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Comparing Deferred Prosecution Agreements in the U.K. and U.S.

Monday, May 19, 2014
By Asheesh Goel, Marcus Thompson & Katerina Sandford

Asheesh Goel is a Securities Enforcement partner resident in the Chicago and Washington offices of Ropes & Gray LLP, managing partner of the firm's Chicago office and co-chair of Ropes & Gray's award winning global anti-corruption and international risk practice. Asheesh focuses on securities enforcement matters, including internal investigations, government investigations and enforcement actions. Over his career, he has developed substantial depth advising clients on the Bank Secrecy Act, the Foreign Corrupt Practices Act, the U.K. Bribery Act and other related anti-money laundering and anticorruption laws, financial statement and disclosure issues, insider trading, auditor issues and industry matters.

Marcus Thompson is assistant general counsel in the Office of the General Counsel for Ropes & Gray LLP in London. Marcus is responsible for legal, risk, compliance and regulatory matters relating to the firm's London and Asian offices. In addition, Marcus serves as Counsel in the firm's Government Enforcement Practice Group, assisting clients with matters concerning anti-money laundering, anti-bribery and corruption, international sanctions, extradition and corporate investigations.

Katerina Sandford is an associate in Ropes & Gray's government enforcement practice group. Katerina assists clients with matters related to anti-bribery and corruption, international sanctions and anti-money laundering.


On Feb. 24, 2014, deferred prosecution agreements (DPAs) became available to prosecutors in the U.K. for the first time. Their introduction marks a significant shift in the U.K.'s approach to corporate criminal liability and, to a certain extent, aligns it with the U.S.'s enforcement methods in relation to financial crime. In particular, DPAs are expected to be valuable tools for prosecutors looking to enforce the U.K.'s Bribery Act 2010.1

DPAs in the U.K. are very similar to DPAs in the U.S., but there are some notable differences between the two regimes, both in the law and the approach prosecutors take.

Corporate Liability

DPAs in the U.K. and U.S. have some different features, which are outlined below. Moreover, the legal basis on which companies face criminal liability in each country differs markedly. It is much more difficult to establish corporate criminal liability in the U.K. than in the U.S. In the U.K., prosecutors must present evidence of guilt by the "controlling mind" of the organization, typically the board. The difficulty in the U.K. of attributing liability to individuals on this basis, the so-called "identification principle," particularly in relation to large organizations, has made it much harder for prosecutors to pursue convictions against corporations.

By contrast, respondeat superior liability in the U.S. makes it much easier to prosecute companies based on the conduct of one or more employees at any level of seniority. This is significant because part of the incentive for a company in either country to enter into a DPA will depend on the realistic threat of criminal conviction, and it is a much more realistic prospect under U.S. law than it is, at present, in the U.K. The director of the Serious Fraud Office (SFO) has publicly acknowledged that the issue of corporation criminal liability in the U.K. needs to be resolved for DPAs "to have maximum bite."2

The identification principle does not, however, always burden the prosecution of companies under the Bribery Act. Section 7 is an offense aimed at companies that fail to prevent persons associated with them from bribing others on their behalf. There is a statutory defense to §7 if a company can prove that it has adequate procedures in place to prevent persons associated with it from bribing.3 In other words, if a prosecutor can show that a person associated with a company has paid a bribe and the company's procedures to prevent bribery are not "adequate," the company has a problem.

DPA Terms

DPAs have been available to prosecutors in the U.S. for many years, but they are new to the U.K. The legal basis for DPAs in the U.K. is set out in Schedule 17 of the Crime and Courts Act 2013.4 A DPA is a voluntary agreement between a designated prosecutor and a corporate body that suspends criminal proceedings against the corporation, subject to compliance with certain conditions, which may include:

  • the payment of a financial penalty;
  • the payment of compensation to victims of the alleged offense;
  • disgorgement of profits made by the corporation from the alleged offense;
  • implementing a compliance program or otherwise making changes

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to an existing programme;

  • co-operating with any investigation related to the alleged offense; or
  • paying any reasonable costs of the prosecutor in relation to the alleged offense or the DPA.

DPAs are available only to corporate entities, partnerships and unincorporated associations, and they cannot be used in relation to individuals. The U.K. government has emphasized that DPAs will not be used as a means for individuals to avoid prosecution. A corporation has no right to request or initiate the DPA process, and the designated prosecutors (the Director of the SFO and Director of Public Prosecutions) have full discretion over inviting an organization to enter a DPA.

While the DPA is in force, the corporation is protected from further prosecution in relation to the same offense. A breach of the conditions imposed under a DPA may lead to the recommencement of prosecution.

Differences Between Countries

Much of this will be familiar to U.S. lawyers and companies who have dealt with DPAs in the U.S., but there are some notable differences both in law and approach:

  • DPAs in the U.K. may be entered into only with organizations, whereas in the U.S. they may also be entered into with individuals.
  • U.K. prosecutors must obtain judicial approval to initiate DPA negotiations, declare and/or modify a DPA.5 The legislation also promotes transparency (something the U.S. Department of Justice has been criticized for lacking), as the declaration of a DPA and the court's reasoning for entering into an agreement are made public. In the U.S., DPAs are often negotiated by prosecutors with limited (if any) judicial involvement.
  • he availability of DPAs in the U.K. is limited to "scheduled offences" set out in the Crime and Courts Act.6 In contrast, the DOJ has broad discretion as to the types of crimes for which DPAs may be entered.
  • At this stage, the U.K. has not gone so far as to introduce non-prosecution agreements, which are a feature in the U.S.
  • In the U.S., individual prosecutors have significant autonomy in how they approach and engage in DPAs. In the U.K., the use of DPAs, particularly in the next few years, will be closely overseen by the designated prosecutors.7

Interested in This Topic?

For further analysis of legal issues that can arise in an SEC prosecution in the U.S., see Colleen P. Mahoney et al., The SEC Enforcement Process: Practice and Procedure in Handling an SEC Investigation, Portfolio 77-4th in the Corporate Practice Series, available at Bloomberg BNA. Go to http://www.bna.com/sec-enforcement-process-p6973/ for more information.


Probably the single most important distinction between these two approaches is the role of the judiciary in the DPA process. Prosecutors in the U.S. have been criticized for wielding too much power over companies in the DPA process, with the prosecutor having almost sole responsibility for safeguarding the public interest. The U.K. has chosen to modify this approach by giving the judiciary much more of a role in the DPA process, though it remains to be seen how, as a matter of practice, the judiciary will perform this role. Moreover, although some companies may see the benefit in the U.K. of having prosecutorial ambition restrained by a judicial hand, the flip side of this analysis is that companies in the U.K. will lack the certainty they would have in the U.S. of negotiating a DPA with a prosecutor--where they have the knowledge that whatever they agree to will be reflected in the final outcome.

Once company leadership has understood the legal and procedural differences between the two DPA regimes, there is one final matter to consider: the mindset of the prosecuting agencies with whom the company will be negotiating its DPA.

Prosecutors

In relation to bribery and anti-corruption matters in the U.K., the SFO is the lead agency. In comparison to the DOJ, the SFO is tiny, with a budget of less than 40 million pounds. In contrast, the DOJ's FY2014 enforcement budget for financial and mortgage fraud stands in excess of $500 million.8 The SFO's tone as a prosecutor is, however, much more aggressive than its relatively small budget would suggest. As an indication of its desire to adopt a more proactive investigative stance, the Director of the SFO announced in a speech to U.K. businesses on April 23 that the SFO was looking to implement "intrusive surveillance" techniques and other investigative tools more commonly associated with organised crime and terrorism investigations in the U.K.

Despite some recent high-profile embarrassment in the courts, the SFO's director remains bullish about its future prospects and has recently commented on the SFO's approach to dealing with companies faced with the prospect of self-reporting compliance failures that have resulted in matters of bribery and corruption. "I cannot help you on ethics," he said to companies in a March 6 speech.9 "The SFO is not a regulator, an educator, an advisor, a confessor or an apologist."

His comments suggest that he does not regard his prosecutors as having any part to play in determining standards of corporate behavior in a Bribery Act context and, in fairness, the SFO is not now, and has never been, anything other than a prosecution agency targeting serious fraud.

The DOJ's Resource Guide10 to the Foreign Corrupt Practices Act11 "endeavors to provide helpful information to enterprises of all shapes and sizes--from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world," which sounds, in contrast to the SFO, rather more educational and advisory. Companies obviously have access to lawyers and others who can advise and educate them on everything from compliance programs to DPA negotiations, but what the company often wants to know is simply "how will the prosecutor approach this?" At present, a company and its advisors will probably find it easier to answer this question in the U.S.

Finally, U.K. DPAs are negotiated after a company has either self-reported to a prosecutor or the prosecutor has proactively targeted the company for investigation. For those companies considering self-reporting in the U.K., there are two additional factors to bear in mind. First, the Sentencing Council's recent Guideline on fraud, bribery and money laundering sentences for corporate offenders expressly provides for a reduction in sentence for early, voluntary reporting.12 This is also reflected in the Code of Practice for prosecutors associated with the use of DPAs, which has been published recently.13


Probably the single most important distinction between these two approaches is the role of the judiciary in the DPA process.

In addition, under U.K. law, if a company suspects that a money laundering offense has been committed, it needs to consider whether it is required to self-report to the National Crime Agency under the Proceeds of Crime Act 2002.14 In many circumstances this is a mandatory requirement and failure to comply by reporting as soon as reasonably practicable is a separate criminal offense.

Conclusion

So, back to the question posed at the beginning of this article; if you are a company facing a DPA negotiation, where would you rather be? The U.K. has a new DPA regime, which means negotiations with U.K. prosecutors will be harder to predict, at least in the short term. Moreover, there is much less prosecutorial guidance available to companies in the U.K. on Bribery Act/FCPA type matters. In contrast, DPAs are well established in the U.S. and, with a raft of guidance and precedent concerning their negotiation and settlement, allow for greater certainty. However, given the difficulty in establishing corporate criminal liability in the U.K. the effectiveness of the DPA regime in incentivizing companies to enter into DPAs in the first place remains to be seen. In the final analysis, it is still much easier to prosecute companies in the U.S.

For some companies, the question will be irrelevant as it implies a choice of jurisdiction the company may not have if it is simultaneously facing DPA negotiations in relation to connected matters on both sides of the Atlantic. However, 2014 is likely the first year that companies will face this scenario.

1 SeeBribery Act 2010, available athttp://www.legislation.gov.uk/ukpga/2010/23/contents.

2 David Green, Ethical Business Conduct: An Enforcement Perspective at PwC (Mar. 6, 2014), http://www.sfo.gov.uk/about-us/our-views/director's-speeches/speeches-2014/ethical-business-conduct-an-enforcement-perspective.aspx.

3 Bribery Act 2010, § 7, available at http://www.legislation.gov.uk/ukpga/2010/23/section/7.

4 Crime and Courts Act 2013, sched. 17, available at http://www.legislation.gov.uk/ukpga/2013/22/schedule/17.

5 Courts and Crime Act 2013, § 45, sched. 17, pt. 1, para. 7, available at http://www.legislation.gov.uk/ukpga/2013/22/schedule/17.

6 Id.at sched. 17, pt. 2.

7 Id.at sched. 17, pt. 1, para. 3.

8 See U.S. Dep't of Justice, FY 2014 Budget Request, available athttp://www.justice.gov/jmd/2014factsheets/fin-mgt-fraud.pdf.

9 Supra note 2.

10 See U.S. Dep't of Justice, FY Budget Fact Sheets, available at http://www.justice.gov/jmd/2014factsheets/.

11 15 U.S.C. §§ 78dd-1.

12 Sentencing Council, Fraud, Bribery and Money Laundering Offences Guideline: Consultation (June 27, 2013), http://sentencingcouncil.judiciary.gov.uk/docs/
Fraud_Definitive_Guideline_(web).pdf
.

13 SFO & CPS, Deferred Prosecution Agreements Code of Practice: Crime and Courts Act 2013, http://www.sfo.gov.uk/media/264623/
deferred%20prosecution%
20agreements%20cop.pdf
.

14 Seehttp://www.legislation.gov.uk/ukpga/2002/29/contents.

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