UK DPA - Clutch Group

CLIENT ADVISORY
UK Deferred Prosecution Agreements:
Opportunities & Challenges Amid
Increased Enforcement Actions
The United Kingdom (UK) announced the implementation of Deferred Prosecution
Agreements (DPAs) as an alternative option for resolving corporate criminal investigations.
DPAs may help corporations avoid costly convictions, but also pose some challenges for
corporate counsel. The announcement emphasizes the value of pro-active compliance
programs and co-operative communication with regulators and also underscores a global
trend of adopting United States (US) laws and legal policies. The new availability of DPAs
may also help corporations mitigate the volume of investigations from the Serious Fraud
Office (SFO) and expanding enforcement of the UK Bribery Act of 2010.
UK Announces Availability of DPAs:
The UK Crime and Courts Act of 2013, originally introduced in
DPAs are a voluntary agreement between a corporation under
2012, laid the groundwork for the SFO’s recent introduction of
investigation and a prosecutor. The agreement must be subject to
the availability of DPAs in corporate investigations and
the supervision of a judicial authority. Only available in corporate
prosecutions. Following the passage of the legislation, the SFO
economic crime investigations, DPAs will allow for the suspension
hosted a public consultations period during the summer of 2013.
of pending prosecution in exchange for co-operation and other
Based on the public and industry feedback received, the SFO
conditional requirements to ultimately help a prosecutor identify
published the DPA Code of Practice in early February, which
guilty parties, resolve conflicts, obtain relevant information and
became effective on February 24, 2014.
minimize collateral damage.
DPAs have been used increasingly in the US, by the Securities
and Exchange Commission (SEC) and Department of Justice
(DOJ), especially in the prosecution of violations of the Foreign
2013 Annual Fraud Indicator. National Fraud Authority. Jun 2013.
<https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/206552/nfa-annual-fraud-indicator-2013.pdf>.
Corrupt Practices Act (FCPA). Similarly, the UK has sought to
adopt this alternative prosecution option to combat growing
corporate economic crimes and fraud, which are estimated to
result in more than £70 billion in losses annually.
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Increasingly Strenuous UK Regulatory
Environment:
The DPA announcement comes at a time when UK corporations
are facing increased scrutiny from the SFO and enhanced
enforcement of the UK Bribery Act. In 2014 alone, the SFO
brought further charges against Barclays Bank employees
related to its LIBOR investigation. In early February, the SFO
arrested two Rolls Royce employees in connection to an
investigation into charges of fraud, bribery and corruption.
The SFO has also announced a proposal to amend and
further expand the UK Bribery Act to include not only bribery,
but also all forms of economic crime. Additionally, the SFO
has proposed increasing penalties associated with violations
of the statute, to include limiting the ability of convicted
corporations to engage in public contracts in the European
Union (EU).
Requirements Outlined in DPA Code of
Practice:
The SFO’s rules for the implementation of DPAs are largely
consistent with the statutory language from the Crime and
Courts Act. The DPA Code of Practice outlines the two-part
test required to qualify for a DPA and the ramifications for a
breach of agreement.
In order to qualify for a DPA, a corporation must pass an
Evidential Stage and a Public Interest Stage. According to the
Code of Practice, an investigation must possess enough
evidence to: (1) support the existence of a criminal offence;
and, (2) offer “reasonable grounds” to suggest that further
investigation would provide additional admissible evidence in
support of a criminal offence.
In an eligible case that passes the Evidential Stage, it must
also be proved that public interest would be served best by a
DPA, in lieu of prosecution. Specific attention will be paid to
the potential consequences of conviction on innocent
bystanders, including shareholders, employees and pension
holders. Notwithstanding the unintended consequences for
innocent parties, more serious offences are more likely to
result in prosecution, such as cases that involve higher losses
and greater public harm. The impact of offences on the UK
financial market as well as other international markets will
also be taken into account.
The DPA Code of Practice also outlines procedures for
agreement breaches. If a DPA is breached, the court must be
notified and the violation must be published. In some
instances, a breach may be resolved with the corporation’s
monitor. If issues cannot be resolved or if the court declines
to reapprove the agreement, a DPA can be terminated, in
which case, criminal proceedings are reinitiated. The Code
of Practice does not detail specific penalties for breach of
agreement, but suggests that financial penalties be
“comparable” to a fine that would have been imposed if the
case resulted in a guilty verdict.
Rewarding Good Behavior:
The DPA Code of Practice also discuses other factors that
may be considered when the prosecution is deciding whether
or not to enter into a DPA. The Code of Practice clearly
illustrates that corporations with a positive track record and
robust compliance controls will be treated favorably,
emphasizing to corporate counsel the importance of regular
quality assurance measures and proactive engagements with
regulators.
Corporations that have a history of misconduct are more
likely to be pursued for prosecution. Other factors that would
support the use of prosecution include misconduct embedded
in established business practices, inadequate compliance
programs, failures to heed warnings, and failures to
completely report and verify wrongdoing.
Conversely, good behaviour will be rewarded with the option
of DPAs. Factors that would support the use of a DPA include
a history of upstanding conduct, pro-active compliance
programs, isolated offences, comprehensive self-reporting,
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engagement of prosecutors in early stages of investigation
of agreement occurs, criminal proceedings are reopened and
and thorough internal investigation. Based on these factors,
corporations may be subject to fines equal to those of a guilty
corporate counsel seeking a favorable outcome with a DPA
verdict. The court may also require a corporation to furnish
should engage legal resources and third party providers at
the legal costs of its opposing party if a DPA is breached.
the onset of problems to conduct internal investigations and
These requirements and consequences will require corporate
communicate with regulators as soon as possible.
counsel to think carefully before entering into a DPA.
Corporations will also be required to hand over any and all
The DPA Code of Practice offers a relatively subjective
documents and information deemed relevant by the prosecutor.
definition of co-operative corporations, making it all the
This extensive self-reporting is supposed to maintain privilege,
more important for corporate counsel to strive for detailed
with the DPA Code of Practice stating, “any legal professional
and transparent communications with regulators. The Code
privilege that may exist in respect of investigating compliance
of Practice states that a “genuinely proactive approach” from
issues that arise during the monitorship is unaffected by the
corporations to identify witnesses and disclose all necessary
Act, this DPA Code or a DPA,” but may still be cause for
information and documents would support the use of a DPA.
concern for some corporate counsel as pressure will inevitably
be applied to co-operate.
Corporate counsel should ensure that business practices
adhere to the examples of good behaviour prior to the
discovery of misconduct. And in the instances of misconduct
or criminal violations, there are clear benefits to co-operative
engagement with regulators. Such co-operative relationships,
including DPAs, may allow corporations to avoid or quickly
resolve the burgeoning enforcement actions related to the UK
Bribery Act and minimize fines. Under the Bribery Act and
other statutes, fines can reach up to 400 percent of the profit
or gain resulting from the given criminal behaviour.
Areas of Concern for Corporate Counsel:
Industry Trends:
The UK is one of only a few major countries that currently offer
DPAs. Still, the SFO announcement marks another step in the
influence of US regulators and legal practices. Another
example is the UK and Brazil recently implemented
anti-corruption legislation similar to the US FCPA. In addition,
a Belgian Court of Appeal’s decision last year took strides to
apply privilege to in-house counsel, following the US model.
Although countries such as France, Australia and Canada do
not yet offer DPAs, it is possible that more countries will follow
the example of the UK. For example, Brazil’s recent Anti-trust
Despite the benefits of engaging in DPAs, corporations must
Act already established a loose legal construct to provide
weigh the potential costs and unknowns, especially given the
favorable treatment during prosecution for co-operative
infancy of DPAs in the UK business and legal environment.
corporations, similar to DPAs.
As illustrated, the thresholds for determining eligibility for DPAs
as well as the factors for considering compliance with DPAs
are relatively subjective. Corporations engaging in DPAs will
be held to “unequivocal co-operation” with regulators and
prosecutors. Conditions for DPAs may also require
corporations to hand over profits, pay fines, compensate
victims, and assist in individual prosecutions. When a breach
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Although countries such as France, Australia and Canada do not yet offer DPAs, it is possible that more countries will follow suit
behind the UK’s leadership. For example, Brazil’s recent Antitrust Act already established a loose legal construct to provide
favorable treatment during prosecution for cooperative corporations, similar to DPAs.
The SFO’s increased enforcement and efforts to expand legal authority also appear to follow the US’s growing corporate crime
agenda. For 2014, the White House has proposed a $122 million budgetary increase for the DOJ, which will include enhanced
corporate crime enforcement. Similarly theWhite House has proposed a 26 percent funding increase for the SEC to augment
financial crime enforcement. Based on these figures and global trends in the legal environment, corporate counsel may face a
strenuous year ahead.
Please reach out to learn more:
Aamir Khan
General Counsel (UK & Europe)
Head of London Office
[email protected]
+44(0) 203.586.1655
About Clutch Group
Clutch is a global professional services organization that delivers tailored, cost-effective legal, risk, and compliance solutions. By combining technology,
process, and fact development to create risk-measured, cost-optimized solutions, Clutch helps General Counsel and the companies they represent to more
effectively respond to regulatory requests, bolster their risk assessment and compliance capabilities, and to make sense of their internal data.
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