In July 2015, the news that Sarclad, a Rotherham-based private technology company, may be the first to sign a Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO) sparked a series of questions over the future of justice in corporate cases.
Sarclad was one of a number of companies the SFO invited to attend DPA negotiations after an investigation was launched into irregularities in its business conduct across a number of jurisdictions. The case is one of the first to include allegations of bribery prohibited in the UK under the Bribery Act 2010. If this DPA goes ahead, it will open the door for a new influx of similar agreements, but there is a question mark over whether this would be a positive step forward.
What Are Deferred Prosecution Agreements?
DPAs are commonly used in the US and came into force in the UK on 24th February 2014, after being introduced by Schedule 17 to the Crime and Courts Act 2013. They are used in cases where organisations, as opposed to individuals, are charged with economic crimes such as bribery and fraud.
DPAs have been described as a form of ‘plea agreement’ whereby a company charged with a criminal offence can admit wrongdoing and have proceedings against them automatically suspended in return for agreeing to certain conditions. These conditions may include: paying a fine; providing compensation; adhering to enhanced compliance procedures; or, co-operating with the authorities in the future prosecution of individuals suspected of wrongdoing.
Although the negotiations involved are confidential, the DPAs must be approved by a judge at a public hearing. If the company subsequently fails to honour the conditions of the DPA, prosecution against them may resume.
Arguments For and Against DPAs
First, DPAs are used in cases where it is not in the public interest to mount a criminal prosecution. This would therefore free up the courts to serve the community by focusing on more serious cases. However, the opposing view to this argument is that corporate cases should be subject to court proceedings. It is argued that such serious cases, which often involve high sums of money, with potentially vast consequences for stakeholders, are unsuited to DPAs, which are similar to the deals given to low-level offenders such as shoplifters.
Secondly, DPA’s prevent the collapse of big companies that can result from criminal conviction. A conviction may have a disastrous impact on the company’s reputation, ability to secure future work and win public contracts. On the other hand, DPAs are seen as a ‘get out of jail free card’, allowing companies to evade justice by paying their way out.
A counter-argument is that it is not the company itself that goes to jail; rather, it is the individuals within that are responsible for the misconduct. Considering that these individuals may only form a miniscule part of an expansive company, a conviction sounding the death knell for the company creates massive job losses, inevitably including those with no involvement in the crime. It would therefore be more productive to the economy generally to allow the company to continue functioning whilst it implements reforms to prevent any future criminal activity.
Thirdly, following on from the last point, DPAs are seen as a method of allowing companies to avoid the embarrassment and publicity connected with court proceedings. However, this appears to be more of a long-term than short-term vision, as many are eagerly anticipating how the imposition of the first batch of DPAs will go and the process is expected to be under intense scrutiny. Indeed, this media glare was what the SFO reportedly hoped to avoid by selectively choosing relatively small and unknown companies as the first round of participants in DPAs. The body is said to have hoped that any problems encountered in the process could be straightened out in privacy; however, there seems little chance of that.
Fourthly, DPAs are aimed at deterring criminal conduct but questions have been raised over whether they will be effective. There is concern they will have quite the opposite affect, possibly making the doing of “dirty business” easier. They may even encourage recidivism amongst directors who feel safe in the knowledge they can avoid jail.
Two cases in point are USB and Barclays, who manipulated currency rates whilst they were already operating under a DPA in the US for manipulating interest rates. One of the main issues leading critics to believe DPAs lack teeth is the fact they operate based on little more than a company’s promise to reform in the absence of any external presence to oversee and ensure compliance.
However, the counter-argument to this point is that outsiders may not be best placed to police large complex companies and internal compliance measures provide a more sensible form of regulation. This is especially true where the misconduct was committed by only a limited number of employees.
Going Forward
The SFO expects to sign its first deals by the end of the year, although some believe it could be as soon as the next few months. Until that time, a number of parties, including company boards and the expert financial crime lawyers at Lewis Nedas, will be eagerly awaiting the details.
Perhaps most importantly, the suitability of DPAs in relation to the extent of companies’ culpability, co-operation, recidivism or any related investigations, remains to be seen. However, only upon the first DPA’s conclusion can the full facts be examined, shedding light on whether or not DPAs represent a positive development in the area of corporate criminal liability.
Contact Lewis Nedas
At Lewis Nedas we have a long and successful history of advising clients concerned with investigation by the SFO and other regulatory bodies. Our dedicated team of Financial Crime lawyers are very familiar with this area of the law, and regularly advise and represent clients in their dealings with regulatory agencies. If you require advice, please contact us on 020 7387 2032 or complete our online enquiry form.
