Plea bargaining

Deferred prosecution agreements (DPAs) were introduced in the UK 11 years ago next month. Championed by senior figures such as Serious Fraud Office (SFO) head David Green QC, they were intended to improve the UK’s distinctly patchy record on tackling corporate fraud – creating an incentive for companies that had erred to come clean and pay a fine. As a by-product, with wrongdoing admitted, the criminal prosecution of the employees responsible might also be expedited.

At the outset, magic circle firm Clifford Chance predicted in a briefing note that up to 10 DPAs per year may be agreed between prosecutors and corporate organisations. It has not worked out that way.

Since 2014, 13 DPAs have been concluded, predominantly through the SFO, although the Crown Prosecution Service has been the enforcement authority for one. Presented as a pragmatic way for businesses and prosecutors to draw a line and move on from corporate wrongdoing, lawyers accept they have enjoyed limited success but point to the lack of structural support underpinning the so-called plea deals.

The Treasury benefits from the substantial fines, but this money is not fed back into UK enforcement agencies, which remain seriously underfunded. A string of disastrous SFO prosecutions of individuals has not helped public perception of its prosecutorial might, reducing the fear factor essential to effective corporate crime prevention and enforcement.

The creaking court system in the UK, with its backlog of cases, means the prospect of a prosecution is temporally distant. In the interim, company assets diminish or move jurisdiction, and memories fade. The UK also has a higher level of judicial involvement in the DPA process than the US. This aids transparency and ensures probity, but makes it difficult for prosecutors to cut deals with those involved. Only one individual – who pleaded guilty to bribery offences – has been successfully prosecuted after a DPA.

The US brokered its first DPA in 1992 when Salomon Brothers and the Department of Justice (DOJ) entered a settlement, agreeing that prosecution would be avoided due to Salomon’s ‘unprecedented cooperation’ with the enforcement authority.

The UK took its time following the US’s lead, introducing DPAs in February 2014 through schedule 17 to the Crime and Courts Act 2013. The move, designed to encourage companies to self-report bribery, corruption and economic crime, brought the UK into greater alignment with the US and opened the door to establishing transnational global settlements.

The largest of these concerned Airbus, which had to pay more than €3.5bn to settle investigations with the DOJ and Department of State in the US, the SFO in the UK and the PNF in France in 2020. The SFO received a £1bn settlement from Airbus, a boon to the Treasury.

Structure of UK DPAs

A voluntary agreement between a prosecutor and a business, a DPA suspends criminal proceedings so long as the business complies with certain requirements, including financial penalties, payments to victims and disgorgement of profits.

DPAs are not just about money. Cooperation with the prosecutor and a commitment to reform are also important, with the business having to demonstrate that it has dealt with the wrongdoing through the implementation of a rigorous compliance programme.

WilmerHale investigations and criminal litigation partner Lloyd Firth explains how it works: ‘DPA negotiations are within the exclusive gift of the prosecutors, a business cannot initiate the process. Instead, they will be invited to the table to start negotiations, usually after a company has self-reported wrongdoing within the business.’  

To be effective, a DPA must be court-approved. With no guarantee that the judge will approve the terms of the agreement or leave them unamended, there is a risk that the DPA will fail.

The record

DPAs have allowed UK enforcement agencies to reach closure in a number of large-scale bribery, fraud and corruption investigations into multinationals. Notable examples are deals reached with Rolls-Royce, Tesco, G4S and Serco, as well as Airbus. These settlements have enabled companies to come clean, purge the business and do penance without breaking their business model.

For enforcement agencies, a DPA with a business saves the time and expense of a risky prosecution, while bringing in substantial funds to the Treasury.

Jenner & Block partner Lucy Blake says: ‘DPAs have been an effective tool for the government in fighting business crime, particularly for bribery and corruption. However, a notable issue has been the SFO’s repeated failure to secure the conviction of individuals following the conclusion of DPAs with the companies implicated in the allegations.’

After Tesco’s DPA in 2017, a Crown court dismissed the SFO’s case against former director Carl Rogberg and dropped charges against two others.

The outcome was repeated in 2021 with Serco executives, and in 2023 when the case against three former G4S employees accused of defrauding the Ministry of Justice over a prisoner-tagging contract collapsed.

Blake explains: ‘The evidential test that prosecutors are required to satisfy to obtain a DPA is in a sense provisional in nature, in that a prosecutor is merely required to demonstrate that “there is at least a reasonable suspicion” of a company having committed the offence and “reasonable grounds” for believing that a continued investigation would provide further admissible evidence within a reasonable period of time.’

The evidence required for a successful prosecution for bribery, corruption or fraud presents a much higher bar.

New legislation

The Economic Crime and Corporate Transparency Act (ECCTA) 2023 has introduced two potentially seismic changes. First, a business will be found criminally liable where a senior manager who was ‘acting within the actual or apparent scope of their authority’ commits an offence. Although it will be up to the courts to define the precise scope of the senior manager test, the change should make prosecution easier.

Second, the ECCTA introduced what the SFO and others had been campaigning for – a new ‘failure to prevent fraud’ offence. The UK now has a trio of strict liability offences, for fraud, bribery and facilitating tax evasion.

The government published guidance – delayed by July’s general election – on the new ‘failure to prevent fraud’ offence in November 2024. Businesses have around six months to learn the lessons before the offence kicks in. Like bribery, in the event of prosecution, businesses will have to demonstrate to the court that they had reasonable fraud prevention measures in place to mitigate the offence.

The SFO has long argued that the requirement under the identification principle to prove that defendants are the ‘directing mind and will’ of the business is a barrier to successful prosecution. Board directors of large, geographically dispersed businesses are protected by layers of management which obscure what they know and make this test difficult to prove.

‘The suite of provisions in the ECCTA should tip the scales in favour of the SFO,’ is Firth’s assessment, ‘particularly the reform of the identification principle to include senior managers.’

The act also increases the SFO’s powers to issue section 2 notices compelling individuals and companies to provide information at an earlier stage prior to investigation.

‘Taken together,’ Firth says, ‘these enhanced powers will impact a board’s decision-making when deciding whether to voluntarily self-report, which could in turn lead to more DPAs being concluded.’

Challenge of cooperation

Unlike in the US, DPAs can only be entered into with businesses. This means that it can be difficult to gain the cooperation of the individuals involved, who will be understandably wary that following a DPA they will then be personally pursued by the enforcement agencies.

Weil disputes and investigations partner Hayley Lund notes: ‘In the UK, the scope for prosecutors to agree negotiated outcomes with individuals is far more limited than in the US. This can expose implicated individuals to greater and more complex risks and, as a consequence, individuals caught up in an investigation should consider independent legal representation at an early stage, certainly before any meaningful engagement with relevant corporates or authorities.

‘Legal representation in such circumstances may be covered by an individual’s directors’ and officers’ liability insurance or by agreement with relevant corporates, so there may be a limited expense to the individual.’

US prosecutors have more autonomy to steer the direction of a corporate crime case. Prosecutors can provide a degree of certainty to businesses and individuals that if wrongdoing is admitted and they cooperate fully with the investigation, they will get significant credit. The DOJ provides comprehensive resources to guide businesses through DPA negotiations, giving them a significant steer as to how a prosecutor might approach their situation.

By contrast, in the UK judicial involvement is extensive, required to negotiate or modify the terms of the agreement, as well as granting approval at the end. The scope for designated prosecutors to cut a deal is limited.

SFO head Nick Ephgrave is a former police officer and the first non-lawyer to run the agency. He has mooted the incentivisation of whistleblowers to enable successful prosecutions. Paying whistleblowers or granting them immunity is a practice already used in the US to fast-track prosecutions and build compelling cases.

US enforcement agencies are efficient, well-funded and have a strong track record of winning prosecutions, making it sensible to cooperate and try to strike a deal.

The idea has had a mixed reception among practitioners. Some commentators have cited a British trial culture in which there is an entrenched aversion among juries to ‘grasses’, but this may be overstated. The CPS already uses whistleblowers as a resource, publishing the extent of their use in annual statistics.

‘Financial incentivisation of whistleblowers may be helpful in some cases but it is not a silver bullet,’ says Ross Dixon, partner at Hickman & Rose. ‘For a potential whistleblower themselves at risk of prosecution, the promise of full immunity may be more attractive than a financial reward, but either way, incentivising a whistleblower to cooperate can seriously damage their credibility as a witness when it comes to a trial.’

Firth avers: ‘It seems sensible to try something different after decades of repeated case failures,’ he says.

‘At the moment the SFO has few levers to pull when it comes to its caseload. Incentivising whistleblowers works well in the US context and is one of several proactive investigative tools aimed at speeding up case take-on and investigations that the director has championed. The focus on improving investigative steps is no surprise, given Ephgrave’s policing background.’

Many of the SFO’s current cases focus on scammers who rip off UK investors and consumers: timeshare, property investment and pre-paid funeral schemes, among others. But this does not mean the enforcer has lost its focus on big business. Ephgrave told the FT in September that he expects DPAs to come back ‘with a bit of a vengeance when we have the duty to prevent fraud offence active’, which would ‘lead to an uptick in DPA referrals.’

On paper, ECCTA should improve the prospects of successful prosecution and drive more businesses into the arms of a DPA. But however well legislation is crafted, there is still the triple whammy of underfunding to contend with – of enforcement agencies, of the courts and of legal aid.

In 2024, DOJ funding totalled $39.7bn. The SFO’s annual budget for 2024/25, initially set at £83.8m, was increased by an extra £9.3m last November. Could retaining some of the DPA fines help UK enforcement agencies perform better?

‘Looking at the net amount that DPAs contribute to the Treasury, there is an argument for the SFO to retain a small percentage of that sum to assist with funding,’ says Firth. ‘The converse argument is that this theoretically reduces the agency’s incentive to pursue prosecutions – although this argument simplifies the issue and does not do justice to the integrity and professionalism of the staff at the SFO.’

Crown court listings are now running into 2027, while the number of criminal legal aid barristers has declined significantly since the swingeing legal aid cuts enacted by the Legal Aid, Sentencing and Punishment of Offenders Act in 2013.

‘Complex cases such as fraud take too long to be listed, which means that prosecutions can drag on for years,’ says Clyde & Co’s Charles Kuhn, a regulatory and financial crime specialist. ‘As it takes so much time, companies may in the normal course of business relocate abroad or restructure. Individuals too are under investigation for prolonged periods during which time memories fade, witnesses may move on, and they may decide to take a roll of the dice with a jury and plead not guilty.’

The new ECCTA provisions fire up the powers of the enforcement agencies and enhance the prospect of successful prosecution for corporate crimes. Considering the severe reputational and financial damage that prosecution brings, businesses will be incentivised into self-reporting, which should lead to more DPAs.

The structural challenges that surround DPAs are harder to resolve. UK agencies cannot hope to match the deep pockets and reputational might of the DOJ and NCA.

The SFO is not the only agency ready to deploy a DPA in the right circumstances. In December, the Jersey courts established the island’s first DPA, under which an independent monitor was appointed. Monitors are common in the US but not the UK, although the DPA Code provides a basis for their use. It remains to be seen whether this development will be emulated on the mainland.

The CPS also secured its first DPA in December 2023: a £614m sanction and costs agreed with the owner of Ladbrokes and Coral bookmakers Entain to settle an ongoing HMRC investigation. Post-ECCTA, many hope to finally see more of them.

 

The Ministry of Justice was approached for comment on issues raised in this article.

 

Katharine Freeland is a freelance journalist