~ Maria CRONIN

From 24 February 2014, the Serious FraudOffice (SFO) and Crown Prosecution Service(CPS) will be able to conclude criminalinvestigations into co-operating corporateorganisations by entering into DeferredProsecution Agreements (DPAs). DPAs willoffer a radical departure from the UK'straditional approach to corporate criminalityand, in conjunction with the Bribery Act 20 IO,will represent a significant step by the UKgovernment in its bid to tackle seriouseconomic crime. Whilst the introduction ofDPAs might be seen by some as bringing"global settlements" within closer reach, wewill have to wait and see whether this willbecome a reality.

IWhat are OPAs?

DPAs will involve the filing in court of agreedcharges against a corporation, subject to acondition that the charges will not be pursuedif the corporation complies with "a range oftough and stringent conditions including, forexample, the payment of a substantial penalty,requirements to make reparation to victimsand participate in monitoring for a set period".A major factor that will be taken into accountwhen considering whether a corporation iseligible for a DPA is when and how it self­reported the criminal activity to the CPS orthe SFO.

By entering into a DPA, a corporation willavoid the significantharm that would flow froma conviction - such as debarment fromparticipating in government tenders, reputationdamage and the expense of defending a longand protracted investigation - whilst at thesame time making amends for past misconduct,and implementing systems to prevent anyfuture re-occurrence. Indeed the DPA processmight present an attractive alternative for acompany that finds itself acutely exposed tothe risk of a corporate prosecution. Where, forexample, there is evidence of serious harm to

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victims or endemic economic crime within anorganisation, a company's board will no doubtgive considerable weight to the possibility of anearly resolution.

ti OPAs in the United States

In the United States (US),DPAs are considereda hugely important weapon in the armoury ofthe Department of Justice (DOJ) and the USSecurities and Exchange Commission (SEq.The US experience originated from a schemeof pre-trial diversion run by the Boys' Court ofChicago in 1914,to help young offenders avoidthe stigma of a criminal conviction. Over time,these schemes were extended to defendantsfacing minor drug charges and othermisdemeanours. In 1992, this process was forthe first time adapted by Federal prosecutorsin the corporate criminal context, with the firstNon-Prosecution Agreement (NPA) reachedwith the Salomon Brothers for unlawfullyauctioning Treasury securities.

A decade later; there was a surge in the use ofDPAs and NPAs in the US.Thiswas largely dueto the catastrophic fallout following theconviction of Arthur Andersen LLP in 200 I.

The auditing and accountancy firm was allegedto have blocked the SEC's investigation intoEnron PLC. The conviction resulted inthousands of jobs being lost, and investors andcreditors losing significant sums,And although,in 2005, Arthur Andersen successfully appealedthe conviction to the US Supreme Court' , bythis time the damage had already been done.The Arthur Andersen experience continues tobe used as a powerful example of the cost ofprotracted criminal proceedings. DPAs and

NPAs are now a fundamental part of UScorporate prosecutions.

~ OPAs in the UK

The UK government introduced DPAs inresponse to growing judicial criticism of civilrecovery orders and "US style deals", whichwere increasingly being used in place ofprosecutions. These were seen as a threat tothe UK's strict division between prosecutorialdiscretion and judicial independence, whichhitherto had prevented any kind of settlementbetween the prosecutor and defendant

Corporations under investigation facedsignificant difficulties, particularly where theywere under investigation in more than onejurisdiction, with little prospect of a "globalsettlement". In the case of R v Innospec Ltd [20 I OJUoyd'sRep. fe. 462 a US company with a UKsubsidiary agreed settlements with both the USand UK prosecutors, in lieu'of prosecution foroffences of corruption. The US and UK officialsjointly'agreed the sentence. While the UScourtduly approved the deal,the UK court refused todo so. Itwas held that the UK prosecutors hadoverstepped their constitutional role and, as

such, agreements and submissions of the typethat had been put forward could not beapproved. Lord JusticeThomas made clear that

"Prindples o( transparent and open justicerequire a court sitting in public itsel( ffrst todetermine by a hearing in open court theextent o( the criminal conduct on which theoffender has entered the plea and then, on thebasis orits detennination as to the conduct,theappropriate sentence f...]

[... ]1 have concluded that the Directorof theSFO had no power to enter into theqrrangements made and no such arrangementsshould be made again.

[. .. ] it is for the court to decide on thesentence and to explain that to the public, as Ihave endeavoured to do, in a manner that isboth open and transparen~ as that is whatjustice requires:'2

With the introduction of DPAs, the UKgovernment has sought to balance theconcerns of the judiciary and those ofcorporations. A decision to enter into a DPAwill be subject to judicial scrutiny as will thefinal DPA. The judge will have to determinewhether or not the DPA is in the interests ofjustice and whether its terms are fair,reasonable and proportiònate to the wrongcommitted. Whilst the judge will initiallyconsider the proposed terms of the DPA at aprivate, preliminary hearing, the final DPA willsubsequently be approved in open court, withtransparency being key.

In addition to providing a framework withinwhich negotiations can be carried out, inaccordance with the "princiPles of open andtransparent justice", the UK government alsohopes to resolve the difficulties UKprosecutors have faced in the past whenprosecuting corporations. While criminalconvictions of companies for economic crimehave long been a feature of the US criminaljustice system, prosecutions in the UK havebeen fraught with difficulties.In the UK, it mustbe shown that there was intent attributable toone or more individuals representing the"controlling mind and will" of the company(the identification principle). The identificationprinciple requires that the prosecutor provesthat an individual of sufficient seniority, so as tobe identified as the company. was involved inthe relevant criminal conduct and had therequired guilty knowledge. This hurdle has inthe past provided a powerful shield forcorporations.

In the US,corporate liabilitycan be established.applying the principle of "respondeat superieur"whereby a "corporation may be held criminallyliable for the acts of its directors, officers,employees, and agents. To hold a corporationliable for these actions, the government must

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establish that the corporate agent's actions (i)were within the scope of his duties and (ii)were intended, at least in part, to benefitthe corporation"). This essentially makescorporations vicariously liable for the actionsof its directors and employees. It is perhaps forthis reason that companies in the US have beenso willing to self-report and go down the DPAroute.

H Conclusions

It may not be long before we see how DPAswork in practice in the UK, and whether theywill provide the solution hoped for by the UKgovernment Where the conduct involves morethan one jurisdiction, corporates will still facethe prospect of negotiating with prosecutingauthorities in more than one country. TheDPA framework should however providecorporations with more comfort that a swiftand successful outcome can be achieved.

However, employees and directors may wantto seek legal advice at an early stage, whereunlawful conduct is discovered, as we are yet tosee how individuals will fare under this newsystem (which does not extend to individualcriminal liability).

It is evident that DPAs, if utilised properly, willhave a significant effect on the enforcement ofeconomic crime in the UK.

Maria CRONINPeters & Peters SolicitorsLlJ>

London,United Kingdommcronin@petersandpeters.com

I Arthur Andersen v US 544 US 696 (2005).

2 R v Innospec Ltd,Southwark Crown Court, 26 March 20 IO.

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