Business Law Review, June 2012 – Stephen Gilchrist discusses the SFO and Deferred Prosecution Agreements

Paying Your Way Out of Trouble -The SFO and Deferred Prosecution Agreements

Summary: The Serious Fraud Office is, self-evidently, concerned with the prosecution of fraud and other instances of serious economic crime. Currently it does so within our adversarial criminal justice system, which, after a lengthy and expensive investigation and court process, may result in acquittal or conviction. In the UK, under the law at present, prosecution is the only option, but is a blunt instrument.The only other option is non-prosecution.The SFO must either prosecute with the aim of achieving a criminal conviction or proceed under the Civil Law. In March 2012, Solicitor General confirmed that legislation to enable deferred prosecution agreements (DPAs) into the UK, limited at first to corporate offenders, is on the way. This article examines some of the issues which lend themselves for consideration before instituting the DPA system in the UK.

In 2005 a client of the writer's firm ('L') entered into a 'deferred prosecution agreement' (DPA) with the US Attorney, in New York. A Grand jury had, some years previously, handed down a sealed indictment alleging bank fraud, wire fraud, and mail fraud. The case had taken some years to come to resolution as L - a UK citizen - had decamped back to Britain and was only arrested as a result of an unfortunate layover in Hawaii en-route to Australia.

In any event, the case was settled by virtue of a DPA which reads (in part):

""|However after thorough investigation, it has been determined that the interest of the United States, and your own interest will best be served by deferring prosecution in this district. Prosecution will be deferred during the term of your good behaviour and satisfactory compliance with the terms of this agreement for"|six months"|"

The DPA goes on to outline the terms of the agreement which essentially goes to issues of good behaviour but a special condition states:

"You agree to make restitution in the amount of $500,000 to the"|court"|to be distributed pro rata to the victims". In other words L's get-out-of jail-free card was a large cash payment.

Now, the government is considering introducing such a scheme in the UK, limited at first to corporate offenders. In March 2012, Solicitor General Edward Garnier confirmed that legislation to enable Deferred Prosecution Agreements is on the way. He said:

""|later in the current Parliament, I [will] introduce deferred prosecution agreements to the criminal justice armoury. Such agreements will deal with penalty payments, but also, where appropriate, with the payment of compensation, and the payments will be made as a result of court orders."[1]

A consultation will now take place but there has already been an informal consultation among practitioners and other interested parties. The first consultation with the Solicitor General and the SFO Director took place in the autumn of last year.

The SFO are self evidently concerned with the prosecution of fraud and other instances of serious economic crime. Currently it does so within our adversarial criminal justice system, which, after a lengthy and expensive investigation and court process, may result in acquittal or conviction. In the UK under the law at present, prosecution is the only option, but is a blunt instrument. The only other option is non-prosecution. The SFO must either prosecute with the aim of achieving a criminal conviction or proceed under the Civil Law.

A conviction (or even the fact of the prosecution) for corporate defendants can only result in a financial penalty but the consequences may extend much further. It may, for example, serve to close the company down, cause many employees of the company to be made redundant with an immediate impact on their families and their communities. SFO Director, Richard Alderman's thoughts on the subject, having reviewed the US model, is that:

"..if a corporation is systemically corrupt or fraudulent then it deserves to come to an end. Indeed my view (shared by many others) is that the only type of sustainable business that can be created is one that is based on ethical foundations. However, there will be many cases where what we are thinking about is an isolated lapse or something perhaps more serious but which does not justify the demise of the corporation as a whole. What can be done? We have no answer to that in the UK Criminal Justice System"|" and "that the US is some years ahead of us"|" and further "It is no secret that I find the model of deferred prosecutions attractive".[2]

He considered the counter arguments, principally that (a DPA) allows a corporation to buy its way out of a criminal prosecution. Nevertheless, he viewed such a proposal favourably.

These comments were made in the aftermath of the UK financial crisis and essentially in the context of why corporate bodies responsible for the crisis haven't been penalised or prosecuted.

The current powers of the SFO enable the Office to compel individuals (under what is known as a s.2 Notice) to provide information, statements and documents within the scope of a criminal investigation. But whatever is said by those individuals cannot be used against them in a criminal prosecution.

The DPA proposal also has to be viewed in the light of the new Bribery Act in which corporate bodies (for the first time) can be prosecuted if the company does not implement adequate systems to protect against employees involving themselves in bribery. A US lawyer comments:

"If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. Seems like a reasonable result. In other words, no need for the third option [a DPA] in such a case.

"On the other hand, if a corporate does not have adequate procedures (i.e. has no commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. Seems like a reasonable result. Does a third option [a DPA] really need to be created for corporates who do not implement adequate procedures?"

However, there are a number of tricky issues that need to be resolved before the use of deferred prosecution agreements can be adopted in the UK. The following issues have lately been raised by leading practitioners in the field, many of whom support the concept, but advocate a cautious and considered approach:

Some of the issues which lend themselves for consideration before instituting the DPA system in the UK are:

• Which cases are suitable for DPAs?
• When should the possibility of a DPA be raised? Before or after charges are laid?
• What role should the judiciary play in the negotiation of DPAs?
• How are penalties to be determined?
• How can global settlements be achieved given that a DPA in the UK offers no guarantee against prosecution in another jurisdiction?
• Is there scope and is it desirable to offer immunity to individuals within an organisation who co-operate with the investigation and facilitate an agreement being reached?
• Will the public have a negative view of DPAs and see them as a way for an organisation to pay its way out of being prosecuted?

In this writer's view, the criminal law in the UK must evolve to take into account some sort of middle ground when dealing with large, often, global companies. On balance (and it is a question of balance), DPAs seem to be a good idea which can deal with difficult cases, often problematic and expensive to prosecute, and which could feasibly avoid the fall out on innocent parties, of such a prosecution.

However, the current proposals may be the thin end of the wedge. How long before DPAs will be introduced (as in the US) for individuals? This would conceivably open a massive divide between wealthy defendants (such as L) and those who cannot afford to buy themselves out of trouble.