Today’s post is from Kathleen Harris (a London based partner at Arnold & Porter).  Prior to joining Arnold & Porter, Harris served (2008-2011) as Head of Fraud Business Group and Head of Policy at the U.K. Serious Fraud Office.  In the post, Harris discusses the U.K.’s push towards deferred prosecution agreements.  For more on this topic see this recent post (as well as prior posts mentioned therein).

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Will U.K. DPA’s Make A Difference?

Kathleen Harris

Deferred Prosecution Agreements (“DPAs”) and Non-Prosecution Agreements are used to great effect by the Department of Justice in the United States whereas they are not currently available as an enforcement tool in the UK. On 23 October 2012 the UK’s Ministry of Justice (MoJ) announced (here) that it will legislate to introduce DPAs in England and Wales. Clearly, the UK authorities wish to emulate the successful use of this enforcement tool across the Atlantic. However the model of DPA proposed for introduction in the UK is very different to the US prototype and there is a question mark as to whether they will prove to be as effective here as they are in the US..

Under the MoJ’s proposal , UK DPAs will only be available to organizations (commercial or otherwise) which are alleged to have committed economic crime, in particular fraud, bribery (specifically offences under the Bribery Act 2010), and money laundering. They will not be available to individuals at all, nor will they be available to organizations which are alleged to have been involved in non-economic crime. In the same way as the US, UK DPAs will entail a voluntary agreement with a prosecutor whereby, in return for complying with a range of conditions, the prosecutor will defer a criminal prosecution and if, at the end of the deferral period, the prosecutor is satisfied that the conditions have been fulfilled, there will be no prosecution.

However, the MoJ has consciously distanced itself from US DPAs on a number of key points, notably in relation to the level of judicial involvement and transparency.  The MoJ stated as follows.

“Although the US model has been in use for over 20 years, in its current form it would not be suitable for the constitutional arrangements and legal traditions in England and Wales … the Government remains of the view that the US model offers a good example of the effective use of a voluntary agreement approach, albeit in a very different legislative context. However, our proposals will ensure a greater level of judicial involvement and transparency throughout the DPA process in order to command public confidence.”

With regard to the level of judicial involvement, the MoJ states that “under our plans, the judiciary will play a vital independent role in this process to ensure that DPAs are properly scrutinised, transparent and in the interests of justice. They will be empowered to block them if they do not agree that they are an appropriate response to the organisation’s wrongdoing.”

With regard to the level of transparency, the MoJ states that “there will be public scrutiny of the process – the public will know what wrongdoing has taken place and the sanctions for it, including any penalty that has been paid. The final hearing will be held in open court and the final agreement will be published by the prosecutor.”

The arguments for greater judicial oversight of the DPA regime in the UK than is the case in the US have been well rehearsed but whilst it is open to judges to set aside the agreement reached between company and prosecutor and to alter its terms, there will be understandable reluctance on the part of corporates to embark upon a course of action with such an uncertain outcome. This uncertainty will deter self reporting and self investigation, both of which are required if UK prosecutors are to tackle economic crime as effectively as their US counterparts.

Greater transparency is to be welcomed. It is a valid criticism of the Civil Recovery Orders obtained by the Serious Fraud Office against corporates in recent years, that there is little or no information disclosed to allow the public to understand the offending conduct that gave rise to the criminal property made subject to the order. This undermines faith in the justice system. In the US a lack of transparency and an absence of checks on prosecutorial discretion has led to recent judicial criticism of the operation of the DPA regime. Transparency ensures that all those with an interest in the matter, and especially victims, can see that the outcome is just and fair

It may be that the guidance that has been promised by the MoJ to accompany the proposed UK legislation will help to clarify areas of uncertainty and allow corporates, practitioners, and the wider public to understand how the decision making process will work. In particular the guidance should encourage transparent settlements and ensure victims are compensated. However,  justice requires each case to be decided on its own facts and no guidance can anticipate all relevant factors. Accordingly, decisions will require the judicious application of prosecutorial discretion and in reality may lead to more challenges against the use of this discretion if sufficient safeguards are not in place to protect against potentially overzealous decision making to ensure large financial penalties. The wider the scope of such discretionary decision making the greater the uncertainty and the lesser the transparency.

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This prior post titled “It Ought to Stop” discusses various aspects of the FCPA conference business.  The Corporate Crime Reporter (here) picks up the issues as well and discusses how the press is largely being shut out from the FCPA conference later this week in Washington, D.C., including as to several panels in which public servant DOJ and SEC officials are speaking.