UK DPAs – The Magnificent Seven?
June 25, 2020
Friday the 31st January 2020 saw Union flags waved and renditions of Land of Hope and Glory sung in town squares up and down the country. Whether you were Leave or Remain, it was a bad day to publicise other news. It certainly was a good news day for the Serious Fraud Office, as it had sealed a magnificent seventh Deferred Prosecution Agreement (‘DPA’) this time with Airbus SE, under which Airbus would pay 991 million euros (about £850m) to the Consolidated Fund managed by HM Treasury, a figure which the judge Dame Victoria Sharp described as, “greater than the total of all the previous sums paid pursuant to previous DPAs and more than double the total of fines paid in respect of all criminal conduct in England and Wales in 2018.”
In the DPA Statement of Facts, Airbus SE agreed that it had paid bribes to help sell its aircraft in many countries throughout the world over the years, including donating $50m to sponsor the sports teams of key Malaysian AirAsia businessmen. The criminal conduct was described as grave, endemic and egregious. However, the court found that, after a slow start, Airbus had shown exemplary co-operation, including allowing the SFO extra-territorial jurisdiction and waiving privilege so it had access to 30.7 million documents; Airbus had parted with 63 senior executives and rejuvenated its internal processes. Those features, combined with the considerable fines and undertakings given, and considering the damaging collateral effects upon innocent parties, such as shareholders and even damage to the GDP of a number of countries if Airbus were convicted of any crimes (here, crimes of failing to prevent bribery under s.7 Bribery Act 2010), the learned Judge approved the DPA. Looking back now at all 7 UK DPAs and what has followed their approval, are DPAs a ‘soft option’ for a company? Have important principles been sacrificed and, if so, for what? And are UK DPAs fit for purpose when the individuals named in them as the wrongdoers go on to escape conviction at trial?
Deferred and non-prosecution agreements with both corporates and individuals have been widely used in the US for decades, which may in part account for the fact that about only 2% of federal cases go to trial, compared to 20-50% in the UK. US DPAs became more prevalent after the 1993 Prudential case and gathered momentum after the 2002 Arthur Anderson case; they have been used against individuals since the 1930s. The approach generates mouth-watering revenues, something the UK justice system is crying out for. In the US in 2018 for example, there were 24 corporate resolutions, 21 of those with foreign companies, raising $8.1 bn in a single year.
UK DPAs were adapted from the US model and have been in force since February 2014. However, there are a number of key differences. They are at the invitation of the Prosecution only and only in relation to corporate offenders. Another key difference is that with a few exceptions such as corporate ‘failure to prevent’ offences, in order to convict a corporate in the UK, the prosecution must satisfy the ‘identification principle’, demonstrating that a directing mind of the company was complicit, which in practice is extremely hard to prove, particularly with large corporates. In the US, a single employee at any level can found corporate criminal liability, so long as that individual had a partial intent to benefit the company. Another critical difference is that UK DPAs are subject to significant judicial oversight, where the court must be satisfied the agreement is fair, reasonable, proportionate and in the interests of justice.
6 years down the line and, despite an early expectation of 10 DPAs a year, there have been just seven in total. The first four, SFO agreements with Standard Bank, Sarclad Ltd, Rolls Royce and Tesco, were approved by Sir Brian Leveson who, in doing so, developed key principles in the court’s likely approach. For example, while the Judge found the case of Sarclad Ltd far from straightforward, he placed emphasis upon the policy change behind DPAs, that self-reporting and putting in place effective compliance structures should be seen to be worthwhile. Thus, while it might be felt that there was little deterrence where a DPA simply removed the gross profits flowing from criminality without significant further penalty, early self-reporting, exemplary assistance and changing the culture meant it would not be in the interests of justice to force Sarclad Ltd into insolvency. The key factors identified in applying the interests of justice test were:
- the seriousness of the predicate offence or offences;
- the importance of incentivising the exposure and self-reporting of corporate wrongdoing;
- the history (or otherwise) of similar conduct;
- the attention paid to corporate compliance prior to, at the time of and subsequent to the offending;
- the extent to which the entity has changed both in its culture and in relation to relevant personnel;
- the impact of prosecution on employees and others innocent of any misconduct
This emphasis upon the importance of co-operation and a change in corporate culture was further developed by Mr Justice Davis, in his approval of the Serco DPA in 2019; he observed,
“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. On the previous occasions when a DPA has been approved the point has been made that 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 will require 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. All of that has been demonstrated by Serco Group PLC in this case.”
Likewise, in the 2020 Airbus SE DPA approval, Dame Victoria Sharp observed, “The DPA is likely to provide an incentive for the exposure and self-reporting of organisations in similar situations to Airbus. As the SFO submits, this is of vital importance in the context of complex corporate crime.”
If the number of DPAs in the UK is, so far at any rate, lower than had been predicted, it is nevertheless a spectacular success compared to the number of individuals (often former senior executives who are named as offenders in the DPA) who have been convicted following a deferred corporate prosecution. That number remains at zero. The SFO decided against the prosecution of any individuals arising from the Rolls Royce corruption. In the three DPAs where prosecutions of individuals have followed, Sarclad Ltd, Tesco and Gurlap Systems Ltd, every defendant has either been acquitted by the jury or had his case dismissed by the judge. This is not a good look for the SFO. Many have also questioned the efficacy of a DPA process which relies upon the identification of ‘bad apples’, those individuals whose crimes underpin the rationale for the DPA, yet fails to subsequently convict them of any crime. There are varying calls for change, from trying the individuals first, an anonymising their identification in the DPA Statement of Facts, to scrapping DPAs altogether as mechanisms which allow corporates to invent scapegoats and buy their way out of justice.
Future Use of DPAs
In my view, such outcomes for individuals should not obscure the usefulness of DPAs in appropriate circumstances. The underlying principles compel changes to corporate culture which level the playing field, while protecting innocent third parties from damage. The versatility of DPA terms are far wider than the sentences a court can pass at a trial; a DPA can demand that a company not only pays fines and disgorges all ill-gotten profits, but also helps to root out the corruption, change their internal compliance systems and undergo extensive monitoring. By those measures, DPAs are not a soft option. Further, the corporate ‘failure to prevent’ model of offending, currently in force in relation to failure to prevent bribery and tax evasion in the UK, is likely to grow in use and scope, offences which do not rely upon the identification principle and so can be committed by a company whose senior management are entirely unaware of such activity. As such, these offences also compel a positive change in corporate culture, ensuring fairer competition and reducing the pernicious effects of corruption. If acquittals of individuals led to scrapping of DPAs, it would be throwing out the baby with the bathwater. Such acquittals are not necessarily inconsistent with a DPA in any event, which does not require the stated offending to be proved beyond reasonable doubt or involve as extensive a disclosure exercise which commonly occurs in the trial process.
When a DPA is negotiated, it is usually different senior company officers, not those individuals who later fall to be prosecuted, who negotiate its terms with the assistance of their lawyers. It is difficult to see in those circumstances how the content of the DPA Statement of Facts could be said to be admissible in a subsequent trial of individuals in the UK. The writer is aware of one such instance, where a fraud court in Athens, Greece, did consider that the terms of a US DPA was relevant and admissible evidence against individuals subsequently tried who played no part in the DPA, notwithstanding that there is little to no judicial approval process of DPAs in the US; that decision is under appeal and may well end up before the European Court of Human Rights. Such an approach was considered by both sides, although abandoned, in the trial of the former Sarclad executives. There may also be future trials of individuals where the defence may wish to introduce DPA agreed terms in order, for example, to claim that a former corporate employer has abused the DPA process to try to ‘throw them under a bus’.
Such considerations are not just about keeping the lawyers busy but demonstrate the delicate balance of interests which flow from the introduction of DPAs into this jurisdiction. This writer believes it is a balance worth nurturing. If DPAs, combined with the corporate failure to prevent model, bring about fairer competition at home and abroad, while at the same time making significant revenues available to the criminal justice system as a whole, that would be very good news indeed, not least for a country seeking to redefine itself and champion the quality of its legal system in the process.
Nick Johnson QC specialises in business crime and related regulatory and commercial work. He is regularly instructed in complex prosecutions of corporates and business executives, including investigations across multiple jurisdictions. He has been involved since 2010 in litigation featuring a US DPA and its impact in proceedings against individuals. He was also instructed in the first ever jury trial of a company for a s.7 Bribery Act offence, proceedings in which the a DPA was considered.