Deferred prosecution agreements (DPAs) are a new feature in the UK legal landscape. We provide an overview of recent developments and consider the implications for insurers.
Deferred prosecution agreements (DPAs) are a new feature in the UK legal landscape. We provide an overview of recent developments and consider the implications for insurers.
DPAs originated in the United States (US) and have been utilised by the Department of Justice for some years. They were introduced in the UK in February 2014: the first DPA was agreed in October 2015 after some months of anticipation; and we have now seen a second DPA approved in July 2016. Both concern offences under the Bribery Act 2010, which came into force in July 2011.
What is a DPA?
A DPA is a voluntary agreement reached between a prosecutor (in England, the Serious Fraud Office (SFO) or Crown Prosecution Service) and an organisation which could be prosecuted for a criminal offence. A judge must approve the terms of the DPA as “fair, reasonable and proportionate”. The agreement suspends prosecution for a defined period, provided the organisation meets certain specified conditions. Where met, the prosecution is discontinued at the end of the DPA period.
The SFO is keen to stress that a DPA is not a plea deal or bargain with the company. It does, however, allow a company to atone for its misconduct and to keep trading (orders to wind up previously being common), to the benefit of its employees and the economy generally.
A DPA generally requires early and full cooperation with the prosecutor. Where cooperation is offered too late, a DPA is unlikely to be available and prosecution will follow.
Individuals cannot currently be party to a DPA.
First DPA: October 2015
The first DPA was agreed in October 2015 between the SFO and Standard Bank Plc, arising from Standard Bank’s sister company Stanbic Bank Tanzania’s payment of US$6 million to a Tanzanian local partner. The SFO alleged that the payment was intended to induce members of the Government of Tanzania to treat development proposals favourably. Charges were brought under s.7 Bribery Act for failure to prevent bribery.
Under the terms of the DPA, Standard Bank was required to pay:
Full cooperation and submission to an independent review of Standard Bank’s anti-bribery systems and controls were conditions of the DPA.
Second DPA: July 2016
Lord Justice Leveson approved the second DPA in July 2016.
The counterparty to the DPA is a UK SME that cannot currently be named due to ongoing, related legal proceedings. These related proceedings are criminal charges against former senior employees allegedly involved in the offences, following the admissions made by the SME and the material provided to the SFO on self-reporting. It is only once these criminal proceedings are concluded that the DPA and Leveson LJ’s unredacted judgment will be published.
The indictment against the SME included charges under the Bribery Act of conspiracy to corrupt, conspiracy to bribe and failure to prevent bribery. The charges alleged systematic payment of bribes in foreign jurisdictions over the period 2004 to 2012.
Financial orders of £6.5 million must be paid, the majority in disgorgement of profits. One third of this will be paid by the SME’s US parent, in recognition of the dividends received from the SME. The SFO decided not to pursue its costs, and offered a 50% reduction in the level of fine to be applied, in view of the company’s financial position and also its early cooperation. As for the Standard Bank DPA, the SME has agreed to cooperate fully and also to report on its anti-corruption systems and controls for the duration of the DPA period.
In approving the latest DPA, Leveson LJ emphasised that the DPA was:
“an example of the value of self-report and cooperation along with the introduction of appropriate compliance mechanisms”.
The importance of early cooperation
The SME self-reported in January 2013 following concerns raised by its compliance team and an internal investigation by an independent law firm. Leveson LJ made it clear in his judgment that in self reporting, a company must disclose everything to ensure an effective investigation, even where that might lead to prosecution of individuals.
DPAs will not be offered in all cases. Last year the SFO declined to offer Sweett Group PLC a DPA, on the basis that its attempt to cooperate came too late. The company was successfully prosecuted earlier this year. However, speaking in early September 2016 at a symposium on DPAs, the joint head of bribery and corruption at the SFO, Matthew Wagstaff confirmed that as long as the perpetrator cooperates with the authorities, DPAs will be acceptable even in the most serious cases of financial misconduct.
Early cooperation was also cited by the SFO as being a key determinant of the level of reduction of the financial penalty to be imposed. As matters stand, a one-third reduction is the maximum discount available to incentivise self-reporting. Even so, in the most recent DPA case cooperation was a factor in that discount being increased to 50%.
Implications
Insurers can expect to see highly confidential notifications from insured companies that identify an issue and wish to seek to negotiate a DPA. Alternatively, they may see some insureds seeking to recover costs associated from such a procedure after a DPA has been agreed and coverage for any related claims.
Potential tensions may arise where a company wishes to self-report but corporate admissions are likely to lead to individual culpability. Directors and officers (D&Os) and senior managers will need to carefully consider obtaining independent legal advice if they fear implication in economic crime. DPAs are public documents, but in the second DPA case discussed above the publication of information has been postponed so that senior employees will get a fair trial. Nonetheless, statements given in internal interviews, or to the SFO, will not attract legal privilege unless appropriate steps are taken, otherwise this evidence can be used in any criminal trial.
D&O insurers are likely to be asked to consider funding for D&Os for legal advice and representation during internal and SFO investigations, in addition to any potential criminal proceedings after DPAs have been entered into. There is likely to be greater clarity in policies for coverage for the latter than for internal investigations, but much will depend on the specific wording.
As DPAs become more common, it is likely greater certainty will be achieved in respect of coverage issues arising. However, in the short term there may be issues concerning timely notification (and provision of confidential information to insurers), funding of defence costs, consent and admissions generally.
Read other items in Professions and Financial Lines Brief - October 2016
