In the second of our series we have extracted segments from the recent speech by Alun Milford the General Counsel of the SFO to an audience of compliance professionals where he dealt with DPA’s.

Mr Milford said:

The timetable for considering a DPA

“…towards the end of the investigation that we will decide how to deal with a corporate.

If we judge that there is insufficient evidence against it, then that is the end of the matter so far as the corporate is concerned. Equally, if we consider we have sufficient evidence for a realistic prospect of conviction and the public interest warrants the corporate’s prosecution, we will prosecute. But if we think the public interest might not require a prosecution then we will consider a DPA.”

The process for a DPA

“The mechanics of this are, I think, well understood. The SFO, not the suspect company, can invite DPA negotiations.

If the company takes up the offer, we will exchange confidentiality undertakings to enable the negotiations to take place privately. In those negotiations we will seek to reach agreement on a statement of facts, which sets out the extent of the company’s wrong-doing, and the terms on which the company should account for that wrongdoing.

Such terms may include a financial penalty, broadly comparable with the fine a court would have imposed if the company had pleaded guilty on a full prosecution, disgorgement of profits, payment of compensation and the SFO’s costs, enforceable undertakings of co-operation and schemes for ensuring future compliance. Crucially, to be effective that agreement then needs judicial approval both as to the principle of a DPA with that company and its precise terms. The first hearing at which the question of such approval will be considered must be in private. If after that hearing the parties decide to pursue the agreement and finalise its proposed terms, they must apply again, this time in a public hearing, for a declaration from the judge that: the DPA is in the interests of justice; and the terms of the DPA are fair, reasonable and proportionate. If the judge agrees to make that declaration, he or she must give reasons for this. It is really important to the statutory scheme that those reasons are easily available. Therefore, subject always to the power of the court to delay publication to ensure a fair trial of others, the prosecutor must then publish the DPA and the judge’s declaration. Finally, criminal proceedings against the company are started and immediately suspended in accordance with the terms of the agreement.”

Mr Milford confirms that the financial penalty paid under a DPA will be “broadly comparable” with the fine a court would have imposed if the company pleaded guilty on a full prosecution, disgorgement of profits, payment of compensation and the SFO’s costs, enforceable undertakings of cooperation and schemes for ensuring future compliance.

It is worth flagging that a conviction following trial do not include the imposition of enforceable undertakings of cooperation and schemes for ensuring future compliance.  A point picked up on by Sue Hawley of Corruption Watch who recently argued:

“Courts ought to have the power to order probation conditions, or supervision orders for companies – requiring a company to get an independent review of its anti-bribery procedures and report to the court about its implementation of any such review. Such orders should also require companies to report any wrongdoing it discovers while the order is in place.

Without corporate probation orders, the UK will remain in the strange position of having less rigorous scrutiny of the corporate governance of companies that do not cooperate with law enforcement bodies than of those that do cooperate and are offered a DPA.”

The admission of guilt

On the admission of guilt Mr Milford went on to say:

“I would make two other points. First, it should be obvious that a company that does not accept any criminal liability on its part cannot enter into a DPA, whatever view we may take of the evidence against it. Whilst the DPA process does not require a formal admission of guilt, a company which considers it has nothing to account for cannot agree to a statement of facts which sets out wrongdoing it denies, or to the payment of a financial penalty consequent on that wrongdoing, or to the payment of compensation when it considers it owes none or to rehabilitative measures when it considers there is nothing to rehabilitate.”

Of course a DPA without guilt would be a non sequitur – but there is a tension as to the timing of such an admission.  The DPA Code caters for this in the context of the final DPA.  However we are aware that the SFO may seek an admission in advance of DPA negotiations being entered into.

On co-operation

“Secondly, it should also be obvious from a cursory review of the public policy guidance that we will not enter into a DPA with a company that has not co-operated with us.

Our Director, who is the only person in the SFO empowered to enter into a DPA, has repeatedly emphasised this point and the published guidance couldn’t be clearer about it. So, the first of the public interest factors against prosecution listed in the DPA Code is co-operation. It states,

‘Considerable weight may be given to a genuinely proactive approach by (the organisation’s) management team when the offending is brought to their notice, involving within a reasonable time of the offending coming to light, reporting (the organisation’s) offending otherwise unknown to the prosecutor and taking remedial actions including, where appropriate, compensating victims. In applying this factor the prosecutor needs to establish whether sufficient information about the operation and conduct of (the organisation) has been supplied in order to assess whether (it) has been co-operative. Co-operation will include identifying relevant witnesses, disclosing their accounts and the documents shown to them. Where practicable it will involve making the witnesses available for interview when requested. It will further include providing a report in respect of any internal investigation including source documents.’

The Standard Bank case shows how this can be made to work in practice. The bank first came to us within days of learning it had a problem. We discussed next steps with them and they conducted an internal investigation, gathering in information from across its various businesses. Their written report was thorough and it served as a helpful spring-board for our own independent investigation. Their conduct was an object lesson in how to co-operate. In return, we were able to complete our investigation within a shorter period of time than if we had not had their co-operation. We were then able to agree with them a disposal that permitted them to account to a court for a failure to prevent corruption, including agreeing to make a compensation payment, whilst avoiding both a conviction in the UK and parallel FCPA proceedings in the US.”

 Opinion

There is no doubt that the introduction of the concept of DPA’s into the UK criminal justice system is a positive step and this latest additional colour from Mr Milford is helpful – albeit that in reality there is not much new here.

In his speech Mr Milford distinguishes a DPA from a conviction as follows:

“Herein lies the advantage to the company; if it secures an agreement and complies with its terms, it will account to the court for its wrongdoing yet avoid a conviction and all the consequent damage that might do to its ability to conduct business in the future.” [Our emphasis]

However, as we have previously argued, in order to encourage corporates of the benefit of a DPA in the UK then the authors consider that ‘clear blue water’ will need to be put between a conviction and a DPA in connection with S. 7 offences.

Put another way the financial penalty must be demonstrably less.

As it stands the evidence to date shows that formula used to calculate the financial penalty could be worse.

In Standard Bank the multiplier used was the same as that in Smith & Ouzman which contested the allegations at trial and was found guilty.

The Standard Bank multiplier was 50% more than in Sweett where the SFO chose not to offer the Company a DPA.

Section 7 of the Bribery Act was conceived before the DPA regime and was always specifically carved out of the mandatory debarment regime (which itself has been diluted since with the concept of self cleansing).   The PR distinction between a DPA and a s. 7 conviction exists but will be lost on most.

Standard Bank was a unique set of circumstances, including a Self Report made before the Company’s Solicitors had started the internal investigation, let alone completed it.

While the Standard Bank case has been referred to as the benchmark by which other DPA Applications should be made, we look forward to future DPA’s which evidence a fairer and more balanced approach.

In our next post we shall look at privilege.