Today’s post is from Robert Amaee (Covington & Burling). Amaee is the United Kingdom Expert for FCPA Professor.
The UK Crime and Courts Bill, which contained the implementing legislation for Deferred Prosecution Agreements (“DPAs”), received Royal Assent on 25 April 2013. The legislation will enable the UK Serious Fraud Office and the Crown Prosecution Service (the “Prosecutors”) to enter into DPAs with organisations — most likely from early 2014 — to deal with a specified list of economic crimes, including bribery, fraud and money laundering.
The move by the UK government to introduce implementing legislation for DPAs reflected an acknowledgement expressed in the UK Ministry of Justice’s May 2012 consultation paper on DPAs that: (1) there was little incentive for companies to self-report due to uncertainty over where that process would lead and (2) the options available to the Prosecutors for tackling economic crime were unduly limited.
The Prosecutors will welcome the addition of DPAs to their armory and the likelihood of there being a greater number of global settlements in multi-jurisdictional cases involving economic crime. There are, however, a number of factors peculiar to the UK version of DPAs that organisation will need to examine before a decision is taken to self-report instances of suspected wrongdoing or to enter into DPA negotiations with the Prosecutor.
The newly-enacted legislation contemplates that – following the commencement of an investigation into suspected economic crime – the Prosecutor may decide to enter into DPA negotiations with an organisation. Once the Prosecutor and organisation have formulated an agreed statement of facts concerning the alleged offence, which may or may not include admissions, that statement will be presented in private to a Crown Court judge. Details of the alleged offending, a draft indictment, the agreed – or contemplated – conditions to be included in the DPA and a list of any issues that have not yet been resolved also will be provided to the judge at the preliminary hearing.
At the conclusion of the preliminary hearing, the judge will be asked by the Prosecutor to declare that resolving the matter by means of a DPA is in the interests of justice and that the proposed terms of the DPA are fair, reasonable and proportionate. The judge could decide that certain steps must be taken, or further lines of inquiry pursued, before he/she will consider issuing the declaration at the subsequent preliminary hearing or hearings.
Following the preliminary hearing(s), agreement of the terms of the proposed DPA between the Prosecutor and organisation and the resolution of any outstanding issues, the Prosecutor and organisation will return to the Crown Court for a final hearing in private. The purpose of that hearing is for the Prosecutor to seek the judge’s approval of the DPA and its terms. If the DPA is approved, the Prosecutor must publish details of the DPA and the declarations made and reasons provided by the judge at the preliminary and final hearings.
In the event of an alleged breach of the DPA by an organisation, the Prosecutor can make an application to the Crown Court. In such circumstances, if the judge finds – on the balance of probabilities – that the organisation has breached the DPA, he/she can either: (1) ask the Prosecutor and organisation to agree to a proposal for remedying the breach or (2) terminate the DPA. Once the DPA has expired – assuming that the organisation has complied with the terms of the DPA – the Prosecutor is unable to bring criminal proceedings against the organisation for the same offence(s) unless it can be shown that the organisation knew – or ought to have known – that it provided inaccurate, misleading or incomplete information to the Prosecutor.
It is expected that the Director of the SFO and the Director of Public Prosecutions shortly will issue a draft Code for Prosecutors that will contain further detail on the DPA process, including guidance on the principles to be applied by the Prosecutor when deciding whether a DPA is the appropriate means of resolving a particular case and the disclosure obligations of Prosecutors. In addition, the UK Sentencing Council is expected to produce guidance on corporate criminal fines, including for those offences eligible for resolution by means of a DPA.
A Work in Progress
While the UK approach toward DPAs builds upon the US system, there are a number of noteworthy factors unique to the UK system. One such factor is the significant role played by the judiciary. In contrast to the US, the UK DPA process mandates a notable degree of oversight and involvement by the judiciary from an early stage in negotiations through to the handling of any alleged breaches of a DPA.
The level of judicial involvement built into the UK system is intended to enshrine transparency in the DPA process and takes the ultimate outcome of a DPA negotiation out of the hands of the Prosecutor. An inevitable consequence of this judicial involvement is the introduction of additional uncertainty into the DPA process. It is not difficult to conceive of negotiations that have taken a number of months to reach the Crown Court being greatly protracted or even terminated by a judge who takes the view that what has been proposed is not fair, just or reasonable or that it is not in the interest of justice to pursue discussions. By that stage discussions may be at an advanced stage and the Prosecutor will have amassed case materials provided by the organisation in the course of the negotiations. While the Prosecutor, in most cases, will not be able to rely either on the fact that it conducted DPA negotiations with the organisation, or on any draft DPA in future criminal proceedings, he/she is entitled to rely on evidence obtained from investigations pursued as a result of anything said in any unsigned statement of facts or in the draft DPA. Any pre-existing material provided by the organisation during the DPA process also could become admissible in subsequent proceedings.
Another factor worthy of consideration is the nature of the admissions that may have to be made by an organisation to secure a DPA. In particular, it is unclear whether the Prosecutor is likely to need to insist — as a condition of agreeing to a DPA — on an admission of the involvement of a “controlling mind” of the organisation in the alleged wrongdoing or, in the appropriate case, the lack of adequacy of an organisation’s anti-bribery systems and controls.
In order to attribute criminal liability to an organisation for offences requiring mens rea, a UK prosecutor needs to prove that the offender was a directing mind and will of the organisation. This ‘identification principle’ requires that the acts and state of mind of those who represent the directing mind and will be imputed to the organisation. The UK courts have restricted the application of this principle to the actions of ‘controlling officers’ of the organisation, namely the Board of Directors, the Managing Director and senior officers who carry out functions of management and speak and act as the organisation. The Prosecutors have found this test to impose a high barrier to corporate prosecutions, meaning that many cases against organisations do not proceed as sufficient evidence cannot be amassed by the Prosecutor to implicate a controlling mind of that organisation.
It may be that the soon to be issued Code for Prosecutors will address this topics but, at this stage, a question mark remains over whether a Prosecutor can be satisfied with agreeing to a statement of facts or admissions that fall short of implicating a controlling mind of the organisation. If an organisation seeking to resolve matters by way of a DPA is required to provide documentation or make admissions in relation to the role of a particular senior officer and his or her involvement in any wrongdoing during the early DPA negotiations with the Prosecutor, the organisation could be left at a disadvantage in the event that there is a derailment of the negotiations and a subsequent prosecution of the organisation.
It remains to be seen whether concerns about the level of uncertainty inherent in the UK DPA process or about any admissions that may have to be made will be justified and sufficient to deter organisations from reporting instances of possible wrongdoing and seeking to enter into discussions with the Prosecutor. Experience with DPAs in the US would tend to suggest that, irrespective of the legal arguments that could be deployed, the prospect of a settlement may well prove attractive enough for many organisations to prompt them to explore the UK DPA process in the hope of avoiding a drawn-out and uncertain court battle and the associated business disruption and reputational damage.