Two developments before Christmas have put the deferred prosecution agreement (DPA) regime at a critical juncture. The acquittal of three individuals following the sixth DPA in England and Wales, with Güralp Systems Ltd, is the third DPA in which the individuals charged with wrongdoing at the heart of a DPA have been cleared at a criminal trial.
Just a month earlier, the decade-long contested trial of Alstom came to an end. Despite Alstom pleading guilty to similar conduct in the US, it heavily contested charges in the UK against its subsidiary Alstom Network Ltd, and was subsequently acquitted on all but one of the charges against it.
The Alstom and Güralp cases have reignited debate among lawyers, not least on these pages, about whether they would advise their clients to contest allegations in the courts rather than negotiate a DPA. This debate suggests that Sir Brian Leveson’s observation in the first judgment approving a DPA that a company better serves its shareholders, its customers and its employees by self-reporting, investigating and entering into a DPA is being seriously questioned.
Analysis of the Alstom case by Spotlight on Corruption shows that if a company is convicted it is likely to face reduced charges and lesser financial penalties than if it had negotiated a DPA, little reputational damage due to reporting restrictions which limit media appetite to cover such trials, no imposition of a corporate monitor, and little prospect of debarment should it be convicted.
There are several key questions that need to be urgently addressed if the DPA regime is to succeed in encouraging self-reporting, increasing economic crime enforcement, and, most importantly, reducing corrupt or criminal behaviour in international commerce:
First, is the criminal justice system creating an environment that incentivises companies to contest allegations against them in order to reduce financial penalties and sanctions rather than taking the morally right approach of coming clean to law enforcement?
Clearly, companies are entitled to contest charges against them. However, if the system encourages companies to do so to create uncertainty around likelihood of conviction, reduce the severity of sanctions, or intentionally protract the time between offending, charging and outcome, it raises concerns over its suitability for dealing with corporate offending.
Secondly, is the DPA regime, which currently makes no distinction in terms of penalty for companies that self-report their wrongdoing and those that cooperate once wrongdoing is uncovered by the prosecutor, creating perverse incentives for companies to sit on their hands until prosecutors have enough evidence against them rather than coming forward?
Anecdotal evidence suggests that fewer companies than ever are coming forward to self-report to the Serious Fraud Office. The temptation for prosecutors may be to offer ever lower penalties to companies to incentivise them to come forward. However, this is an approach that was specifically rejected by the House of Lords Bribery Act Committee last year when it reviewed the DPA regime as part of its inquiry.
Furthermore, an approach that lowers penalties to incentivise corporate self-reporting risks introducing a ‘parking fine’ approach to corporate criminality which fails to recognise the harm caused by corporate offending to society.
And, finally, if convictions for individuals are so difficult to achieve, do alternative ways need to be found of ensuring that those in charge of companies that commit wrongdoing share some responsibility if their fingerprints cannot be found at the crime scene?
Lowering corporate penalties or introducing DPAs for individuals is unlikely to improve accountability at a senior level for corporate criminality. The SFO has, quite rightly, sought to ensure that all of the recent DPAs it has entered into have been accompanied by individual prosecutions. However, the nature of modern corporations, and their complex organisational and decision-making structures, makes holding senior executives criminally liable extremely difficult. Real thought needs to be given to how to ensure those in charge of companies when criminal conduct occurs share responsibility for that wrongdoing.
In order to strengthen the DPA regime we propose the following:
- Sentencing guidelines need to be revisited to make clear that companies found guilty pay a significantly higher penalty than if they had entered into a DPA or pleaded guilty.
- The DPA regime needs to make a clear distinction between reductions in benefit for those companies that self-report at an early stage and cooperate and those that wait until a much later stage to cooperate. The failure to make this distinction encourages companies to wait until they’ve been found out and then pull out all the cooperation stops.
- The introduction of ‘clawback’ clauses within DPAs that require companies to recover financial benefits from the executives who were in charge of the company at the time of the wrongdoing.
The DPA regime in England and Wales is here to stay. But the crucial question as to how to make it effective is still a work in progress.
Nicholas Lord professor of criminology at the University of Manchester, Dr Colin King, reader in law at the Institute of Advanced Legal Studies and Susan Hawley, executive director at Spotlight on Corruption, a new anti-corruption charity.