SFO & CPS Publish Code for Deferred Prosecution Agreements – by Siobhain Egan

Finally, the long awaited Code for Deferred Prosecution Agreements (DPA) is here, and it is a good, comprehensive, well crafted, workable document containing a few surprises.

In essence, after a full self-report of corporate wrongdoing, the prosecutor will apply both the evidential and public interest tests enshrined in the general Code for Prosecutors, or, also assess whether there is a reasonable suspicion that the offence has been committed, before deciding whether or not to invite the Corporate to enter into a Deferred Prosecution Agreement.

Civil Recovery orders also remain firmly on the table as an alternative form of disposal.

Article 5 of the OECD Convention on Bribery has been adopted within the Code and transparency is a theme which runs throughout this document.

It is obvious that the threat of criminal prosecution still runs high, and that there is no guarantee that an invitation to enter a DPA will preclude a criminal prosecution against the Corporate until the deal is done. It certainly will not stop any criminal prosecution against any individuals that are uncovered during the process.

The first real surprise was that there will be no requirement regarding admission of guilt, particularly bearing in mind how many joint US-UK global enforcement investigations are ongoing at the moment, and because the SEC (who have previously managed to extract such an admission from Harbinger Capital last year) has recently stated that they will require such admissions in the worst of cases, going forward.

Obviously, these admissions are something that any GC or Board will seek to avoid because it will open the door to third party civil actions e.g. shareholders civil suits, which would put most regulators’ financial penalties in the shade. The threat of these admission requirements have proved to be something of a stumbling block in US negotiations, and were widely blamed for the recent lengthy negotiations between JP Morgan and US regulators concerning their Libor and mortgage securities DPAs.

However doesn’t leaving these admissions of guilt out altogether leave an unequal playing field? For example, if the GC of a multinational has to choose whether to self-report corporate offending to the SEC or the SFO, s/he is unlikely to take the risk that the SEC would view the situation as so serious that they would demand an admission of guilt and be more likely to self-report to the SFO.

The other surprise concerns the warranty that the Corporate’s legal advisers must make concerning the information which the Corporate is providing i.e. that the statement and information provided by the company “does not knowingly contain inaccurate, misleading or incomplete information”. Quite why this responsibility has fallen to legal advisers is anybody’s guess but it will undoubtedly cause many serious issues. A similar problem has arisen with a multinational Corporate currently under SFO investigation, which has led to the company in question having a rapid turnover of law firms representing them; a revolving, door in fact.

Other than that the Code is as most DPA watchers would have expected.

It is doubtful that the SFO/CPS (and maybe the FCA, eventually) will produce a DPA industry like their US counterparts, but this Code does deliver on clarity and structure, while acknowledging that each case will be treated upon its own facts. It should lead to more certainty and consistency when dealing with the issue of self-reporting and DPAs, quite unlike the US situation.

The next question is, will this be enough to persuade a Board and its GC to self-report?

Certainly at present GCs are reluctant to self-report, the costs involved of a large internal investigation and preparing the requisite information alone are enough of a deterrent (Avon’s investigative costs far exceeded the financial penalties that they recently received from US regulators). Additionally, at present, there is not a sufficient threat of a corporate prosecution in the UK, because essentially (unlike the US) the legal machinery is not there yet. That may of course change, and the SFO’s Director, David Green QC, has been busy lobbying to achieve this.

Not only that, but there are mixed messages coming from the authorities. Rolls Royce duly self-reported last year but yet it appears, judging by very recent arrests, that the SFO criminal investigation still ploughs on.

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