The Ministry of Justice has taken a further step towards ratcheting up efforts to tackle white collar crime by publishing a consultation on deferred prosecution agreements.
The Ministry of Justice (MoJ) has taken a further step towards ratcheting up efforts to tackle white collar crime by publishing a consultation on deferred prosecution agreements (DPAs).
A DPA is an agreement between a prosecutor and a commercial organisation that the prosecutor will lay, but will not immediately proceed with, criminal charges pending successful compliance with agreed terms and conditions stated in the DPA. If, at the end of a specified period, the prosecutor is satisfied that the organisation has fulfilled its obligations, there will be no prosecution on the charges laid. If the organisation fails to meet its obligations, the original criminal proceedings may be revived.
According to Michael Roberts, a partner at Hogan Lovells: "The formal introduction of DPAs would give the authorities a much clearer basis to negotiate settlements with corporates without all of the cost, uncertainty and risks associated with a full-blown prosecution."
Currently, prosecutors (principally the Serious Fraud Office and Crown Prosecution Service) can prosecute a commercial organisation for committing a criminal offence, or pursue a civil recovery order. The consultation points out that neither of these is an ideal tool as they both involve lengthy investigations and, in the case of criminal prosecutions, court proceedings.
In criminal prosecutions, prosecutors also face the difficulty of actually proving that the commercial organisation committed the offence (that is, that it had the mens rea); there may also be a detrimental impact on the organisation as a result of the prosecution (affecting its share price and economic standing, for example).
The use of civil recovery as a sanction for corruption offences has also been criticised. This was the case notably in R v Innospec Ltd, where Thomas LJ said that the settlement agreed by the US and UK authorities was inadequate for the severity of the corruption involved ( EW Misc 7 (EWCC); see also News brief "Self-reporting corporate corruption: where are we after Innospec? ", www.practicallaw.com/2-502-1218).
"The Serious Fraud Office has been trying for some time to encourage a culture of self-reporting", says Roberts, "but has struggled to offer companies meaningful incentives to come forward voluntarily and has also experienced significant pushback from the courts, which have criticised moves towards US-style 'plea bargaining'" (as in Innospec).
As a result of these concerns, the Solicitor General began canvassing support for UK DPAs as a further enforcement tool last year, citing as an example the US Department of Justice's success in bringing DPAs in the context of investigations involving foreign corruption (see Focus "US-style deferred prosecution agreements: can they work here?", www.practicallaw.com/2-513-9430).
In its consultation, the MoJ says that it hopes that DPAs will encourage organisations to self-report economic crime offences such as fraud, bribery and money-laundering. The main incentive for doing so is clearly to defer or avoid prosecution. Once a company and prosecutor decide to enter into a DPA, they will need to agree terms and conditions. These may include payment of a financial penalty, restitution for victims, disgorgement of the profits of wrongdoing and measures to prevent future offending (such as a monitoring or reporting requirement).
"The MoJ consultation process is a good opportunity for corporate entities and industry groups to engage in promoting DPAs as a viable alternative to corporate criminal convictions through trial or plea," says Matthew Cowie, Counsel, Skadden, Arps, Slate, Meagher & Flom (UK) LLP.
"However, more thought needs to be given to their structural effectiveness. In particular, the government must clarify and rationalise the sentencing environment for corporates: what penalties apply, how they are calculated, and what is the inter-relationship of the different financial penalties. In addition, the proposed formalised structure with heavy judicial involvement is unlikely to be as flexible, speedy and certain as the US approach."
Susannah Cogman, a partner at Herbert Smith LLP, highlights other potential issues: "While the current situation regarding 'negotiated' outcomes for co-operating corporates is clearly unsatisfactory, there remains a concern that DPAs may be used inappropriately, in situations where a prosecution would not have been possible in any event. There are also a number of important areas of policy and procedure which the consultation proposals leave opaque, including with regard to safeguards over the use of information provided and admissions made as part of the DPA process".
The proposals apply only to England and Wales, although the MoJ intends to discuss further with the Scottish and Northern Ireland administrations on the extension of the proposals to their jurisdictions.
Comments on the consultation are required by 9 August 2012. The MoJ aims to publish a response to the consultation by 31 October 2012. The government intends to obtain Royal Assent for legislation introducing DPAs in spring 2013 or 2014, with implementation to follow in early 2014 or 2015.
"In their responses to the consultation, stakeholders will want to ensure that the MoJ fully understands the many dilemmas that the negotiation of DPAs will create," says Cogman. "We anticipate that the MoJ will receive a substantial number of responses to the consultation."
Joanna Morris, PLC.
Consultation on a new enforcement tool to deal with economic crime committed by commercial organisations: Deferred prosecution agreements, 17 May 2012, available via https://consult.justice.gov.uk/digital-communications/deferred-prosecution-agreements.
A more detailed discussion of the consultation and the implications of DPAs will appear in the August issue of PLC Magazine.