Out-Law / Your Daily Need-To-Know

Laws on deferred prosecution agreements to be consulted on next year

Out-Law News | 06 Dec 2011 | 2:27 pm | 5 min. read

The Serious Fraud Office (SFO) has backed plans to introduce a form of plea bargaining in fraud cases in a bid to reduce the cost of investigations and encourage businesses to self-report. It has said that it supports the passing of new laws to make that process possible.

New laws would be needed to allow prosecutors to enter into deferred prosecution agreements (DPAs) with organisations in order to settle serious financial crimes.

An SFO spokesman told Out-Law.com that US-style plea negotiations could reduce the need for lengthy fraud investigations in some cases and would encourage businesses to come forward with information about unlawful practices. Any new new legislation should define the structures of DPAs and the situations in which they should be used, the SFO said.

DPAs would enable prosecutors to punish businesses for unlawful activity without the need for expensive and time-consuming investigations and enable businesses to avoid more serious criminal sanctions, the spokesman said. The SFO is an independent Government department that investigates and prosecutes serious or complex fraud and corruption.

"In the past few years we have been grappling with a number of issues and the SFO's Director [Richard Alderman] has been in support of widening the toolkit available for tackling fraud," Sam Jaffa, SFO spokesman, said.

"Many cases come to light where people find something in their company and we want those people to come forward and tell us. However, we don't want the public to feel DPAs are deals done behind closed doors. There should be a flexible mechanism whereby the SFO can oversee curtailed investigations by companies and form settlements, where the whole process is overseen by a judge," he said.

UK legal advisors at the Attorney General's Office (AGO) have held discussions with Government and some law firms over the possible introduction of DPAs into legislation.

In the UK prosecutors can negotiate a form of plea agreement with organisations, but those companies still face criminal punishments that can harm their reputation and restrict their trade. Businesses that do make plea agreements also have no guarantees that courts will accept those agreements in sentencing and that the admissions will not later be used as evidence against them in a trial.

In other jurisdictions, such as the US, organisations can negotiate settlements with prosecutors with a degree of certainty over the scope of their punishment.

Anti-corruption law expert Barry Vitou, of Pinsent Masons, the law firm behind Out-Law.com, said that the current plea agreement system in the UK offers little certainty for businesses and can lead to companies seeking to settle multi-jurisdictional cases abroad.

"The UK has to have DPAs. At the moment under the current regime there is insufficient certainty for corporates and we are unable to offer the same degree of certainty as foreign prosecutors can," he said. "This is an obvious problem for UK investigators if they spend resources investigating unlawful activity only to find they cannot prosecute because corporates have done a deal elsewhere."

Sam Jaffa at the SFO also told Out-Law.com that the public purse could benefit as a result of fines paid through negotiated DPAs. In the US fines paid through DPAs generate around $2 billion a year.

Under the AGO-led plans currently under discussion companies could avoid criminal sanctions for unlawful activity, such as fraud or corruption, by owning up to the conduct and signing judiciary-approved settlement agreements (DPAs) with prosecutors, a spokesperson for the AGO told Out-Law.com.

The settlements could involve companies paying fines and agreeing to make changes to policies, practices and structures. Companies would face a form of probation period where criminal prosecutions could still be brought against them for non-compliance with the terms of the settlement or if a second incidence of unlawful activity is discovered, the spokesperson said.

"By issuing criminal sanctions against companies you can damage a lot of innocent by-standers. Sometimes avoiding that course of action can offer a 'win-win' situation for everybody," the AGO spokesperson said.

The AGO is keen on an "open and transparent" system around which DPAs can be formed where judges have a bigger say in determining the details of settlements. A new system could see prosecutors and businesses come to a preliminary agreement to settle cases of serious financial crime before judges are asked to approve the outline agreement. If that approval is given, prosecutors and businesses could then agree the final details of their settlement, but this would again require judicial approval.

The AGO spokesperson said that, under a new system, the UK's judiciary could publish guidelines to give business "more certainty" over the kind of cases where DPAs could be approved and the nature of an acceptable settlement.

The AGO is to formally consult on new legislative proposals next year when the "fluid" plans currently being discussed resemble something more concrete. The AGO could work with Government departments, such as the Home Office or Ministry of Justice, to introduce its proposals as part of wider legislative reforms those departments are working on, the AGO said.

Solicitor General Edward Garnier told the Sunday Telegraph that he was "encouraged by the positive reception" to the AGO's proposals. He is hopeful that proposed changes to the law could be introduced to Parliament when the next session starts in May, according to the newspaper's report.

"Prosecuting serious and complex economic crime in the United Kingdom is difficult," Garnier said in an AGO statement. "Investigations and prosecutions are long, expensive and resource- intensive. Too few companies are ever held to account for their crimes.  By the time we are ready to prosecute in this jurisdiction, those businesses who have an international presence, particularly in the United States, have often reached settlements with overseas authorities which shut us out from taking action here. This cannot be right, and it is unfair to those in the UK who may have been adversely affected by these crimes."

"Of course there will be circumstances where the criminal conduct is so serious that only a full investigation and prosecution is the appropriate response. But if a company is prepared to face up to its wrong-doing and accept punishment for it in a way that does not require a full scale investigation and prosecution, there is surely merit in considering how to achieve justice in another way. The introduction of deferred prosecution agreements (DPAs), similar to those in the United States, would provide a more effective approach to dealing with corporate crime in some cases," he said.

Garnier said that negotiations in the US usually result in companies paying a "substantial financial penalty", compensating victims and allowing "a regime of corporate monitoring" to take place at the company's expense for two or three years. He said that a UK system would have to strike a balance between allowing companies to admit their guilt whilst allowing suitable sanctions to be imposed.

"We will ask the judiciary to ensure that any new arrangements will work in the interests of justice. DPAs here will be part of the criminal justice system and will be policed and controlled by the judiciary. We will also need to consider carefully the balance between the need of companies to be able to discuss their options confidentially with prosecutors, and the need for justice to be seen to be done. Parties must have space and time to negotiate but, at the same time, there can be no cosy deals behind closed doors," he said.

Garnier's comments were originally published in a report by the Law Society Gazette.