20 Feb 2014

Deferred Prosecution Agreements: Guidance emerges ahead of launch

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Regulatory litigation email alert

As of Monday 24th February, Companies that have uncovered potential liability for economic crimes will have the opportunity to avoid criminal prosecution (and many of the associated consequences) by seeking a Deferred Prosecution Agreement in the United Kingdom.

Deferred Prosecution Agreements ("DPAs") haven been available in the United States since the 1990s, and have been utilised by prosecutors to conclude criminal investigations into a number of multi-national Companies, such as Royal Bank of Scotland, Rabobank, HSBC, Pfizer, Total and Standard Chartered.

With Definitive Sentencing Guidelines for Corporate Offenders issued by the Sentencing Council on 31st January, and the Deferred Prosecution Agreements Code of Practice published on 14th February, some of the advantages and disadvantages, and potential level of financial penalty, associated with a DPA have now become clearer.

This e-bulletin considers the Sentencing Guidelines and Code of Practice, and anticipates some of the key issues likely to arise as Companies and their advisers consider making use of the new UK DPA framework from Monday.

The DPA Code of Practice: Questions and Answers

1 Does a Company have to self-report to be considered for a DPA?
The SFO / DPP Consultation Response recognises that: "it is likely that DPAs will often be negotiated by the prosecution with [Companies] who have self-referred findings of criminal conduct subsequent to an internal investigation."

However, the Code of Practice does not give any guidance as to when a Company should self-report in order to be considered for a DPA.

The Code states that both the timing of a self-report ("the prosecutor will also consider how early [a Company] self-reports") and the quality of the report ("the prosecutor in giving weight to [a Company's] self-report will consider the totality of information that [the Company] provides") are relevant in determining whether to offer a DPA.

As such, the Company seeking a DPA will have to balance making a report "within reasonable time of the offending conduct coming to light" - a factor weighing in favour of a DPA - with taking time to verify suspicions, by gathering evidence and conducting analysis, in order to ensure a report is not ""inaccurate, misleading or incomplete"" - which may militate against a DPA being offered.

2 What status does the Code afford internal investigations?
The Code of Practice recognises the concept of the internal investigation, but notes that a Company which "involves the prosecutor in the early stages of an investigation" may be more likely to be invited to enter into a DPA.

The Code imposes a high standard in relation to any internal investigation undertaken prior to a report being made:

"In particular the prosecutor will critically assess the manner of any internal investigation to determine whether its conduct could have led to material being destroyed or the gathering of first accounts from suspects being delayed to the extent that the opportunity for fabrication has been afforded.

Internal investigations which lead to such adverse consequences may militate against the use of DPAs."

As such, in order to maximise the chances of a DPA being offered, any internal investigation must be designed with obtaining and preserving evidence - which may be sought for use in a prosecution at some point in the future - as an express priority.

3 What is the extent of co-operation required in order to qualify for a DPA?
The Code of Practice articulates an expectation of a high degree of co-operation on the part of the Company seeking a DPA:

"Co-operation will include identifying relevant witnesses, disclosing their accounts and the documents shown to them. Where practicable it will involve making the witnesses available for interview when requested."

The Code does not state that a waiver of privilege will be required in order for a Company to be offered a DPA, noting that: "The [Crime and Courts] Act does not, and this DPA Code cannot, alter the law on legal professional privilege."

However, "co-operation" is defined to include "providing a report in respect of any internal investigation including source documents".

Given the expectation as to co-operation set out in the Code, the extent to which prosecutors are willing to countenance assertions as to privilege, whilst conducting negotiations with a Company with a view to agreeing a DPA, remains to be seen.

4 What material can be used in any subsequent prosecution?
Schedule 17 (paragraph 13) to the Crime and Courts Act 2013 provides that "material that was created solely for the purpose of preparing the DPA or statement of facts" cannot subsequently be used in a prosecution of the Company, should the DPA negotiations fail.

The Code of Practice clarifies what material, disclosed by the Company, can be used in any subsequent prosecution of the Company. Of particular note:

* pre-existing contemporary key documentation such as contracts, accountancy records including payments of any kind, any records evidencing the transfer of money, emails or other communication

* "any information obtained by the prosecutor as a result of enquiries made as a result of information provided by [ the Company ] at any time";

* "any internal or independent investigation report carried out by [the Company] and disclosed to the prosecutor prior to the DPA negotiation period commencing"; and

* "any interview note or witness statement obtained from an employee of [ the Company ] and disclosed to the prosecutor prior to the DPA negotiation period commencing";

can be used in a subsequent prosecution of the Company, subject to the rules on the admissibility of criminal evidence.

Companies seeking a DPA will thus have to give careful consideration to the timing of disclosure to a prosecutor, and (where compatible with the expectations the Code creates as to co-operation) consider reserving disclosure of some materials until the "DPA Negotiation Period", i.e. the after a Letter of Invitation is issued by the prosecutor.

5 Can materials provided by the Company be disclosed by a prosecutor to third parties?
The Company entering into DPA negotiations will receive a Letter of Invitation, which will explain that information provided by the Company will be treated as confidential, but "may be disclosed as permitted by law"

As a result, disclosure of potentially-incriminating (or commercially sensitive) materials may be made by the prosecutor to third-parties, such as civil claimants, or overseas enforcement agencies.

The Code provides that "in exceptional circumstances and where permitted by law the prosecutor may agree in writing to different terms regarding the confidentiality of information."

Although this provision offers some hope that disclosure of materials may be limited by agreement, the civil disclosure regime (in particular, the Norwich Pharmacal jurisdiction) and the UK's mutual legal assistance treaty obligations to other states, may make meaningful restrictions as to disclosure, extremely difficult to achieve.

New Corporate Crime Sentencing Guidelines

Tony Woodcock and Alan Ward have written an article for City AM on the levels of financial penalty Companies may face under the DPA regime.

In the case of financial institutions, the adoption of a formula based on global revenue could result in fines of hundreds of millions, or even billions, of pounds.

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Tony Woodcock

Tony Woodcock
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