UK DPAs European Criminal Law Association Patrick Rappo June 26, 2013

UK Deferred Prosecution Agreements Implications for UK Enforcement Asked to discuss the new UK law on DPAs:  What they are  Why they are required  What the process will be  How they differ from US DPAs  What are the Judicial tests  When they will come into force / next steps  What the implications are for UK enforcement 2

UK DPAs  Received Royal Assent 25 April  Crime and Courts Act 2013: Section 45, Schedule 17  Not yet in force – Early 2014?  No NPAs 3

What are DPAs? Agreements between prosecutors and companies that postpone or defer a prosecution for a set period of time During deferral period company must comply with conditions/requirements:  Payment of a fine  Compensation of victims  Disgorgements of profits  Implementation of compliance programme  Co-operation with investigations of individuals  Payment of prosecution costs Successful completion = case/prosecution being discontinued Failure to complete/breach = either a redrafting of the DPA or a termination of the DPA and the possibility of a prosecution commencing 4

Merits of DPAs? Benefits:  Self-reports means reduced cost for government / increased penalty £  Company investigates internally and is more in control  Increased certainty for company  Recompense for victims  Improved corporate compliance Risks:  Impact on individuals?  Confidentiality of discussions with prosecutor?  Status of legally privileged material discussed or handed over to prosecutor?  Use of documents in civil proceedings/ancillary litigation? 5

Why are they required? Investigating / Prosecuting Corporate crime in the UK is difficult and costly Limited options: Prosecution, Civil Recovery of proceeds, or No Action UK law of corporate criminal liability, Prosecutors to show that the “directing mind and will” of the commercial organisation had criminal mental element or “mens rea” Difficult to prove, even if proved only punishment is financial penalty Section 7 Bribery Act 2010 removed the requirement for a fault element. However still inadequate to deal with enforcement against organisations. Judicially sanctioned DPAs may  incentivize companies to self-report  improve corporate compliance systems  facilitate repayment of monies to victims  at a reduced cost to the regulator. 6

What is the process? Crime & Courts Act 2013, Schedule 17 is divided into parts 1-3 Part 2 Paragraphs list the offences for which a DPA may be entered into:  Fraud, bribery and money laundering offences. Repealed offences are not listed. Part 3 lists the transitional provisions:  Applies retrospectively  Corrupt conduct occurring prior to the implementation of the Bribery Act in July 2011 may be dealt with by a DPA, under Paragraph

What is the process? Part 1 lists the “characteristics” of a DPA: Paragraph 1 describes a DPA as “an agreement between a designated prosecutor and a person (“P”) whom the prosecutor is considering prosecuting for an offence specified in part 2.” The prosecutor and the company will be bound by that written agreement (Schedule 17: Para 1(2)). The agreement between the prosecutor and the company will contain a statement of facts, which may, but is not required to, include admissions of guilt by the company (Schedule 17: Para 5(1)). 8

What is the process? Conditions (or “requirements”) will be imposed upon the company, and will include matters such as:  Payment of a financial penalty (to be comparable to the fine that could have been imposed after a guilty plea and the 1/3 sentencing discount that applies in the UK),  Compensation of victims,  Disgorgements of profits,  Implementation of a compliance programme,  Co-operation with investigations into the offence, and  Payment of prosecution costs (Schedule 17: Para 5(3) (a)-(g)). 9

What is the process? The DPA will last for a fixed term, and have an expiry date specified (Para 5 (2)). Court proceedings will commence by the prosecutor preferring or laying the indictment. If the DPA is agreed the proceedings are “automatically suspended” and not to be recommenced unless an application is made to the Crown Court (Schedule 17 Para 2 (1)-(3)). Once the DPA successfully concludes, the prosecution must give notice to the court that the suspended proceedings are to be “discontinued.” The proceedings can only be reopened if inaccurate, misleading or incomplete information was provided to the prosecutor (Schedule 17 Para 11 (1)-(4)). 10

How do they differ from US DPAs? 1. Only available to Serious Fraud Office and Crown Prosecution Service Heads of both organisations, the DSFO and the DPP, personally responsible for the decision to enter into a DPA (Schedule 17 Para 3(1), 3(2)). 2. The only persons capable of entering into a DPA with a prosecutor are bodies corporate, partnerships and unincorporated associations. They will not be available for individuals (Schedule 17 Para 4 (1)). 3. Only available for fraud, bribery and money laundering offences. DPAs only available for offences listed in Schedule 17 Part 2 of the Act. 11

How do they differ from US DPAs? 4. The level of transparency and openness: The prosecution must publish  The actual DPA,  The declaration of the court and the reasons set out at the preliminary and final hearings, and  In cases where the court initially declined to make a declaration - the reasons for that decision as well. 5. The role given of the judiciary to control:  Whether a DPA proceeds to a final hearing  Whether a DPA is approved at the final hearing  Whether the company is in breach, or  Whether to terminate/vary a DPA 12

What are the Judicial tests? 1) Is the DPA in the interests of justice,” and 2) Are the “proposed terms” of the DPA are “fair, reasonable and proportionate” 13

Preliminary Hearing: Judge has to decide if entering into a DPA is 1) “likely” to be “in the interests of justice,” and 2) that the “proposed terms” of the DPA are “fair, reasonable and proportionate” (Para 7 (1)). The judge must give reasons for making or not making a declaration. Hearing is in private. If such a declaration is made at the Preliminary Hearing, the parties can then proceed to agree and finalise the DPA. 14

Final Hearing: Judge has to decide if the finalized DPA “is in the interests of justice” and the finalized terms “fair reasonable and proportionate”(Para 8 (1)). The judge must give reasons for making or not making a declaration. The formal approval of the DPA and the reasons must be in public, in open court (Para 8 (6)). 15

Breach Hearing: If the prosecutor believes that an approved DPA has been breached, an application to the court will need to be made. It is the judge who will decide whether there has been a breach, and the decision will be made on the balance of probabilities. In the event that a breach is found, the court can 1)ask the parties to agree a remedy, or 2)can simply terminate the DPA (Para 9). 16

Variation Hearing: Variations can only happen if 1)there has been a breach and the judge asks the parties to agree a variation, or 2)where due to unforeseen circumstances a variation is needed to avoid a potential breach. Judge needs to make a declaration that the proposed variation is in the interests of justice and that the terms are fair reasonable and proportionate (Para 10). 17

When they will come into force? / Next steps No date has been set – Early 2014 expected 2 Matters likely to happen first: 1.SFO/CPS must produce a Joint Prosecutors Code - To guide prosecution decision making 2. The Sentencing Council is likely to produce sentencing guidance for corporate criminal fines - Dealing with DPA offences such as bribery, fraud and money laundering. 18

The Joint Prosecutors Code The Prosecutors Code must give guidance on: a) The principles to be applied in determining whether a DPA is appropriate in any given case b) The disclosure of information by the prosecutor the company The Code may also give guidance on any other relevant matter, including: a) The use that can be made of information obtained by/given to the prosecutor in the course of the negotiations. b) Variation of a DPA c) Termination of a DPA d) Breach of a DPA (Para 6 (1), (2)). Public consultation Summer 2013? 19

The Sentencing Council guidance The financial penalty for a DPA must be “broadly comparable to the fine that a court would have imposed ….following a guilty plea” (Para 5 (4)). A guilty plea in the UK permits a maximum 1/3 reduction in the penalty. A DPA may also have a maximum 1/3 reduction in the financial penalty. Without sentencing guidance corporates will not have any benchmark as to the likely or possible financial penalty Sentencing Council likely to produce sentencing guidance for corporate criminal fines, e.g. bribery, fraud and money laundering, Public consultation Summer 2013? How detailed will the guidance be? 20

What are the implications for UK enforcement? Limited impact due to the corporate concerns?  The level of judicial interference / refusals  The lack of clarity as to the financial penalty  Insufficient protections for materials handed over to prosecutors, and their potential subsequent use in civil or criminal proceedings Dramatic impact increasing Bribery Act and Corporate crime compliance?  Self-reports leading to multiple investigations/prosecutions of individuals  Global settlements reached between the US/UK/other countries What is certain is that companies potentially subject to the Bribery Act have an even greater incentive to bolster their compliance programs and procedures If have “adequate procedures” can neither be prosecuted or deferred prosecution 21