SFO clarifies guidance on DPAs: Is the DPA model ready for take-off?
On 23 October 2020, the Serious Fraud Office (SFO) published a new chapter from its Operational Handbook which provides further guidance on the SFO's approach to Deferred Prosecution Agreements (DPAs). Whilst the guidance does not introduce any major changes, it does provide clarity on the SFO's expectations of companies wishing to avoid prosecution. The guidance may also act to incentivise further self-reporting and future DPAs – which is particularly noteworthy considering the recent spate of DPAs with aviation companies. Overall, this release seems to suggest a renewed focus on the DPA model as the SFO's preferred approach to case handling.
What are DPAs?
A DPA is a court-approved agreement between a company and a prosecutor. DPAs allow for the suspension of criminal proceedings for a period of time subject to the company satisfying certain conditions.
The offences to which DPAs apply include but are not limited to: bribery, fraud, conspiracy to defraud, money laundering and failure to prevent facilitation of foreign tax evasion offences.
A breach of a DPA can result in the re-opening of the proceedings.
The new guidance
Evidential and public interest tests
The new guidance provides that entering into a DPA is conditional on the case satisfying two tests: (i) the evidential test and (ii) the public interest test.
The first limb of the evidential test requires there to be sufficient evidence providing a realistic prospect of conviction. If this is not met, the prosecutor should then consider the second limb of the test providing that there must be a reasonable suspicion that the company has committed an offence and reasonable grounds to believe that continued investigation will uncover further admissible evidence within a reasonable period of time. What would be considered a reasonable period of time will vary according to the size, type and complexity of the case.
Under the public interest test, agreeing the DPA must be in the public interest. The prosecutor will need to engage in a balancing exercise taking into account the specific circumstances of the case. Some of the factors to be considered include the company's history of similar conduct, its compliance programme and reporting process, the circumstances around the offence, the company's response to the wrongdoing, the harm caused and the proportionality of conviction.
Co-operation with the authorities, including self-reporting within a reasonable time, is a key factor to be considered when deciding whether to enter into a DPA. The new guidance clarifies that whilst co-operation can include waving legal professional privilege, a company cannot be compelled to waive privilege or penalised for deciding not to do so.
The SFO guidance also provides for the considerations the prosecutor will take into account where there is a parallel investigation by an overseas and/or other UK agency. This broadly covers communication and de-confliction, disclosure, co-ordination as well as ensuring liaison between the respective press offices and awareness of different announcement requirements.
The decision whether to hold DPA negotiations is within the prosecutor's discretion. The guidance sets out the considerations that should inform the decision and the requirements for a formal letter of invitation, written terms of negotiation, confidentiality, disclosure and retention by the company of all relevant material.Statement of facts
The DPA application must include a statement of facts, which should provide details as to each alleged offence and, where possible, any financial gain or loss.
The necessity for and impact of naming third parties in the DPA should be carefully considered and it should be ensured that the Data Protection Act 2018 and the European Convention on Human Rights are complied with. This can be particularly important where the third parties in question are subject to proceedings which may be prejudiced by the mentioning of the third parties in the statement of facts.
The DPA terms must be “fair, reasonable and proportionate”. Among the standard terms to be included are:
- Indictment and acceptance of responsibility
- Term of agreement
- Scope of agreement
- Deferred prosecution
- Financial terms
- Provisions in case of sale or merger
- Public statements
- Warranties given by the company
The DPA should provide for a financial penalty and, where possible, for compensation to victims, disgorgement of profits, payment of prosecution costs and donations to charities which support the victims of the offense. The approach to the financial terms should be transparent and consistent and should match the sentencing framework for setting fines.
Financial penalties must be discounted in a way similar to a fine imposed upon a conviction resulting from a guilty plea.
In addition, the financial penalty can be adjusted in cases where the company can demonstrate substantial financial hardship. This can be particularly relevant in light of the economic impact of the COVID-19 pandemic.
The guidance also provides an overview of the two-stage process for judicial approval, including the submission of a preliminary and final application.
After DPA approval
There is also general guidance on compliance with the DPA, rectifying a breach, termination and variation of the DPA and discontinuance on expiry of the DPA.
What does the guidance mean for companies?
Whilst the guidance does not introduce any major changes and for the most part echoes the DPA Code of Practice and other previously published guidance, it does provide clarity on the SFO's expectations of companies wishing to avoid prosecution by instead negotiating a DPA. In particular, the detail around the requirements for co-operation and voluntary disclosure may incentivise further self-reporting and future DPAs.
Most importantly, the guidance lifts the lid on the DPA process from start to finish, which should go some way to satisfying companies' longstanding calls for greater transparency. Finally, it is useful that the guidance reiterates that companies do not need to self-report immediately but within a reasonable time of becoming aware of the wrongdoing, confirming that it is appropriate to take a short 'grace period' to assess the lie of the land.
Since their introduction on 24 January 2014 (under Schedule 17 to the Crime and Courts Act 2013), the SFO has entered into nine DPAs. Most recently, we have seen a spate of DPAs with aviation companies, suggesting that the model is gaining traction with the SFO and companies alike. This series of DPAs has no doubt bolstered the SFO's confidence in the mechanism, and the release of this guidance surely marks a renewed emphasis on replicating that successful formula in relation to current and future cases.