Deal or no deal

At the Royal Courts of Justice on 30 November 2015, staff realised a bigger court was needed. The throng of journalists and interested parties, there to see Sir Brian Leveson, head of the Queen’s Bench Division, approve the UK’s first deferred prosecution agreement (DPA), squeezed into the more capacious court next door.

In an apparently symbolic instruction, Edward Garnier KC MP appeared for the Serious Fraud Office. As Leveson noted, Garnier had been ‘architect’ of the DPA legislation when solicitor general.

Today Garnier, now a peer, is ‘disappointed’ that only 13 agreements have been concluded since DPAs were introduced.

Borrowed from the US law enforcement armoury, DPAs were first introduced here by the Crime and Courts Act 2013 and became available on 24 February 2014.

On the statute book three years after the Bribery Act 2010, which introduced the ‘failure to prevent’ corruption offence, DPAs were among the government’s efforts to tackle economic crime by commercial organisations more effectively and efficiently, avoiding lengthy and costly trials.

The driving force behind DPAs was obvious. As the government admitted in the bill’s impact assessment, the justice system was ‘inadequate for dealing effectively with criminal enforcement against commercial organisations in the field of complex and serious economic crime’.

Where a company has cooperated with investigations, accepts wrongdoing, pays a fine and agrees to clean up its act, a prosecution may be suspended while the organisation meets certain conditions.

DPAs enable a corporate body to make reparation for criminal behaviour without the collateral damage of a conviction – for example, sanctions or reputational damage that could put the company out of business and destroy the jobs and investments of innocent people.

The SFO has now agreed 12 deals totalling £1.7bn, including with corporate behemoths such as Tesco and Rolls-Royce.

In December, the Crown Prosecution Service (CPS), a much larger body than the SFO, entered into its first DPA. It settled an HM Revenue & Customs investigation into the global online sports betting and gaming business Entain.

The London-based company, which owns bookmakers Ladbrokes and Coral, struck the deal to avoid a trial over allegations that it failed to prevent bribery at a business it owned in Turkey between 2011 and 2017.

Under the agreement, approved by president of the King’s Bench Division Dame Victoria Sharp, Entain agreed to pay a financial penalty plus disgorgement of profits totalling £585m. As part of the deal, the company will also make a charitable donation of £20m and pay a contribution of £10m towards CPS and HMRC costs.

Judge-approved

'I remember in Rolls-Royce having to work very hard to persuade Sir Brian Leveson during hours of submissions that a DPA as opposed to immediate prosecution was in the interests of justice'

Edward Garnier KC

Agreements, which can be reached for the offences of fraud, bribery and other economic crime, need to be approved by a judge who must be convinced that the DPA is ‘in the interests of justice’, and that the terms are ‘fair, reasonable and proportionate’.

Some lawyers note that after months or years of discussions between the parties, judges are given a limited period of time to consider the agreements. But Garnier, who has acted for the SFO and defendant companies in four cases, insists senior judges who deal with them take that responsibility very seriously and that approval is ‘far from a mere formality’.

‘I remember in Rolls-Royce having to work very hard to persuade Sir Brian Leveson during hours of submissions that a DPA as opposed to immediate prosecution was in the interests of justice,’ he tells the Gazette.

Among the deals struck with the SFO, nine have included bribery offences. At least seven of these involved the business accepting a minimum of one charge under the government’s flagship ‘failure to prevent’ offence.

Garnier says that while he is ‘not all that surprised’ that the CPS has agreed only one DPA, he is ‘disappointed’ that only 12 have been concluded by the SFO. This amounts to just over one per year – far fewer than he anticipated.

‘When I was developing the policy as solicitor general, I had hoped we might see about five every year concluded by the SFO in comparison to the 50 or so DPAs, NPAs [non-prosecution agreements] and civil settlements concluded every year in the US,’ he adds.

Lack of resources

While he is unaware of the potentially suitable cases that presented themselves to the UK prosecution authorities, Garnier attributes the lack of agreements in part to ‘a lack of human and investigative resources’ – in other words, a shortage of money.

Unlike the US Department of Justice, ‘the SFO is a small authority and has a far more limited ability to deploy lawyers and investigators to assess cases as quickly’.

Jessica Parker, senior partner at Corker Binning, suggests the ‘relatively limited’ number of investigations carried out by the SFO each year is one reason for the low numbers; while Lloyd Firth, counsel at WilmerHale, notes that investigations into alleged wrongdoing will often take several years, especially where a probe is multi-jurisdictional, implicates multiple business units and goes back many years.

Other specialist lawyers are more positive about the volume of cases that have ended with DPAs. Susannah Cogman, a partner at Herbert Smith Freehills specialising in financial crime and related regulatory work, points to the government’s 2012 impact assessment on the introduction of DPAs. Among the 88 cases on the SFO’s books at that time – 32 of which concerned corporates – the ‘very tentative assessment’ made by officials was that seven to 15 would become DPAs.

The document also stated that DPAs dealt with by the CPS are ‘likely to be a very small number’ and noted that ‘only a handful’ of agreements were made in the five years that followed the introduction of DPAs and non-prosecution agreements in the US.

The outcomes, suggests Cogman, are therefore not ‘radically different’ from what was envisaged, although she agrees that the total volume of cases taken on by the SFO and through to an enforcement outcome is ‘comparatively low’.

The UK process is ‘speedier and more efficient’ than a prosecution, adds Cogman, but ‘certainly not a quick or straightforward process’.

Still, the regime, argues Alun Milford, partner at Kingsley Napley and former SFO general counsel, has ‘enabled disposals in cases in which corruption and wrongdoing was uncovered and given corporations an incentive to cooperate with investigations and so lift the veil on what was going on in the business’. In monetary terms, Peters & Peters partner Neil Swift insists, it has ‘certainly been a success’. He adds: ‘The level of financial penalties imposed, in particular on Airbus and Entain, are right up there with those imposed by the US.’

Lack of convictions

Osborne Clarke partner Jeremy Summers nevertheless argues that there is ‘some way left to travel’. In particular, as he stresses, the failure to prosecute and secure convictions for individuals responsible for the wrongdoing is an ‘obvious shortcoming’.

In cases related to DPAs, the SFO has endured a run of high-profile acquittals, the abandonment of a prosecution and made decisions not to lay charges.

Tesco (see box) is one example. Three of its seniors executives were subsequently acquitted of fraud charges, with the judge in one case concluding that the case was ‘so weak it should not be left for a jury’s consideration’.

In the 10 years since DPAs came into force, only one person has been convicted and that came as a result of a guilty plea rather than a contested trial. In May 2021, Roger Dewhirst pleaded guilty to two counts of accepting or agreeing to receive bribes totalling £290,998. He was later sentenced to nine months’ imprisonment, suspended for 18 months.

The conviction followed two DPAs with Bluu Solutions and Tetris Projects, which are both subsidiaries of real estate company Jones Lang LaSalle.

Dewhirst’s three co-defendants were acquitted following a jury trial in January 2023. His wife was acquitted in a separate trial in October 2022 in respect of money laundering charges.

Explaining the contradictory outcomes, Firth says there is a ‘natural structural tension’ between the DPA process and subsequent criminal proceedings against individuals implicated in the conduct underpinning the agreement.

‘The DPA process is effectively one of commercial negotiation between two parties – the corporate and the prosecutor – who are incentivised to reach a mutually acceptable position in respect of the terms of the DPA – most significantly the agreed statement of facts,’ he says. By contrast the criminal trial is ‘by design combative and adversarial’, with the defence properly seeking to challenge and undermine the prosecution’s case wherever possible.  

There is, says Garnier, a degree of ‘commercial pragmatism’ involved in negotiating and concluding DPAs, whereas with individuals the jury has to be persuaded to the criminal standard of proof that they as individuals committed the relevant offence.

When the evidence is tested in court in a prosecution, points out Swift, there is a real risk that the standards and principles that are adequate for agreement (the case theory), fall short of the standard necessary for a successful criminal conviction. ‘Resolution on the basis of facts agreed by the parties, in advance of the evidence being tested in court, clearly has the capacity to produce differing outcomes,’ he says.

In reality, notes BCL partner Tom McNeill,  any DPA is likely to be based on imperfect information. In concluding a deal for commercial reasons, the agreed facts on which it is based, he says, may be ‘wrong’. This can in turn result in individuals being hung out to dry, guilty people walking away or a company pleading guilty where no one has committed an offence.

Mitigating the tension between the two outcomes, says Firth, requires the SFO to keep the prospect of the subsequent prosecutions of individuals ‘front of mind’ throughout the investigation and the DPA negotiations. This approach, he adds, ‘should ensure that the agreed statement of facts is adequately stress-tested in the DPA context to ensure that it is supported by admissible evidence and can be sustained in any subsequent criminal process’.

Disclosure

Aside from increased funding for prosecutors and investigators, there is general agreement that changes to make the disclosure process more manageable and efficient are urgently required – and would make the single biggest difference to improving the DPA regime.

At present ‘people are just drowning in data’, says Milford. ‘Disclosure makes a dog’s dinner of every case and adds years to investigations,’ adds McNeill. He argues that the ‘obvious solution’ is to follow the US model and give the defence access to the documents.

The government has commissioned an independent review of the investigation and prosecution of fraud offences and the operation of the disclosure regime in the digital age. Chaired by barrister Jonathan Fisher KC, it is due to provide recommendations on reforming the disclosure regime this summer.

On wider changes, Cogman would introduce ‘more meaningful incentives’ for corporate self-reporting and a greater range of outcomes such as NPAs, which are a feature of the US regime.

Garnier believes it is worth considering opening up DPAs to individuals as well as companies, though he is not advocating this at present.

The move, which could be seen to create a two-tier system of justice between white-collar and other criminals, would likely be opposed by many. Garnier accepts such reform ‘will require overwhelming evidence to persuade the public and parliament’ that such deals are appropriate for individuals. ‘I suspect we are a long way from that.’

Others have suggested that individuals should be convicted and sentenced before a corporate DPA could be agreed. But, says Garnier: ‘I do not support that as one can justifiably have different routes to justice for different legal persons.’

New top table

There have been recent changes at the top of the SFO and CPS, with Nick Ephgrave (see Practice Points, p28) and Stephen Parkinson in charge respectively. Their appetite for DPAs remains to be seen.

However, most anticipate more DPAs once the Economic Crime and Corporate Transparency Act 2023 comes fully into force (set to happen in stages). The act creates a new offence of failing to prevent fraud and makes its easier for the SFO to investigate and prosecute corporate crime.

And as Swift concludes: ‘Absent highly unusual circumstances, companies are unlikely to be able to defend criminal prosecution for failing to prevent fraud, so will opt for the least bad outcome of a DPA.’  

 

Catherine Baksi is a freelance journalist