Deferred Prosecution Agreements – Does the UK legislation deal effectively with economic crime?

Aug 17, 2016

Until recently, Deferred Prosecution Agreements (“DPAs”) were solely a feature of the US criminal justice system and were initially developed in the 1900s for the purpose of handling juvenile offenders without stigmatising them as criminals for life.[1] Under the terms of such agreements the prosecution would be deferred and instead the juvenile would undertake a rehabilitation programme and following successful completion, the charges would be dropped.  The intention therefore behind the initial DPAs in the US, was to protect juveniles (seen as the most vulnerable in society) and to effectively give them a second chance.[2]

Since then, DPAs have been utilised in the US with increasing frequency and we are a far cry away from that position today. Since the 1990’s we have seen a move towards DPAs being entered into with major corporations and large financial institutions and this only intensified following the collapse of accounting firm Arthur Anderson in 2002. The rationale for this move was that DPAs could be used as a mechanism to punish corporates but eliminate the devastating effects that the prosecution and conviction of a corporate (albeit “corporates” in this sense are individuals who have a controlling mind of the company) can have on the company such as ‘the loss of jobs of innocent employees, and financial disaster for innocent shareholders.’[3]  However this has sparked increasing criticism and controversy in the US, not least because it is seen by many as a way in which large corporations (the least vulnerable of society), can buy their way out of justice and also because the penalties are not seen as sufficiently serious to deter serious financial crime.

Senator Elizabeth Warren summarises these concerns emphatically in her address to the Senate Banking Committee Hearing in March 2013 where she states:  “If you get caught with an ounce of cocaine, the chances are good you’re going to go to jail… if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night. I think that’s fundamentally wrong.”

Against this backdrop, pursuant to Schedule 17 of the Crime and Courts Act 2013 which received royal assent in February 2015, DPAs are now a feature of the UK legal system albeit with some key differences. Firstly the purpose of introducing DPAs to the UK legal system has solely been in an attempt to tackle corporate crime. This was perhaps spurred on by the reluctance of the judiciary to recognise private agreements reached between the parties in these cases.[4] Section  4 (1) of the CCA specifically sets out that such agreements cannot be entered into with individuals and section 5 sets out the types of offences for which DPAs apply – all of which concern financial crime.  There is also far greater judicial oversight and transparency than the US system, with UK judges being involved both in the initial stage of the agreement process and at the end when they must formally approve the DPA.  Publication of the terms of DPAs takes place as soon as final approval is granted by the Judge. When considering whether the DPA should be approved, the Judge must consider if the agreement is in the interests of justice and whether the terms are fair, reasonable and proportionate. 

With only two examples of instances where DPAs have been approved in the UK so far, we are yet to see how the law in this area will crystallise and whether the UK system will accomplish its objectives while eliminating some of the issues that caused criticism with the US system. In the meantime we currently have two quite different circumstances in which DPAs have been approved. In the first DPA with Standard bank, the allegations related to a failure to prevent bribery (by its subsidiary) contrary to section 7 of the Bribery Act but there was never any suggestion that Standard Bank were involved in bribery itself[5]. In the more recent case of SFO v XYZ however there was evidence that a number of the company’s employees and agents were involved in ‘the systematic offer and/ or payment of bribes to secure contracts in foreign jurisdictions.’[6] It was also a case in which the company had ‘limited financial means with which to fulfil the terms of the DPA.’[7] Therefore the financial order was considerably smaller to that paid by Standard Bank and part was in fact paid by its US parent company.

In the circumstances and give the greater level of culpability, many were surprised that the court still found that approving the DPA was in the interests of justice.  Although there is still a criminal investigation pending in relation to XYZ, to date no formal charges have been made against individuals. In his judgement Lord Justice Leveson explains his decision and states that this ‘provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.’[8]

If by providing sufficient incentives to corporates to co-operate and self-report, while at the same time ensuring that there are sufficient deterrents to discourage this type of offending we are able to effectively tackle economic crime, then clearly this is a step in the right direction. Whether this is achievable within the current legislative framework, only time will tell. It is however fair to say that our system still does not address those concerns echoed by Senator Elizabeth Warren and many others.

 

[1] “Peaks and troughs of English deferred prosecution agreement: the lesion learned from the DPA between the SFO and ICBC SB Plc.” Constantino Grasso.  Journal of Business Law 2016, 5, 388-408.

[2] “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption.” Corruption Watch, March 2016.

[3] ibid

[4] Supra note 1

[5] SFO v ICBC SB Plc [2015]

[6] SFO v XYZ Limited [2016] U20150856

[7] “SFO secures second DPA.” News releases 8 July 2016

[8] Supra note 6.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lisa.Mckinnon-Lower@byrneandpartners.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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About Lisa

Lisa is a criminal litigation lawyer with experience of dealing with white collar crime and corporate fraud matters. She has acted for clients in relation to charges brought by Serious Fraud Office (SFO), the Financial Services Authority (now the Financial Conduct Authority), Her Majesty’s Revenue and Customs (HMRC) and also has experience dealing with foreign prosecuting bodies such as the Department of Justice in the US as well as having been admitted to the Athens Bar to deal with Investigating Authorities in Greece. She has particular experience in defending clients charged with bribery and corruption, serious fraud, money laundering, tax evasion and confiscation. She also has experience in dealing with civil tax fraud, insolvency and regulatory proceedings.