Deferred prosecution agreements 'no panacea' for complex fraud
By Rebecca Lowe
American-style deferred prosecution agreements (DPAs) are due to come into effect in England and Wales over the next two years, following a government consultation that ended in mid-August. Though broadly welcomed, fraud experts in the UK warn that DPAs may not be the panacea for combatting serious and complex fraud that many hope.
The agreements are seen as a quick, cost-effective tool for addressing serious economic crime. Under a DPA, a company will escape prosecution on the proviso that it agrees to comply with certain conditions. Typically such conditions include the payment of a fine, reparation to victims, disgorgement of profits of wrongdoing and measures to prevent future offending.
Typical DPA conditions include payment of a fine among other measures
It is hoped that DPAs will reduce the cost burden of long and complex prosecutions. They will mainly be used by the Serious Fraud Office (SFO), which will have lost 43 per cent of its 2008-2009 £53m budget by 2014-2015. Fees paid to counsel by the SFO amounted to £4,709,365 in 2011 alone, covering 56 cases under investigation.
‘It is worth doing, given the situation we are in at the moment,’ says Robert Wardle, former director of the SFO. ‘But it should not stop prosecutors going after individuals. There is admittedly an illogicality saying we have enough evidence to prosecute, but we’re not going to do so unless you do it again.’
He adds: ‘I’m not sure it will be a real panacea.’
Authorities currently have two main ways to deal with corporate crime: criminal prosecution or civil recovery orders. Prosecution is lengthy, expensive and often unsuccessful, while civil recovery orders have been criticised for lacking transparency and containing no penalty element. DPAs will contain a public ‘statement of facts’, which includes a formal admission of wrongdoing, admissible as evidence in court. However, it is not yet clear how detailed the statement will be, and there remain concerns that they will lack the depth and transparency of a full prosecution.
‘It is worth doing, given the situation we are in at the moment'
Former director, Serious Fraud Office
It is hoped that companies will be encouraged to self-report to avoid a lengthy prosecution, as well as the stigma of criminal conviction and associated debarment from government contracts. Under the proposed system, judges would be involved at an early stage in proceedings to ensure a ‘fair, reasonable and proportionate’ outcome.
Seven to 15 of the SFO’s current caseload of around 32 commercial cases could be resolved with DPAs, according to the government’s impact assessment. Each agreement is estimated to take nearly five years and cost £600,000 – one year less and £100,000 cheaper than an early guilty plea. The net annual savings of introducing DPAs are believed to be £0.8m to £1.2m for the SFO and £20,000-60,000 for the courts – though money will also be generated from £3m to £30m fines.
Ros Wright, chair of the Fraud Advisory Panel (FAP) and former director of the SFO, says the FAP is ‘broadly supportive’ of DPAs, but believes there are a number of problems. These include the small fines in the UK compared to the US, which means deals are less attractive, and the ‘pretty illusory’ predicted savings.
‘The major cost is in the investigation, and this will have to be done anyway to put together an immediately prosecutable case in the event of the company not signing up to the DPA,’ she says. ‘In the US, they don’t normally do a full investigation and negotiations towards a plea bargain take place early on. That’s the main difference between the US’s experience and ours.’
It is so far unclear if DPAs will only be an option if a company self-reports. If not, there are concerns companies may simply wait until their wrongdoing comes to light before striking a deal. Companies may also believe a prosecution is unlikely due to lack of funds and resources, and that self-reporting would not be worthwhile – especially as a DPA would only reduce the fine by a third, and they would still face adverse publicity.
Indeed, prosecuting companies is extremely difficult in the UK due to the need to prove intent by the ‘guiding mind’ of the company – more often than not, the entire board of directors. ‘Oddly, the consultation appears to suggest that DPAs address the problem of proving “directing mind and will”,’ says Herbert Smith dispute resolution partner Susannah Cogman. ‘That would only be the case if the government’s intention was that companies should agree to a DPA in circumstances where they could not in any event have been criminally prosecuted – which appears wrong in principle.’
There are additional concerns that DPAs may strengthen or encourage other civil and criminal proceedings. The more detailed the ‘statement of facts’, the more information will be available to other prosecuting authorities. Foreign jurisdictions may also be able to rely on the DPA in actions abroad. These concerns are likely to have been raised during the consultation process.
‘It is not clear what will happen to information that has been disclosed to the prosecutor during negotiations,’ says DLA Piper corporate crime partner Jo Rickards. ‘This may prove to be an inbuilt deterrent factor with respect to what would happen if the court rejects the proposed agreement.’