White & Case's Alistair Graham says that while deferred prosecution agreements may add to the armoury of UK prosecutors, companies may need greater certainty as to their use before they will self-report

Businesses require certainty, particularly when dealing with their exposure to potential criminal liability for economic crimes.

Such certainty may be offered by deferred prosecution agreements (DPAs), which have recently been proposed by Edward Garnier, the solicitor general. These would encourage companies that have done wrong to self report their bad behaviour. In exchange for the deferral of a prosecution, the company would agree with the prosecuting authority, the Serious Fraud Office (SFO), to pay a penalty and to other appropriate sanctions such as compensation for victims or independent corporate monitoring.

Various admissions would be made by the company in the DPA but, provided the company complied with the terms of the agreement, after a pre-determined period the prosecution would be dropped. However, if the company were to breach the agreement, the prosecutor could revive the criminal proceedings and would be able to rely on admissions made in the DPA.

Currently, DPAs are common practice in the US but do not exist under English law. They would offer significant benefits to the SFO, which could avoid protracted and expensive investigations – 
the average SFO prosecution 
lasts three and a half years and costs £1.4m – and deter companies from 'forum shopping' and from making global settlements with overseas authorities, particularly in the US, to the detriment of the UK prosecutors.

The concept of DPAs is still in the very early stages of development in the UK. But there is no doubt that they may offer certainty to companies embroiled in wrongdoing with respect to the type of penalty for which they could be liable. Moreover, companies could avoid a criminal trial leading to a criminal conviction, which would cause huge reputational damage and potentially bar such a company from tendering in future for lucrative government contracts.

If introduced, a DPA would provide certainty that a line would be drawn under the matter and that no further prosecution or investigation would be carried out after the expiry of the agreement.

watch-and-waitConcerns have been expressed over whether, and if so, how, DPAs will work in practice. The concerns are twofold. First, the public is uncomfortable with the thought of confidential deals done behind closed doors between the SFO and the perpetrators of economic crimes. Second, there has been criticism by the judiciary in the past of such deals, in particular in the recent cases of Innospec, a British chemical firm which pleaded guilty to conspiracy to corrupt in exchange for a multimillion-pound penalty, and that of Robert Dougall, the former executive who was involved in unauthorised payments to Greek healthcare officials.

In Innospec, although he did confirm the agreement, Lord Justice Thomas criticised the global settlement that had been agreed by the firm with the SFO and the US authorities, saying that it was "wholly inadequate" and should have been in the tens of millions for this "very serious" offence. Moreover, he suggested that it was constitutionally unsound of the SFO to have agreed a division of the penalty (the SFO accepted $12.7m (£8m) of the total $40m (£25m) penalty) with the US authorities. Given such criticism, it is clear that the UK judiciary has demonstrated that it is extremely reluctant to accept the SFO's power to enter into such agreements.

In order to deal with these concerns, Richard Alderman, the director of the SFO, has expressed the view on a number of occasions that it is essential that the judiciary is involved and in control of the prosecution at an early stage. This role could involve determining penalties and the other terms of the DPA, and approving any such DPA in open court. Alderman appears to believe that early judicial involvement and control will address these criticisms and give more certainty that agreements entered into with the SFO (and international regulators) will be accepted in the courts.

Whether this will happen remains to be seen, as this will also require a change in the mindset of the English judges, who historically have not taken kindly to encroachments on their powers. Furthermore, some companies will be reluctant to enter into DPAs if they require participation in public court proceedings – reputational risks are likely to exist if a company enters into a DPA, albeit not of the same severity as criminal convictions.

Companies often prefer to discuss their options confidentially with prosecutors, but such deals may raise suspicions among the public and, potentially, the judiciary as to the appropriate nature of any such arrangement. Another concern is how individuals – the offending company's executives and employees – will fit within the DPA regime. Will they gain a similar deferral in their prosecutions or, as in the US, will prosecutors request the freedom to deal with them separately?

In principle, DPAs are a welcome addition to the prosecutor's armoury, but unless and until the SFO is able to address these issues and concerns, companies may remain reluctant to come forward and self report without the certainty they crave as to the workings of such DPAs. 

While it must be noted that the UK courts, in all of the cases referred to, did eventually uphold the agreements entered into with the SFO, there is still some progress to be made before such arrangements can be accepted 
by the UK judiciary. We look forward to seeing these proposals as they develop.

Alistair Graham is a partner in the London commercial litigation practice at White & Case.