Tue, 21 May 2013
By Alex Stein
Following the Bribery Act 2010 the next instrument the Government is preparing in the ‘battle against economic crime’ is the Deferred Prosecution Agreement [‘DPA’]. Following a consultation in 2012 the Ministry of Justice inserted schedule 17 into the Crime and Courts Act 2013 [‘CCA 2013’]. Although the Crime and Courts Act 2013 received Royal Assent in April 2013, Schedule 17 is not yet in force.
In the Impact Assessment published in October 2012 the Government states-
‘The present justice system in England and Wales is inadequate for dealing effectively with criminal enforcement against commercial organisations in the field of complex and serious economic crime. The system’s deficiencies pose problems for prosecutors, defendants and judges and can have adverse impacts on victims, customers, suppliers and the wider economy. The increasing internationalisation of both the crime and the offending commercial organisations exacerbates the existing problems’.
The basic problem is that criminal prosecutions of companies for fraud and kindred offences involve drawn out and lengthy investigations and expensive trials. In reality the policing of these offences is extremely difficult and relies heavily on self- reporting and whistle blowing. Although there has been much fanfare at the implementation of the Bribery Act 2010 only 3 prosecutions have resulted so far with the only reported conviction relating to a member of court staff receiving £500 in return for not updating the court database with details of a motoring offence.
From the prosecution position the best outcome under the present system results in a conviction and fine against a corporate identity. However companies that are convicted are stigmatised and locked out from bidding for Governmental and Local Government work. The conviction and sentence can lead the company to seek to avoid further liability by winding up and can have such an adverse effect on the company’s viability that jobs are lost, neither of which is in the public interest.
The Proposed UK Model
In the United States Deferred Prosecution Agreements and Non Prosecution Agreements have been in use for many years. In essence a company will agree to various remedies for non-compliance with regulation in return for avoiding prosecution. In DPAs the threat of prosecution continues to hang over the company like the Sword of Damacles until such reparations as satisfy the prosecution are made.
In the UK, by virtue of paragraph 6 of Schedule 17 CCA 2013, the Government instructs the Director of Public Prosecutions and the Director of the Serious Fraud Office to produce a DPA Code of Practice for Prosecutors akin to the Code for Crown Prosecutors. It is envisaged that the following factors will be considered under the code-
• The nature and seriousness of the offence
• The level of premeditation or cover up
• How wide spread the wrong doing was
• The seniority of the individuals involved
• Any losses to innocent third parties
• The likely impact of a prosecution on the corporate and its financial well being
• Parallel actions being undertaken in other jurisdictions
• Remedial action taken by the organisation
• Any previous convictions or DPAs
Unlike in the United States the UK Government has insisted on judicial oversight throughout the process. Having made a decision in principle that a DPA is a suitable disposal and obtained initial agreement from the company under investigation, the prosecutor will commence proceedings in the Crown Court. At a preliminary hearing in private a Crown Court Judge will be presented with an outline of agreed basic facts and alleged wrongdoing, a draft indictment, the agreed or contemplated conditions to be attached to the agreement and an outline of any areas of dispute or on-going discussion.
The Judge will then rule on whether it is ‘in the interests of justice’ for a DPA to be entered into in the case. The Judge will also indicate whether the emerging terms are likely to be appropriate by determining if they are ‘fair, reasonable and proportionate’ in the circumstances of the case [Paragraph 7, Schedule 17 CCA 2013].
The Sentencing Council has been invited to produce sentencing guidelines for offences that are likely to be encompassed by DPAs to ensure consistency in approach and to assist the Crown Court Judge in assessing the appropriateness of any agreement. The Government considers that the prohibition on judicial review in relation to matters on Indictment should extend to the DPA procedure. It is uncertain if either the prosecutor or the company will be able to appeal any decision of the Crown Court Judge as to whether a DPA is or isn’t appropriate.
Under paragraph 5, schedule 17 CCA 2013 the terms and conditions of a DPA would be case specific. The DPA must contain a statement of facts and must specify an expiry date. The DPA may impose the following conditions-
• To pay the prosecutor a financial penalty
• To compensate victims of the alleged offence
• To donate money to charity or other third party
• To disgorge any profits made from the offence
• To implement a compliance programme or make changes to an existing compliance programme
• To co-operate in any investigation
• To pay any reasonable costs to the prosecutor
The legislation makes plain that the conditions are examples and each DPA should be shaped to each individual case. The DPA may impose a time limit within which compliance with the conditions must be fulfilled.
Although clearly indicative a preliminary ruling that a DPA is appropriate will not be binding on the Judge until such time as the agreement is finalised. Once the parties have agreed the terms the case will be listed before the Judge in private for his final approval [paragraph 8, Schedule 17 CCA 2013]. The agreement will be made between the Director of Public Prosecutions or the Director of the Serious Fraud Office and the Company.
If accepted the Judge will then sit in open court. Paragraph 32 of Schedule 17 inserts a new section (2)(ba) into the Administration of Justice (Miscellaneous Provisions) Act 1933 whereby a bill of indictment can be preferred in the Crown Court for the purposes of a DPA. The prosecutor prefers a bill of indictment which is then immediately suspended for the term of the DPA under paragraph 2, schedule 17 CCA 2013. The terms of the DPA will be pronounced in public and subject to prejudicing any future litigation the prosecutor will be required to publish the final agreement [paragraph 12, Schedule 17 CCA 2013].
Under paragraph 9, Schedule 17 CCA 2013 the prosecutor can at any time during the period of the DPA apply to the Court where it believes there has been a breach of the agreement. The Court therafter determines on the balance of probabilities whether there has been a breach and may then order the parties to agree proposals for remedying the breach or order the termination of the DPA. If the DPA is terminated criminal proceedings based on the suspended bill of indictment can be recommenced.
Paragraph 10, schedule 17 CCA 2013 sets out the procedure for the variation of the DPA. If during the period of the DPA it becomes apparent to the parties that the terms are unworkable and it is agreed they should be varied, the prosecutor must apply to the Crown Court for a declaration that the variation is in the interests of justice. There is no route by which the defendant can seek to vary the DPA without the agreement of the prosecutor until breach proceedings under paragraph 9.
There will inevitably be complications with admissibility of material obtained as part of the DPA negotiations at any trial following the failure of negotiations or breach proceedings. Under paragraph 13, Schedule 17 CCA 2013 the statement of facts in any agreed DPA is to be treated as a section 10 CJA 1967 admission in any subsequent criminal proceedings. Where negotiations have taken place but have not resulted in an agreed DPA then draft material may be admissible in a prosecution for providing inaccurate or misleading information or if the defendant asserts in evidence something that the material demonstrates is inconsistent. Of course any criminal court will retain the general power to exclude material on the basis of fairness under section 78 PACE 1984.
The DPAs are to be applied to commercial organisations [Companies, Partnerships or unincorporated associations] in cases that can be classified as economic crime-
Conspiracy to Defraud
Cheating the Public Revenue
Offences under the Theft Act 1968
Offences under the Customs and Excise Management Act 1979
Offences under the Forgery and Counterfeiting Act 1981
Offences under section 450 Companies Act 1985
Offences under section 72 Value Added Tax Act 1994
Offences under the Financial Services and Markets Act 2000
Offences under Part 7 Proceeds of Crime Act 2002
Offences under the Companies Act 2006
Offences under the Fraud Act 2006
Offences under the Bribery Act 2010
Offences under the Money Laundering Regulations 2007
DPAs will be available in relation to conduct pre-dating the commencement of the legislation despite the apparent unfairness to companies who have been prosecuted and convicted simply because the wrong doing came to light quicker than in other cases [paragraph 39, Schedule 17 CCA 2013].
There will be obvious benefits to companies who will avoid conviction and although not guaranteed potentially avoid being debarred from public procurement tenders. Some of the consultation responses were particularly concerned that the DPAs will be seen as a ‘quick win’ by the prosecutor where a criminal prosecution would be more appropriate. There are also concerns that DPAs will enable culpable senior employees to avoid prosecution whilst facilitating prosecution of junior employees following disclosure under the agreement.
Despite a wider remit being considered in the consultation the scope of DPAs is to be limited to corporate economic crime. However the Government’s response to the consultation makes plain that it is keen to maintain flexibility. In other jurisdictions such agreements cover all types of regulatory offences and given the relative cost benefits it is likely that in the future their remit will be widened further. Given the current financial situation it is not impossible to envisage DPAs eventually being extended to individuals as well- is there really that much different between a DPA and a Serious Crime Prevention Order under the Serious Crime Act 2007?
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