LONDON: 15 September 2013 - Deferred Prosecution Agreements (DPAs) are becoming an increasingly significant mechanism used by prosecution actors in a number of jurisdictions, especially with regard to the regulation of corporate entities and their internal governance processes.  The essence of a DPA is that in contexts where a government prosecution agency might otherwise prosecute a target company, it can decide after consultation and agreement with that potential defendant, to suspend and sometimes dismiss any prosecution, providing that agreed conditions are met and that the terms of these agreements are accepted by a court. Under a DPA, the prosecutor and the target company agree a history of the relevant events, usually meaning that failure to comply with the conditions of a DPA will trigger a prosecution for the company.  Most DPAs include a program for improved internal corporate governance, sometimes under the oversight of an external independent monitor, with the imposition of penalties and payment of restitution to victims of the offending company behaviour also common features.

The US has been the jurisdiction that has been in the vanguard of DPAs.  For example, in September 2012 then Assistant Attorney General of the US Department of Justice (DOJ) Lanny A. Breuer stated that DPAs were key element of the DOJ’s fight against white collar crime and that: ‘..DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe. The influence of DPAs has been building within the DOJ for a number of years as evidenced by its 2008 United States Attorneys Manual (ASAM) which discusses how collateral factors may impact upon prosecutorial decision-making regarding DPAs. The incidence and scale of DPA and Non Prosecution Agreement (NPA) usage in the US has been accelerating.  For example, evidence from the US demonstrates that these strategies increasingly are being used with more frequency and more vigour.  In 2003 there were 6 instances of DPAs/NPAs raising US$0.3 billion in monetary recoveries, in 2009 there were 20 raising US$5.3 billion and in 2012 36 raising US$9.0 billion.  Gibson Dunn who regularly collate this data note that from 2000 to mid-2013 the DOJ: ‘..has entered into a total of 257 publicly disclosed DPAs or NPAs. Based on our experience, there are likely to be others that went unpublicized… Monetary recoveries related to DPAs and NPAs over that 13-year period have totalled more than $37 billion.'

Prosecution authorities elsewhere in the world including Australia have been monitoring this US activity, but it is the UK which seems set to become the next prime mover in this law enforcement space.  Schedule 17 of the Crime and Courts Bill (HL Bill 49) (hereafter “the Bill”) forms the basis for a DPA regime in the UK.  The Bill was introduced to the House of Lords on 10 May 2012 and passed on 18 December 2012.  The Crime and Courts Act 2013 (the Act) received royal assent on 25 April 2013 and so DPAs will become a reality in the UK. There are two major differences between the proposed UK regime and US practice: i) only organisations will be eligible for DPAs unlike the US, where both individuals and organisations may be eligible; and ii) in the US the judiciary play a limited role, but under the proposed UK regime an organisation and prosecutor must appear in a private hearing in Crown Court to gain judicial approval for DPA negotiations (The Act, Schedule 17.7) and when those negotiations are finalised a judge must approve them in a UK open court (The Act, Schedule 17.8).

The final stages of the UK move towards a DPA regime centre on a consultation process that is being co-ordinated by the Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS).  In June 2013 they issued for public consultation a DPA draft code of practice which appears to be the final piece in the jigsaw that will be the UK DPA infrastructure and it is this draft code which is the focus of the remainder of this article. The draft code states that the UK Government is aiming to implement DPAs from February 2014 and responses to the draft code must be sent to the SFO by 20 September 2013.  The DPA code has three core purposes (p.3).

1. Guidance on negotiating DPAs with relevant organisations;

2. Guidance on applying to the court for approval of a DPA; and

3. Guidance on oversight of a DPA after their approval by a court especially regarding variation, breach, termination and completion of the DPA.

This collective guidance is designed to assist prosecutors in deciding whether the discretionary tool that is the proposed DPA meets both the evidential test that the commercial organisation has committed the specified offence and that the public interest is served by not prosecuting and entering into a DPA.  The Draft Code poses eight questions for public consultation:

1. Whether the evidential and public interest tests are appropriate (see paragraph 2)

2. Whether the factors that a prosecutor should consider for a DPA are appropriate (see paragraphs 11-13)

3. Is the proposed disclosure appropriate (paragraphs 30-35)

4. Should the DPA code contain terms additional to those stated in paragraphs 40-42

5. Is the proposed use of a monitor in the DPA code appropriate (paragraphs 43-51)

6. Are the suggested monitor policies and procedures appropriate (paragraph 52)

7. Is the proposed financial penalty approach appropriate (paragraphs 53-57) and

8. What further comment on the draft code should there be.

The draft code lists many factors that may influence a DPA decision.  They include: seriousness of offence; harm caused; prior history; internal compliance systems effectiveness, including whether the organisation has instigated remedial action; reporting processes, including whether, and how early, the company self-reports possible offences; effect on national economic reputation; whether the offence is recent; and whether a conviction would have unduly adverse consequences for the company in another jurisdiction.  All of these factors are important and some would be more self-evident than others in many instances.  However, issues of evaluating national reputation effect and estimating the broader societal damage that a conviction might engender can be notoriously murky processes and could be perceived by some as part of ‘The Too Big To Fail’ and ‘Too Big To Regulate (Convict?)’ culture, that has attracted criticism in many countries regarding regulation of the banking sector in particular following the Global Financial Crisis (GFC). 

The draft code stresses the reality that DPAs are entirely voluntary agreements and that negotiations must be transparent with the retention of full and accurate records of negotiation and documentation (para 17).  The letter of invitation from the prosecutor to the company is the key initial mechanism for delivering a DPA and will include: decision confirmation; timeframe; relevant undertakings; and responsibilities.  The prosecutor and company must agree a statement of facts which also will be part of their application to a court for approval of a DPA.  If the prosecutor and company can agree on these issues then there is a private preliminary hearing before a judge where the prosecution applies that: 1) a DPA is likely to be in the interests of justice; and 2) the proposed terms of the DPA are fair, reasonable and proportionate.  The SFO draft code (paragraphs 40-42) lists many of the terms that could shape judgements on fairness, reasonableness and proportionality.  They include: timings; warranties; compensation; costs; penalties; charity donations; profit disgorgement; transparency; and consistency.  The draft code also discusses the issue of a DPA monitor in terms of their: responsibilities; controls; appointment; remuneration; costs; access; and work plan.  The monitor’s agreement would be likely to ensure the company internally develops appropriate: codes of conduct; training and education programs; risk identification protocols; safeguards; reporting mechanisms; procurement procedures; and contract terms.

All the above factors would be considered by a judge at the private preliminary hearing.  If the DPA is approved and subject to any further discussion pursuant to judicial indications there is an application for a final hearing of a DPA before a judge.  This final can be in open court or in private (this will vary from case to case), and if the DPA is agreed between participants and approved by the judge, then there will be a pronouncement of approval by the court.  Following that process, the draft code (para 71) states that the prosecutor will publish on its website the DPA and the declaration of the court.  The draft code also articulates (paras 73-82) the processes to guide allegations of proving breaches of DPAs and how they might be terminated if proven.  Similarly, the draft code provides guidance on variation of a DPA (paras 83-87) and discontinuance (paras 88-94).

Overall the SFO/CPS Draft Code covers the pragmatic processes associated with DPAs well.  In that sense it represents a final tuning of the model whose rubber will soon hit the regulatory road.  It is sure to be noted by regulatory actors in Australia and may be replicated in some form if Australia does move towards a formalised DPA architecture on US lines.  What is always likely to permeate the application of DPAs in practice are difficult to quantify issues such as moral hazard and perceptions in some instances of differential implementation of the legal, (especially criminal), process regarding more powerful offenders.  These political economy factors do not lend themselves easily to draft codes and other policy documents.  Observers in Australia and elsewhere will be monitoring the progress over time of the UK DPA model both in its design and application to see how these and other influences on DPAs are operationalised in practice.