to take adequate steps to prevent further unlawful conduct;
- the conduct is part of established business practices of the company;
- the offence was committed when the company had no effective corporate compliance programme in place;
- the company had previously been subject to warning(s), sanctions or criminal charges and nonetheless failed to take adequate preventative measures;
- failure to report wrongdoing within a reasonable time of the offending coming to light. (It is notable that the draft Code says in terms that the prosecutor will also need to consider whether it is appropriate to charge the company officers responsible for failures or breaches in this regard);
- failure to report properly and fully the true extent of the wrongdoing;
- any adverse impact on the economic reputation of England & Wales; and
- severe economic harm to victims of the wrongdoing.
Public interests factors weighing against prosecution of a corporate include the following:
- a "genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims" – this will involve the prosecution being satisfied that the company has provided the necessary information about its business to show it is being cooperative, including making witnesses available and the disclosure of the details of any internal investigation;
- a lack of previous misconduct;
- the existence of a genuinely proactive and effective corporate compliance programme;
- the offending is not recent and the company in its current form is effectively different to that which committed the offences – for example, it has been taken over by another company;
- the offending is an isolated incident, for example, wrongdoing committed by a rogue director; and
- a conviction is likely to have unduly adverse consequences for the company under the law of another jurisdiction including European Law.
The draft Code indicates a focus on the victims of the wrongdoing. It remains to be seen how and to what extent the prosecutors will assess the impact of the wrongdoing on the victim and how that assessment may influence the decision to enter a DPA. The overall sentiment of the draft Code as this point suggests is that a company is likely to be expected to show some willing to compensate the victim(s), if feasible and appropriate, in order to obtain the benefit of a DPA. In the context of corruption of government officials, where the state is the victim, there are obvious difficulties such as how to repatriate any compensation. These sorts of foreseeable problems are not addressed in the draft Code, and perhaps that is because each case will be different and require unique solutions if compensation is really intended to be provided to the victim state, and more importantly, its people.
Genuinely proactive approach
The draft Code separately considers (at paragraph 12) the issue of a “genuinely proactive approach” in the context of deciding against prosecution. Clearly, that is going to be a critical factor as to whether a DPA is appropriate. The draft Code focusses on the importance of self-reporting and doing so in the right way.
One can take away the following points from the draft Code in relation to self-reporting:
any company self-reporting will need to be full and frank. A company self-reporting must ensure when providing material to the prosecutor that it does not withhold information that would jeopardise an effective investigation. Particular focus here is placed on the prosecution of individuals and it is recognised by the draft Code that any self-report is likely to incriminate individuals. Reading between the lines, the draft Code is indicating that the SFO will be looking to target individuals for prosecution regardless of any deal struck with the corporate entity such as a DPA. So in effect, any corporate which self-reports and subsequently cooperates with any investigation must accept the possibility that it may be handing the heads of complicit directors and/or employees on a plate to the SFO. This focus on pursuing prosecutions against individuals mirrors the approach taken by US prosecutors in recent years. An approach which has seen tangible results. According to data published by the US Department of Justice (“the DoJ”) between January 2008 and May 2013, the DOJ charged over 80 individuals with violations of the Foreign Corrupt Practices Act, more than double the number prosecuted in the preceding 10 years. This effort was undoubtedly driven, in part, by political pressure (in response to public opinion) to hold individual executives responsible for the crimes of their companies. There was frustration within the DoJ that since the FCPA’s enactment in 1977, the punishment of companies with heavy fines had not succeeded in deterring corruption. The revised strategy of targeting individuals has therefore been rigorously pursued. One of the driving forces behind the effort in the US was Lanny Breuer, the Assistant Attorney General for the DoJ’s Criminal Division, who commented in 2012 that his team’s single most important achievement during his tenure was that “corporate executives now actually believe – for good reason – that if they participate in a scheme to improperly influence a foreign official, they face the very real prospect of going to prison”. No doubt prosecutors in England and Wales will be hoping to instil the same fear in the business community operating on this side of the Atlantic.
The prosecutor will take into account how early a company self-reports, the extent a company involves a prosecutor in the early stages of an investigation and how well it takes direction from the prosecutor in relation to that process. The obvious concern here for prosecutors is the danger of a subsequent investigation (particularly those relating to individuals) being prejudiced by the company’s initial investigations. The draft Code states that 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”. If the prosecutor finds errors in the conduct of the internal investigation which might prejudice any prosecution then that will likely lead to adverse inferences and weigh against the success of a DPA.
As discussed in our article “Deferred Prosecution Agreements for Companies: A New Era in Criminal Justice in the UK?”, in the US, prosecutors urge companies to make a voluntary self-disclosure as soon as they become aware of potential wrongdoing, and UK prosecutors will expect the same. However, most companies understandably feel more comfortable conducting at least some investigation before contacting the prosecutor so that at a minimum they have some idea that they are not mistakenly ‘blowing the whistle’ on themselves based on bad internal information.
One approach is for a company to provide prosecutors with a very general notice at the outset of its internal investigation stating that it is aware of possible unlawful conduct and will report back once it has investigated the matter further. In many cases in the US and the UK, prosecutors will not launch an independent investigation based on this notice, since the company’s notice could be a ‘false alarm’ and the risk of wasting valuable resources without further information is too great. This reluctance on the part of the prosecutors to intervene at the very early stages makes it more difficult (but not impossible) for them to criticise a company for the manner in which their investigation was carried out.
A major benefit of the ’early notice‘ approach is that if a company does voluntarily disclose unlawful conduct later, it will most likely receive ‘cooperation credit’ for having kept the prosecutors appraised every step of the way.
A further benefit to this approach is that it prevents a whistleblower beating the company to the punch by reporting the alleged unlawful conduct directly to prosecutors. This is more of a risk in the US where there are financial incentives for whistleblowing and a whole legal industry has been created as a result. Whistleblowing from within the company or through a third party is likely to be very damaging to the company in the eyes of the prosecutors and should be expected to weigh heavily against the chances of obtaining a DPA. Therefore, while providing an ‘early notice’ to prosecutors carries some risk in the sense that the company is alerting the authorities to events which may otherwise never have come to their attention, often it is a prudent first step that will pay dividends when the time comes to negotiate that all important ‘cooperation credit’.
Subsequent use of information obtained by a prosecutor during the DPA negotiation period and unused material and disclosure
Confidentiality of negotiations concerning any DPA will be important to any company, and of concern will be how those discussions might be used against it in any prosecution. Safeguards are in place in the draft Code, but there are also some red flags of which companies should take note.
At the outset, the SFO will invite a company to enter into DPA negotiations by way of formal letter outlining the basis upon which negotiations will proceed. The letter will contain certain modalities including undertakings by the SFO in respect of:
A company will need to make undertakings of its own in relation to confidentiality and retention of documents.
It should be noted that it is proposed that every step of the negotiations is noted including meeting minutes (agreed and signed). Further, any documentation relevant to the matter must be retained by the company in case of any future prosecution.
The Act provides that a statement of facts in an approved DPA can be treated as an admission in any criminal proceedings against the company for the alleged offence (if say there was a breach of the DPA).
Furthermore, where a DPA is not agreed but negotiations have taken place, paragraph 13 of Schedule 17 of the Act imposes a restriction on the subsequent use of certain specified material defined in sub-section 6 (“the sub-section 6 material”). The sub-section 6 material is limited to:
any draft of the DPA;
any draft of a statement of facts intended to be included within the DPA;
any statement indicating that the company entered into such negotiations;
material that was created solely for the purpose of preparing the DPA or statement of facts. The sub-section 6 material can only be deployed against a company;
as part of a prosecution for an offence consisting of the provision of inaccurate, misleading or incomplete information, or (ii) as part of a prosecution for some other offence where in giving evidence the company made a statement inconsistent with that material.
It is worth noting that the Act appears to be silent on the use of sub-section 6 material (draft DPAs etc) in subsequent proceedings against individuals. This will clearly be a concern for individuals suspected of wrongdoing within a company and where the company has self-reported.
Further, the draft Code states that even if a DPA is concluded, and subsequently it is discovered that the company provided misleading or false information, then the SFO could instigate fresh proceedings against the company for the same alleged offence in accordance with paragraph 11 of Schedule 17 of the Act.
Importantly, on a point on which the Act is silent but the draft Code now clarifies, apart from the sub-section 6 material referred to above, there is no limitation on the use to which other information obtained by the prosecutor during DPA negotiations may be put afterwards, for example, during criminal proceedings against the company, its employees or any third parties. The draft Code provides examples of such materials:
Pre-existing contemporaneous key documentation such as contracts, accountancy records including payments of any kind, any records evidencing money transfers, relevant emails and other communications provided to the prosecutor;
any internal or independent investigation created by the company before the DPA negotiation period commenced;
any interview note of witness statement obtained from an employee prior to the DPA negotiation period commencing;
any documents obtained by the prosecutor from a third party;
any information obtained by the prosecutor as a result of enquiries made as a result of information provided by the company at any time.
There is a suggestion in the language of the draft Code that documents prepared in relation to an investigation after the DPA negotiation period has commenced may fall within the definition of sub-section 6 material (i.e. because the “material was created solely for the purpose of preparing the DPA or statements of facts”). That does therefore raise a question about the timing of any invitation to enter into DPA negotiations. The SFO is likely to want the corporate to conduct its own internal investigation, including conducting witness interviews under its supervisory hand before any nod to a DPA is given, so that such material can potentially be used in a subsequent prosecution if required. The SFO will expect the results of any investigation to be shared with it. Relying on legal privilege to protect disclosure of the contents of an investigation report may well be frowned upon by the SFO who may cite such a stance as falling short of a “genuinely proactive approach” worthy of a DPA. That, of course, will be very unattractive to a corporate because the material it provides may leave it with no real room for negotiation on the terms of a DPA. The comfort blanket of a DPA can be stripped away at any time. The SFO, however, would say that if the corporate wants to avail itself of a DPA and avoid prosecution it needs to proactively co-operate and be transparent. No doubt what the SFO hopes is that it will have the upper hand in negotiations, and will be able to dictate play in the way its US counterparts can.
The draft Code also states that during negotiations the prosecutor should ensure that the suspect is not misled as to the strength of the prosecution case. Therefore, the prosecutor should disclose materials in the interests of justice and fairness. For example, if the prosecutor has information that undermines the company’s factual conclusions based on its own investigations that material should not be withheld. The prosecutor should also give consideration to any reasonable and specific requests for disclosure; but that will be a “tit for tat” scenario – a company cannot ask for disclosure and yet be coy in relation to its own material. It is notable that the SFO only seeks input on this aspect of the draft Code and not the subsequent use of information obtained by a prosecutor during the DPA negotiation period.
Statement of facts and terms
A key part of any DPA is the statement of facts. It must give full particulars relating to each alleged offence as well as including details of any financial gain or loss with reference to key documents (which must be attached to the DPA). One must remember that the courts will need to approve the DPA although it will not be able to adjudicate as to whether the facts are accurate.
Importantly for companies, there will be no requirement for formal admissions of guilt in respect of the offences charged although it will be necessary for the company to admit the contents and meaning of key documents referred to in the statement of facts. One anticipates there will be pressure on the SFO to secure admissions of guilt to satisfy the public interest requirement, certainly where it has clear evidence of wrongdoing. The courts will certainly scrutinise this aspect of any deal.
The terms of a DPA must be “fair, reasonable and proportionate”. They will necessarily be case specific but one can assume there will always be a financial penalty, and no doubt the recovery of the prosecutor’s reasonable costs. The draft Code says in terms that it “is particularly desirable that measures should be included that achieve redress for victims such as payment of compensation”. The attitude towards victim compensation in the various prosecutorial guidance documents does suggest a desire on the part of the SFO to ensure there is a compensatory element to any deal. This is a principled approach, and if achieved, would mark a development in the use of DPAs that differs from that seen in the US to date.
The draft Code sets out a list of terms that it would expect to see in a DPA but seeks specific input on whether additional terms should be added to the general terms. The draft Code sets out a list of thirteen general terms some of which are set out below
the terms must set out clearly the measures with which the company must comply;
the company must provide a warranty that the information it provided to the prosecutor is accurate, not misleading or incomplete;
the company must record the offences contained in the draft indictment but it should be noted that the draft Code specifically says that prosecutors should not agree to a term that would prevent the company being prosecuted for conduct not included in the indictment even where the conduct has been disclosed during the DPA negotiations but not charged (a nod to the judicial criticism in the BAE Systems settlement where Lord Justice Thomas was surprised to find a blanket indemnity for all offences committed in the past);
financial terms including penalties commensurate with the sentencing guidelines and compensation payments; and
non-financial terms such a introduction of a robust compliance programme and/or a monitoring programme.
A significant portion of the draft Code is dedicated to the appointment and use of monitors. A monitor will usually be appointed in cases where a company cannot be trusted to implement the conditions of and maintain compliance with the DPA.
The draft Code states that “A monitor’s primary responsibility is to assess and monitor [the company’s] internal controls and advise of necessary compliance improvements that will reduce the risk of future recurrence of the conduct subject to the DPA. An important consideration for entering a DPA in the first place is whether [the company] has already a genuinely proactive and effective corporate compliance programme. The use of monitors should therefore be approached with care. The appointment of a monitor will depend upon the factual circumstances of each case.”
In the US there has been a gradual move away from the use of monitors towards corporate self-assessment. The perception there appears to be that companies and their internal advisors are becoming more sophisticated in undertaking comprehensive remediation measures before a DPA is finalised including revising their internal procedures and sacking culpable and/or incompetent staff and therefore can be relied on to ensure compliance with the DPA.
According to the draft Code, it is suggested that at a preliminary hearing the company must provide to the prosecutor and the courts details of three potential monitors and include relevant qualifications, specialist knowledge and experience, any associations the monitor has with the company and/or associated persons or person/companies that feature in the DPA, and an estimate of the costs of the monitorship. The company is asked to indicate its preferred choice. The company’s preferred choice is likely to be approved but the Court does have the power to veto the proposed appointment on the grounds of conflict or lack of experience.
The draft Code indicates that the monitor and terms of monitorship should be approved and agreed with a detailed work plan for the first year and outline plan for any subsequent period (including frequency of reporting to the prosecutor). It is unclear whether these outline terms need to be agreed with all three proposed monitors.
The terms of the DPA will also include the proposed length of appointment for the monitor. Provision should be made in the DPA that if the monitor is satisfied that the company’s policies are functioning properly such that there is no need for further monitoring, the monitor may inform the prosecutor who will, subject to being satisfied through discussion with the monitor, that the monitor’s views are reasonable, agree to the termination or suspension of the monitor’s appointment. Conversely the DPA should provide that, if the monitor and the prosecutor agree that the company has not by the end of the monitoring period successfully satisfied its obligations with respect to the monitor’s mandate, the term of the monitorship will be extended provided that no monitorship will be extended beyond the term of the DPA. Choice of monitor will be important for both the corporate and the SFO and the court is likely to scrutinise any possible conflict in such appointment.
It is hard to tell at the moment whether the possibility of monitorship and desire to ensure independent scrutiny of the company’s compliance procedures will weigh in favour of the use of monitors as part of DPAs in England and Wales or whether corporate self-assessment will be more common (as more recently seen in the US).
Whilst all monitoring agreements will be tailored to specific cases, terms which might be included in a monitoring agreement include the following:
a code of conduct;
an appropriate training and education programme;
internal procedures for reporting conduct issues which enable officers and employees to report issues in a safe and confidential manner;
processes for identifying key strategic risk areas;
reasonable safeguards to approve the appointment of representatives and payment of commissions;
a gifts and hospitality policy;
reasonable procedures for undertaking due diligence on potential projects, acquisitions, business partners, agents, representatives, distributors, sub-contractors and suppliers;
procurement procedures which minimise the opportunity of misconduct;
contract terms between the company and its business partners, subcontractors, distributors, and suppliers which include express contractual obligations and remedies in relation to misconduct;
internal management and audit processes which include reasonable controls against misconduct; and
policies and processes in all of its subsidiaries and operating businesses, and joint ventures in which it has management control, and that the company uses reasonable endeavours to ensure that the joint ventures in which it does not have management control, together with key subcontractors and representatives, are familiar with and are required to abide by its code of conduct to the extent possible.
The proposed use of monitors is one of the areas on which interested parties have specifically been asked to comment.
Any financial penalty must be in the public interest and be “broadly comparable to a fine that the court would have imposed upon [the company] … following a guilty plea”. Our Note is available here on the draft Sentencing Guidelines for economic crimes sets out in more detail the parameters of any fine and some of the factors that will increase or decrease the level, including the seriousness of the offence, the means of the organisation and that compensation, if appropriate, should be given priority over any fine. What is clear from the draft Sentencing Guidelines is that a fine for serious wrongdoing could be significant, potentially up to 400% of the gross profit obtained from the unlawful conduct.
The draft Code emphasises that the extent of the discretion available when considering the financial penalty is wide. Factors that can be considered include:
an early guilty plea (the current guidelines suggest this could result in a maximum one-third discount); and
a potential additional reduction where the company voluntarily assists in the investigation or prosecution of offending by others.
Preliminary and Final Hearings
The draft Code considers matters relating to the Preliminary and Final hearings but does not give any real guidance on the Court’s likely attitude towards approval of DPAs and nor can it be expected to at this stage.
Past experience in the UK in relation to civil settlements suggests that the Court will not be content for judicial approval to be seen as a simple ’rubber stamping‘ exercise. Judges are likely to want to hear direct from the parties as to why a DPA and any related agreements are in the “interests of justice” and “fair, reasonable and proportionate”.
The draft Code envisages that it will be at these hearings that ancillary issues such as concurrent jurisdiction and on-going and/or subsequent ancillary proceedings will be addressed.
Issues relating to concurrent jurisdiction sparked debate when the announcement was first made about the intention to introduce DPAs to England and Wales and they have continued to be the subject of concern amongst interested parties. The unease stems from the view that in order for DPAs to be a sufficiently attractive option for companies and therefore, an incentive to self-report, they need to provide a complete settlement package including immunity from prosecution in other jurisdictions or providing for a global settlement of issues. A large proportion of economic crime crosses borders and the possibility of concurrent jurisdiction arising is therefore entirely real. The question is whether it is realistic to expect DPAs to be an attractive resolution if the cloud of a potential prosecution overseas still looms. Particularly, as a self-report to the UK authorities in a case say involving, say, a US nexus, will highly likely mean the UK prosecutors will contact their US counterparts to discuss the very issue of concurrent jurisdiction pursuant to the Attorney-General’s domestic guidance for handling criminal cases affecting England and Wales and the US available here as well as the Directors’ Guidance on the handling of cases where the jurisdiction to prosecute is shared with prosecuting authorities overseas available here (we assume both would apply to corporates). Many had hoped that the draft Code would provide a better insight into how the new use of DPAs may impact the UK prosecutors’ approach to concurrent jurisdiction; it does not. All the draft Code says is that these issues should be addressed by prosecutors in discussions with the corporate and at the preliminary and final hearings. Concurrent jurisdiction will therefore remain a problem for all corporates when dealing with the SFO, especially with any cases that have a US angle, because US prosecutors are not bound by the double jeopardy rule (in the same way as the UK). It will certainly give corporates serious pause for thought when assessing the full potential impact of any self-report, particularly with the long arm of US FCPA jurisdiction extending ever further (see decision of Securities and Exchange Commission v. Straub which takes expansive view of FCPA reach through internet communications where data was hosted in the US say via a ‘cloud’ even where the communication started and ended outside the US).
Breach of DPAs and post-termination process
According to the draft Code, if there is a breach of a DPA then the SFO is likely to first ask the company to rectify the breach without having to make an application to court in respect of that breach seeking remedial action, termination or a variation of the DPA.
Where the breach is material or the parties cannot agree to a remedy or the court does not approve a proposed remedy, then the court may order that the DPA be terminated. The SFO is then likely to apply for the suspension of the indictment to be lifted. The company will not be entitled to reimbursement of any penalties that have been paid before that DPA’s termination.
Whilst the lifting of the suspension will reinstate the criminal proceedings, before re-commencing the criminal proceedings the SFO will need to apply the evidential and public interest test again to determine whether to prosecute. Clearly, a breach of the DPA would substantially increase the chances of a prosecution being deemed to be in the public interest.
Variation of DPAs
The draft Code sets out two instances when there may be a variation to a DPA which needs to be approved by the Court: (1) where there has been a breach and a solution has been agreed; and (2) where there has not been a breach, but in the absence of a variation, there will be. In the latter case, the court will only approve a variation where the circumstances could not and were not foreseen at the time the DPA was agreed.
The remaining sections of the draft Code cover discontinuance (on expiry of the DPA), applications in private and publishing decisions and postponement, which we do not consider in this note.
The draft Code answers some questions but leaves some open. In all likelihood the final Code, despite public input, is unlikely to provide any further certainty on the key question of when DPAs will be utilised and to what extent self-reporting will enhance the chances of a successful DPA. Each case will turn on its own facts and prosecutorial discretion based on the evidence and public interest tests. But what seems fairly certain is that if a company decides not to self-report and the SFO later discovers the wrongdoing through other sources, then a DPA is very unlikely.
What is also becoming clear is that once a company self-reports it cannot be lacklustre about the process. A half-hearted approach will not work. It must engage 100% with the SFO; being perceived to be holding information or material back will be very damaging. Companies who self-report must act as a willing bride or groom so to speak, rather than being seen to treat the process as a marriage of convenience, whatever the realities of the situation.
The company must also accept that by self-reporting it may well be throwing any complicit directors or employees to the wolves. It stands to reason that the SFO is likely to find it easier to swallow a DPA in respect of a corporate if it is able to punish individual wrongdoers; it will certainly have an easier job of explaining why a DPA is in the public interest. Experience in the US certainly indicates that personal prosecutions against individuals are likely to serve as more of a deterrent to the business community than corporate financial penalties, however large.
Whilst the Bribery Act and the emergence of DPAs provides prosecutors in the UK with powerful tools in their armoury to prosecute corruption, it still remains to be seen whether they have the financial resources to change the anti-bribery landscape and match the SFO Director’s very public aspirations. According to the Law Society Gazette, a recent freedom of information request by the Law Society revealed the SFO is presently formally investigating just two cases relating to the Bribery Act and apparently just three other matters concerning the Bribery Act are under development. The three prosecutions to date in relation to the Bribery Act concern individuals for relatively minor instances of corruption involving sums of £300 to £5000. No corporates have been prosecuted in relation to the legislation. The SFO is under pressure to deliver results and one anticipates it will strain every sinew to do so.
The window for providing comments on the draft Code closes on 20 September 2013. We would welcome thoughts or concerns raised by its contents which we would be happy to consider raising with the Directors as part of the consultation process.
 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013).