Academic journal article Business Law International

Deferred Prosecution Agreements - in Jeopardy of Falling Short?

Academic journal article Business Law International

Deferred Prosecution Agreements - in Jeopardy of Falling Short?

Article excerpt

Introduction

On 24 February 2014, section 45 of and Schedule 17 to the Crime and Courts Act 2013 came into force, making deferred prosecution agreements (DPAs) available in the United Kingdom to companies that have uncovered potential criminal liability for economic crimes and wish to seek to avoid a criminal conviction.

A DPA is an agreement, reached under judicial supervision, between a prosecutor and an eligible commercial organisation. The agreement, once finalised, provides for a prosecution to be suspended for a defined period if an organisation meets certain specified conditions. DPAs will only be available to commercial organisations in respect of specified 'economic crime' offences, listed in Part 2 of Schedule 17.

The concept of resolving criminal liability by way of a DPA is well established in the United States and there will be inevitable comparisons between the UK and US DPA regimes. One potentially interesting question concerns how UK DPAs will interact with the already well-established US DPAs, and whether the two distinct approaches to DPAs coexist to give rise to more effective - cross-border - corporate criminal enforcement, or engender fresh transatlantic tensions, and a new species of'regulatory arbitrage'.

This article considers some of the potential practical implications of this difference in laws, and also seeks to hypothesise on how prosecuting authorities may seek to prevent any potential issues arising, in the course of a company's efforts to reach parallel agreements in respect of criminal liability. Setting the scene - cross-border investigations

The introduction of DPAs must be considered within the wider context of the shift towards a more American-style approach to combating regulatory and criminal wrongdoing in the UK.

On 31 January, the Sentencing Council for England and Wales issued Definitive Guidelines outlining a new approach to the imposition of financial penalties on corporate entities in criminal fraud, bribery and money laundering cases. The effect is likely to be that corporate entities seeking to resolve criminal liability by way of a DPA will face considerably higher levels of financial penalty. Whereas financial institutions have paid fines in the tens of millions to the Financial Services Authority (FSA) in respect of regulatory investigations around London Interbank Offered Rate (LIBOR), criminal penalties under the new Guidelines could conceivably be closer in magnitude to those seen in the US.

This move towards higher financial penalties for corporates can be attributed to two particular elements of the new Corporate Sentencing Guidelines:

1. the starting point for a fine can be between 10 and 20 per cent of the worldwide revenue derived from the product or business area to which the offending relates, for the period of offending; and

2. a 'multiplier' effect will be operational in cases where there is a high level of culpability involved with the offence. In such high-level cases, the multiplier can be as much as 400 per cent.

Any corporate that seeks to enter into a DPAin the UK will more than likely have to pay a financial penalty, which will be calculated with reference to these new Guidelines. As such, the levels of financial penalty that might arise under DPAs could be as much as 80 per cent of their relevant worldwide revenue for the entire period of offending. In the context of a bank seeking to resolve corporate criminal liability in the UK by way of a DPA, a fine calculated in this way, on the basis of revenue, could run into the billions. For example, Barclays' revenue from fixed income, currencies and commodities trading in 2013 was £5.5bn.

Contrasting positions of law

There may be limits both to the efficacy and attractiveness of UK DPAs in the context of a US/UK joint investigation, arising out of the asymmetry between the US and English common law on autrefois acquit/convict (double jeopardy). …

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