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UK: Deferred prosecution agreements - success or failure

Nigel Morris-Cotterill

A deferred prosecution is a device used by prosecutors to allow suspected criminals to buy what amounts to a judicially approved arrangement to avoid prosecution so long as the accused meets certain conditions for a certain period of time. Critics (of which this newspaper is one) see it as a bribe; supporters see it as a way of compelling the accused to do whatever it is that the prosecuting authority wants. Developed in the USA, there is a global move towards adoption of this tactic. The former head of the UK's Serious Fraud Office was a fan; he's been replaced by an American who has been immersed in this system. How's it going?

The "Deferred Prosecution Agreement" system is, this author contends, an immoral, legally questionable, constitutionally dubious and strategically flawed concept.

It is immoral because it allows those who enter into such agreements to limit their risk to consequential civil proceedings by those harmed by the actions of the accused by the inclusion of "without admitting or denying the allegations," to the intent that no one can rely on the fact of the agreement as the basis for an action for damages. Evidence of a conviction is evidence that can't be challenged in the civil proceedings.

It is legally questionable because a Deferred Prosecution Agreement is approved by a judge who is, in effect (although not in law) conspiring to reduce the chances of success of a civil suit.

It is constitutionally dubious because the deal is done behind closed doors: no evidence is made public (except that which prosecutors consider to have public relations value) . While the terms of the Order are made public, it cannot be said that justice is seen to be done.

It is strategically flawed because it penalises shareholders and customers who end up paying for failures that are caused or supervised by individuals within the company who are almost never prosecuted. This demonstrates a conflict of interest between those who negotiate the deal and the owners and customers of the business. They, personally, rarely suffer consequences - even those that leave often do so with large exit payments and obtain alternative, similar employment - or sinecures with e.g. consulting firms - soon afterwards.

The irony is that mostly the conduct which is prosecuted arises out of financial crime risk and compliance failures - combined with reckless or wilful attitudes. The irony arises because the Deferred Prosecution Agreement often includes nothing significant other than "let's see if you can do risk and compliance properly for a time."

In the UK, the Serious Fraud Office adopted the concept with a fanfare. In his leaving speech, David Green ,the Director who imported it said " If you discover criminality and report it to the SFO it is likely to be favourably considered. It would be unfortunate if that offer is shortened or if the bar is lowered," "(see article)

However, the UK's version of the "DPA" is different from that of the USA. To qualify for a DPA, a company must
a) identify its own misconduct
b) report it itself without an intervening inquiry, much less investigation, by authorities (it follows that the actions of a whistle-blower might defeat the suggestion of a DPA)
c) demonstrate that, since discovery, the company has taken effective steps to prevent the recurrence of the conduct and harm.

Also, the UK version includes that the accused "takes responsibility" for the conduct after prosecution but the case is adjourned after admissions falling short of entering a guilty plea are made. This moves some way towards addressing the evidential problems in civil cases caused by the USA's "does not admit or deny the allegations" stance.

In the Serco Geografix Ltd case, in which a DPA was approved in July 2019, the company "has taken responsibility for three offences of fraud and two of false accounting." And the use of agreements seems to be irrational - in Skansen Interiors the Crown Prosecution Service seems to have been vindictive - the CPS admitted that it was pursuing a prosecution rather than a DPA to prove a point. If the use of the system is to have any credibility, then it must be applied consistently.

In the Serco case, the Judge said "“DPA] approval will only be given where there is the clearest possible demonstration of integrity on the part of the company concerned once the criminal activity has become apparent. This [requires] early self-reporting to the authorities, full co-operation with the investigation, a willingness to learn lessons and an acceptance of an appropriate penalty. The willingness to learn lessons must be shown via real, substantial and continuing remedial measures. "

So, the UK's version is a very different animal to the USA's system but it still doesn't come to the same effect as a proper prosecution.

Even so, it's not different enough: e.g. Serco has not been fined - under the agreement, it makes "payment of a financial penalty of GBP19.2 million."

In Serco, the judge said "There may be cynicism in some quarters about the process by which a corporate entity can take advantage of a DPA. This cynicism is not well-founded. "

But the cynicism is based on good reasons: what the system does is to convert criminal conduct into an administrative offence. Regulators such as the UK's Financial Conduct Authority make findings of culpability, then set a penalty, then apply mitigating factors such as self-reporting, remedial measures and the like. They, perhaps misguidedly, call it a "discount." There are similar processes in the criminal law: a convict is released early on good behavior (but he is still on licence), someone who asks for additional offences to be taken into consideration on sentencing may receive a lower sentence for the simple reason that he's helping the police with their clear-up rate; rarely will he be sentenced to additional punishment for those additional offences where they are less serious than that for which he is being sentenced. One can see the self-reporting aspect with admissions as being similar to that, at least in some ways.

Are Deferred Prosecution Agreements working in the UK? The Serious Fraud Office, which brings prosecutions against companies and individuals, has entered into six since introduction in 2014. In four of those, there have been, the SFO says, four failures to comply of sufficient severity for four individuals to have been prosecuted. None of those prosecutions have been successful.

That has to raise the even more worrisome question: are such agreements being made at a cost to shareholders, staff and customers in order to protect individuals against whom the case is not strong enough in any event?

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