Deferred prosecutions could benefit UK business

With the Crime and Courts ?Act receiving Royal assent on April 25 2013, deferred prosecution agreements (DPAs) are now an official part of UK legislation. Once the code on the use of DPAs is issued (likely sometime in 2014) DPAs will become an active feature of white collar criminal enforcement in the UK. We look at how DPAs are likely to affect British businesses and the UK market place, concluding that with the necessary safeguards in place, the adoption of DPAs into UK law could be a good thing for all concerned.

DPAs have long been a part of the legal system in the US, originating as an emergency alternative to prosecution during the 1930s prohibition era when the courts were flooded with cases involving minor infringements. Essentially DPAs are agreements that in return for non-prosecution, the party at fault will agree to remedial conditions and often the imposition of a significant fine.

DPAs in the US today are over-whelmingly used in relation to the largest most complex criminal cases, often involving major multi-national companies and huge sums of money.

Last year alone over $9bn was yielded through successful DPAs brought by the Department of Justice ('DOJ') and the Securities and Exchange Commission ('SEC'), with 32 of the 36 agreements involving fines of over $1m. The largest fine was to GlaxoSmithKline PLC for a staggering $3bn.

The potential of DPAs is therefore ?clear. It should also be noted that ?regardless of size, all British business is likely to be affected by the adoption of DPAs into the UK - if not directly (through having the option of taking a DPA over a criminal prosecution, which will be the case only for a very small proportion of UK businesses) then indirectly; as the important measure of DPAs will be how they alter the UK market itself.

The arguments for and against DPAs are well rehearsed: supporters say they encourage more active, diversified and contextually sensitive enforcement; detractors argue they undermine justice and distort the legal framework. The US provides the context which informs this debate, and it would appear there are both good and bad sides to DPAs.

On the plus side, DPAs have provided the DOJ with an invaluable alternative option to criminal indictment. This has paved the way for more innovative law enforcement, a better use of resources, and an ideal way of increasing those resources to help fund the battle against corporate crime.

On the downside, DPAs in the US have probably been over-used and under-regulated. This has resulted in a number of negative side-effects, such as that too many large companies avoid criminal prosecution for significant crimes; that US prosecutors emerge successful from too many weak cases; and that the fundamental lack of judicial or legislative over-sight means prosecutors are becoming perhaps unreasonably aggressive in their pursuit of "wrong-doers".

However, and reassuringly, it seems the UK Government has had these issues in mind while preparing for the adoption of DPAs into the UK legal framework - and is in the process of implementing two major changes to the use of DPAs in contrast ?to their use in the US. This should avoid many of their negative effects.

First is the (currently ongoing)?drafting of a DPA Code of Practice for prosecutors, intended to ensure that ?DPAs respect the "key principles of transparency and consistency". This ?should help prevent DPAs in the UK becoming as prevalent as they are in the US, as their use will be constrained to specifically delineated circumstances.

Second, there will be far greater ?judicial oversight in the UK, stemming from a case in 2010 (Innospec Ltd) when a settlement was criticised by Lord Justice Thomas due to a lack of judicial input. Under the UK system, the prosecutor will still have to begin proceedings; preliminary approval must then be given by a judge, in a private hearing, for the possibility of a DPA to be pursued out of court. Any final agreement will also require judicial approval in open court.

So what does this mean for SMEs? In theory, DPAs should allow the SFO (and other UK prosecutorial bodies) to save resources and investigate a wider range of cases by avoiding a number of very costly and risky trials. However, notwithstanding that the net could be cast wider and more SMEs could come under scrutiny, it could be SMEs that benefit the most from the availability of DPAs. Often, it is the smaller corporate which will be more concerned about the cost of a criminal trial and a DPA could, in certain circumstances, be a viable solution. DPAs may also incentivise and encourage self reporting across the spectrum of UK business, leading to better market conditions for the SME.

Aman Uppal is solicitor ?at IBB Solicitors ?(www.ibblaw.co.uk) and Henry Campbell-Smith ?is a solicitors at Janes Solicitors (www.janes-solicitors.co.uk)

Copyright & permissions