Deferred prosecution agreements unlikely to be used if issues are deep rooted, says solicitor general

by Compliance Complete
Thursday, 27 June 2013 11:32 GMT

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

By Martin Coyle

Deferred prosecution agreements are less likely to be used against UK corporates if the offence is deep rooted at the higher echelons of a company, the solicitor general Oliver Heald QC MP has revealed. Heald added that in instances of corporate fraud involving senior executives, traditional prosecution methods would undoubtedly be used.

The UK is set to follow the U.S. approach to tackling serious corporate wrongdoing by introducing the agreements into law next year. Under the legislation companies will be able to settle allegations by paying fines or undertaking restitution or compliance measures. The approach is designed to encourage companies to come forward with problems earlier thus saving prosecution, investigation, and legal costs.

Heald said companies that had been used as vehicles for fraud by senior managers were unlikely to be covered by plea agreements. The agreements were more likely to be used for companies that have new senior managers who discover problems and approach prosecutors with the criminality.

"The higher up the company the individual wrongdoing goes, the less likely there is to be a deferred prosecution agreement," Heald said.

Heald, who was speaking prior to today's release of the draft code on DPAs for prosecutors, said that the impetus for the change in law came from UK prosecutors who were concerned that they did not have the tools to tackle economic crime. U.S. prosecutors have had similar powers since the 1990s and have used them to great effect, recouping billions of dollars in fines and disgorgement.

This draft guidance, which will be open to consultation, is expected to push the idea that the public interest in prosecuting corporate cases by DPAs would diminish if there had been previous wrongdoing at a firm. The public interest assessment will swing in favour of a prosecution agreement if a corporate has been "proactive" in settling a case, it is understood.

Heald, who was talking at a C5 conference on anti-corruption yesterday, revealed that the DPA process would have four stages. A prosecutor would first need to be made aware of the need for an agreement. The company could do this through a self-referral, he said. This would lead to a dialogue between the prosecutor and the company about an agreement.

The second stage would see the prosecutor "invite" the company to enter into a DPA negotiation. A formal letter of invitation setting out the broad terms of the wrongdoing would then be produced. In the third stage a DPA could be agreed, taking account of the prosecutorial guidance. The fourth stage would see agreements reach court with the first hearing held in private.

Judges will have the power to scrutinise the agreements and will be able to provide input into the settlement. It is thought that this stage has been added to counteract judicial criticisms that the Serious Fraud Office faced when it tried to broker its own civil settlements, most notably in the Innospec corruption case. The judge in that case was concerned that the prosecutor believed there was a lack of transparency and took issue with the SFO approaching the courts with "done deals". DPAs will put these settlements on a formal basis. Heald said that the role of the courts in the process was essential.

"It gives public an assurance that the judge is able to be part of the process," he said.

DPAs with discretion

Heald was keen point out that DPAs would not be used in every instance of corporate fraud or corruption. "It is important to give confidence to the public and the City that prosecutions will still occur where appropriate," he said.

He noted that DPAs would work alongside other prosecutorial tools and would be another weapon in the enforcement arsenal. He stressed that they would help the UK to reach global settlements in cases more easily. The UK had been too slow in the past to reach worldwide agreements, he said.

Ali Sallaway, a partner at Freshfields Bruckhaus Deringer, agreed that DPAs would be an important tool, but said she was less certain that they would encourage companies to self-report issues. "I'm not sure DPAs are the key," she said.

She said that companies would have to be in a "really bad place" to offer to settle a case due to the "incredibly onerous" nature of the legislation.

Robert Amaee, a partner at Covington & Burling and former head of anti-corruption at the SFO, said the release of the guidance was an important step. "The final code will have an integral role to play in the proper functioning of the DPA process, setting out the principles that prosecutors must take into account when deciding whether to enter into DPA discussions as well as other important matters such as their disclosure obligations in the course of any negotiations," he said.

Kevin Davis, SFO chief investigator, told delegates at the conference earlier in the week that DPAs would not be an easy option for companies. "They are not a cosy deal behind closed doors ... and are not being introduced as cut-price justice. Organisations have no right to be invited to the negotiation table," he said.

DPAs are being introduced under the Crime and Courts Act 2013, which received royal assent in April this year. They will take effect in February next year. At present only the SFO and the Crown Prosecution Service would be able to use them. The solicitor general was asked whether the Financial Conduct Authority might be granted the powers, but declined to elaborate.