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Jeremy Summers on Deferred Prosecution Agreements

US-style deferred prosecution agreements (DPAs) are due to be introduced into the UK in April 2014.

A draft Code of Practice now issued by the Serious Fraud Office provides detailed insight into how UK DPAs will work in practice. The key question that still remains however is whether DPAs will encourage corporates to self-report to the SFO, and thus whether the system will work. The SFO has opened a consultation on the Code which closes on 20 September 2013.

Proposals issued on 27 June 2013 by the Serious Fraud Office and the CPS, currently undergoing consultation, will change the options available to prosecutors when investigating organisations which are alleged to have committed a criminal offence.

Rather than commencing immediate proceedings the prosecutor will be able to offer the organisation the opportunity to enter into negotiations to achieve a tailor-made agreement in the form of a DPA comprising for example, financial penalties, compensation to victims and donations to charity. These terms must be “fair, reasonable and proportionate” in order to be accepted by the court as a legitimate DPA.  If the DPA is fully adhered to over the specified time period, the company will then avoid full prosecution.

It has been made clear, however, that prosecution remains the norm, and that the DPA will only be offered where, on an analysis of the specific case, it is considered more appropriate. This decision will be made on the application of the two-stage test, made up of an evidential stage and a public interest stage, as required by the Code for Crown Prosecutors.

The second of these tests is of particular interest to the business community, and the proposed Code of Practice will set out a list of factors likely to impact on the decision making process. These factors are principally those which are to be expected – prosecution is more likely where:

• there have been repeated breaches of the law;
• the organisation has failed to self-report within an appropriate time;
• there has been an ineffective compliance strategy in place; and
• the alleged crime has caused severe harm, both to the victim and the reputation of the UK.

There are several issues which will doubtless be debated over the coming months, such as the admissibility of evidence gathered in the process of a DPA to be then used in subsequent prosecution in the event that the DPA fails or is not approved by the court.

However, it is the issue of self-reporting which has sparked our attention, and which could have a significant effect on the individuals involved in allegations of white-collar crime.  Individuals it must be noted are not able to apply for a DPA under the current proposals.

It is made quite clear in the proposed Code that an organisation’s hasty and comprehensive co-operation with investigations will factor into the prosecutor’s decision making process. This includes, but is not limited to, the disclosure of relevant individuals who may then be subject to separate criminal prosecution for their personal liability. This should be of concern when looked at with the bigger picture of the Code’s framework with regard to the use of evidence in subsequent proceedings and the very limited obligations of disclosure imposed on the prosecutor. Furthermore, despite the assurance that there is no need for a formal admission of guilt by the organisation, it is obliged to admit certain facts and the meaning of documents which are then admissible in proceedings against them.

Business may therefore have to sacrifice senior personnel in order to avoid prosecution through securing a DPA. If individuals have acted in a way that might be termed “rogue,” that might be a palatable position. However, where the position is less clear, companies may be disinclined to self-report and run the gauntlet of not being found out.

There has long been concern that the authorities need to be able to demonstrate a stick to ensure that the carrot of a DPA is sufficiently attractive. DPA’s will be an important prosecution tool, but to be fully effective they may need to be complemented with regular and successful corporate prosecutions.

For further information, contact Jeremy Summers or Shula De Jersey in London or Craig McAdam in Manchester.

By Fraud Solicitor Jeremy Summers.