DPAs No Longer MIA in the U.K.

On June 27, the U.K. authorities—the Director of Serious Fraud Office and Director of Public Prosecutions—put out a draft Code of Practice on Deferred Prosecution Agreements ("the Code"). The Code provides U.K. prosecutors with guidance on negotiating a deferred prosecution agreement (UKDPA), applying to a U.K. court for approval of a UKDPA, and oversight of UKDPAs after approval by the court. The UKDPA is similar to the U.S. model but with some significant differences.

Over the past century, it has become easier for U.S. prosecutors to charge and convict corporations. In 1993, in the wake of the Organizational Guidelines’ implementation, prosecutors began to break from the binary choice to either indict or not charge at all, and instead entered into arrangements not to prosecute a company, called a non-prosecution agreement (NPA), or an agreement to defer prosecution against a company—a DPA. We’ve written extensively about these agreements, starting with an article published in 2006: “Devolution of Authority—the Department of Justice’s Corporate Charging Policies” [PDF]. We wrote the article as a resource for practitioners to find out more about these DPAs and NPAs—how much companies were paying for fines, which ones were waiving privilege, and other features of the agreements. No one was writing about DPAs and NPAs at the time, with the exception of Russell Mokhiber at Corporate Crime Reporter.

DPAs and NPAs are agreements between the Department of Justice and a corporation to resolve a criminal case short of a criminal conviction, provided the company keeps its end of the bargain. Conditions typically include business and compliance reforms, cooperation, a substantial fine, and a promise to refrain from future illegal conduct. In these agreements, a company typically:

Admits to wrongdoing.Waives the statute of limitations for a period of time.Acknowledges that the agreement and the factual basis is admissible in court.Agrees that the company will no longer violate the law.Consents to help the DOJ prosecute any wrongdoers (e.g., by making employees available to testify for grand jury proceedings or at trial, and providing documents in addition to other evidence to the DOJ)Agrees that company employees will not contradict the terms of the agreement.

Under 9-28.300 of the United States Attorney's Manual (USAM), U.S. prosecutors have to consider nine factors before entering into a DPA or NPA.

U.S. Corporate Charging Factors
(USAM 9-28.300)U.K. DPA Code of Practice FactorsNature and Seriousness of OffensePervasiveness of Wrongdoing Within the CompanyAdverse Impact on Economic Reputation of U.K.Conduct Part of Established Business PracticePre-existing Compliance ProgramRemedial Actions/Post-Compliance EnhancementsAdequacy and Accuracy of Self-DisclosureFailure to Report Wrongdoing Once KnownAdequacy of Prosecution of IndividualsEffectiveness of Compliance ProgramOffense Represents Isolated Acts by Individuals

The substantive result under both DPAs and NPAs is the same: a significant monetary penalty, typically in the millions of dollars, and no criminal conviction for the company. Virtually every DPA and NPA now requires some modification to a company’s compliance program.

The U.K. approach is similar. In a UKDPA, similar to the U.S. practice, when a prosecutor charges a company with a criminal offense, proceedings are suspended. The company agrees to a number of conditions, such as paying a financial penalty and cooperation with future prosecutions of individuals. The Code notes that UKDPAs should not be considered unless in the public interest and with sufficient evidence to move forward with a case (similar to USAM 9-27.000 that federal prosecutors must consider for every case, not just corporate ones). The Code for UKDPAs provides a number of non-exhaustive factors that address whether the prosecution is in the public interest similar to the factors in USAM 9.28.300 (noted in the chart). Strangely, the U.K. factors do not specifically contemplate the collateral consequences of conviction, adequacy of other remedies, and remedial reforms.

The Code includes a process for prosecutors to initiate UKDPA discussions including confidentiality and limitations on the use of information discussed as part of UKDPA discussions (and clear guidance on how information may be used). The Code also prescribes the elements of a UKDPA including a statement of facts, start and end date, offenses covered, financial terms, and monitors. The Code includes guidance on calculations of the financial penalty and other victim-related considerations. This ensures transparency and that the public understands the penalty calculation. The guidance includes procedures for approval of a UKDPA with the court, issues related to breach of a DPA, and termination after successful completion by the company. The latter two issues are typically addressed within the U.S. version of a DPA (or NPA). The U.K. Code ensures consistency with the procedural aspects of DPA approval, breaches, and termination for British authorities.

The Code additionally prescribes selection criteria for monitors, including standards for avoiding conflicts of interest and the monitor’s role. Interestingly, the compliance features that are part of the monitor’s responsibility closely track compliance features already included in typical DOJ DPAs, including:

Code of conduct.Appropriate training and education program.Effective internal reporting procedures.A risk identification process.Third-party due diligence procedures.Gift and hospitality policy.Internal controls, including effective procurement procedures.Compliance-related contract terms.Effective audit process.Compliance policies and procedures applicable to company and joint ventures.

First, the U.K. Code does not address NPAs and requires court approval for UKDPAs. NPAs in the U.S. need no court approval and have been criticized for lack of transparency and judicial oversight. It is unclear whether an NPA, essentially a private party agreement between the DOJ and a company, would be permissible under U.K. law. Moreover, for a UKDPA, the Code of Practice suggests the court’s role is more substantive than court approval in for U.S. DPAs. In a DPA created by the DOJ, court approval focuses on the procedural mechanisms of tolling the 70-day time clock mandated by the Speedy Trial Act—18 U.S.C. § 3162—during the DPA and dismissing the charging instrument under Federal Rule of Criminal Procedure 48 after the DPA concludes.

Second, the U.K. approach fails to expressly consider collateral consequences as a factor for a UKDPA, remedial measures, or the adequacy of other remedies. These omissions in the U.K. Code do not address a major purpose of a DPA, which is to avoid an Arthur Anderson-like scenario in which thousands of employees are punished for the alleged misdeeds of a few at the company.

The Code does not provide the detailed commentary that is provided by USAM 9-28.000, which outlines what is captured in each of the charging factors. This may yet evolve in the U.K. law such that collateral consequences, remedial reforms, and adequacy of other remedies become considerations for entering into a UKDPA. The Code says that DPAs will be available to British prosecutors from February 2014. The big question now is whether this new tool will result in more corporate cases being brought before U.K. courts.

Both Larry Finder and Ryan McConnell are former federal prosecutors in Houston. Larry is the former U.S. Attorney and Ryan is a former Assistant U.S. Attorney. Larry is currently a partner at Baker McKenzie and Ryan is a partner at Morgan Lewis. The pair began writing about deferred and non-prosecution agreements in 2005. Their research was mentioned in The New York Times twice (here and here) and cited by Congress on the need for legislation on these agreements. U.K. authorities are seeking comments via email to dpateam@sfo.gsi.gov.uk. You can send suggestions for this column to rdmcconnell@uh.edu.

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