Companies need stronger financial incentives to agree to deferred prosecution agreements, says expert

Out-Law Analysis | 27 Jun 2016 | 9:58 am | 2 min. read

FOCUS: Companies are unlikely to agree to deferred prosecution agreements (DPAs) unless the financial implications are demonstrably less than the fines they would receive if found guilt by a court.

Promising penalties "broadly comparable" to the fines that companies would receive had they pleaded guilty on a full prosecution, plus the imposition of enforceable undertakings of cooperation and schemes for ensuring future compliance, the incentives for firms to cooperate with the Serious Fraud Office (SFO) from the earliest stage of its inquiries simply aren't strong enough.

There is no doubt that the introduction of the concept of DPAs into the UK's criminal justice system is a positive step, and one that gives companies that identify and proactively seek to tackle corrupt behaviour within their ranks the opportunity to avoid the reputational damage of prosecution. But without more significant practical differences in the end result, the subtle PR differences may be lost on some firms – and, more importantly, on their clients and the public.

The Standard Bank case

Speaking in Prague to an audience of compliance professionals earlier this year, SFO general counsel Alun Milford discussed the agency's position on DPAs - including criteria and process.

Milford referred in some detail to the SFO's historic first DPA, which it entered into with ICBC Standard Bank late last year after it was found that the company had failed to prevent bribery during a period in 2012/13. The SFO imposed financial penalties totalling more than $30 million on the bank under the terms of the DPA, as well as requiring it to cooperate with any further SFO investigations and to commission a wide-ranging independent review of its existing compliance polices and procedures "at its own expense".

Standard Bank was a unique set of circumstances – including a self report made to the SFO before the company's solicitors had even started the internal investigation, let alone completed it. The case has been referred to as the "benchmark" by which future DPA applications should be made – and yet the evidence to date shows little difference in the financial implications for firms that cooperate in this way, and those which proceed to full prosecution.

Take the Smith & Ouzman case, in which a company and two of its directors were convicted after trial of paying bribes in Kenya and Mauritania. The multiplier used - 300% - was the same as that in the Standard Chartered case, despite the fact that Smith & Ouzman had contested the allegations at trial and was found guilty.

The Standard Bank multiplier was also 50% more than that in the Sweett plc case, where the SFO chose note to offer the company a DPA after it pleaded guilty to failing to prevent corruption.

Standard Bank admitted to an offence under section 7 of the Bribery Act as part of the DPA process. Section 7 criminalises failure by a business to prevent bribery by its employees, agents or representatives unless it can show that it had adequate procedures in place to prevent such behaviour occurring. Section 7 was conceived of before the DPA regime, and prosecution for a section 7 offence was never grounds for mandatory debarment from public contracts under the 2015 Public Contract Regulations - although it can give rise to grounds in support of discretionary exclusion.

Although the PR distinction between a DPA and a section 7 conviction exists, it will be lost on most - customers and the public will still see a business that has been found to have, or has accepted, criminal liability for corrupt behaviour, and the business will potentially face the same financial consequences whatever the result.

We look forward to future DPAs which evidence a fairer and more balanced approach.

Barry Vitou is an anti-bribery expert at Pinsent Masons, the law firm behind Out-Law.com. A version of this article appeared on his website, thebriberyact.com.