It’s been a difficult few years for the UK’s beleaguered Serious Fraud Office (SFO), writes Dr Nicholas Lord. As the authority responsible for the investigation and prosecution of corporate corruption in international business, it’s been blighted by a lack of prosecutions, collapsed cases, failed investigations and data loss. But while the introduction of Deferred Prosecution Agreements (DPAs) may provide a ‘get-out’ for the SFO’s enforcement response, underlying issues around the implausibility of corporate criminal prosecutions remain.
This week has seen the introduction of Deferred Prosecution Agreements (DPAs), available to prosecutors in cases of serious and complex economic crimes – and in particular for the purpose of dealing with corporations (not individuals) that use bribery in overseas jurisdictions to win or maintain business interests in violation of the Bribery Act 2010.
To guide this process, stemming from the Crime and Courts Act 2013, the Director of the SFO and the Director of Public Prosecutions published a DPA Code of Practice on 14 February.
A DPA is a discretionary tool that enables a formal, voluntary agreement between a prosecutor and a corporation to be reached whereby a criminal prosecution for alleged criminal conduct can be deferred for a set period of time and in exchange for the fulfilment of certain ‘terms’ such as:
– payment of a financial penalty – this may include a fine, compensating victims, payment of the prosecutor’s costs, disgorgement of profits, donations to charities
– cooperation by the corporation with any investigations related to the alleged offences – such as when investigating and prosecuting individuals in the corporation
– the imposition of a monitor to assess and advise on the corporations internal compliance systems – e.g. whistleblowing provisions, an adequate code of conduct and training programmes
The length of the DPA may vary but needs to be sufficient to be capable of permitting compliance with the required terms. A criminal charge is initially made but at the end of the deferment period, the charges will be dropped if the requirements are met.
Alternatively, if these requirements are not met, the prosecutors maintain the right to prosecute at this time. Any agreement reached between the prosecutor and the corporation is subject to judicial oversight and it must be demonstrated that the agreement is in the interests of justice and the public.
On reading the DPA Code of Practice, several issues are evident. For example, the terminology lacks requisite clarity and is ambiguous, there are issues around whether it is feasible to compare factors for and against prosecution that are inherently different, and it is unclear how ‘fair, reasonable and proportionate’ terms will be determined, amongst other technical issues. Given there is no precedent or case law to draw upon, this is likely to be an interesting learning curve.
Overall, there is a high level of discretion throughout the process and transparency is both necessary and desirable.
But there is one further issue that warrants scrutiny; problems of policy transfer and the fundamental underlying issue of establishing corporate criminal liability.
Policy transfer and concern over establishing corporate criminal liability
The introduction of DPAs represents a shift towards a US-style ‘negotiated justice’. In the US, DPAs are frequently used by the Department of Justice and Securities and Exchange Commission to deal with corporations involved in financial crimes.
But the extent to which such polices and strategies are able to ‘travel’ or transfer across jurisdictions needs consideration – decisive in the success and impact of such transfers are the cultural, socio-political and institutional contexts at the receiving end.
This problem can be seen most clearly in relation to corporate criminal liability where a significant difference exists between the US and the UK. Corporate criminal liability determines whether ‘legal persons’ (that is, corporations) can be prosecuted under the criminal law in the same way that ‘natural persons’ (individual persons) can be prosecuted.
In the US, the principle of vicarious liability applies – this means a corporation can be held criminally liable for the acts or omissions of its individual employees as the criminal intent, and the performance of the legally prohibited act are automatically attributed to the corporation.
In contrast, establishing whether a corporation can be criminally liable for the acts or omissions of individual employees in the UK is much more difficult. Here, corporate criminal liability has traditionally required courts to locate the ‘corporate mind’ for purposes of assessing criminal intent which means a corporation can only be criminally liable if it can be evidentially proven that an individual on the board of directors or in a senior executive position knew of the criminality.
This cultural difference raises questions over the plausibility of DPAs in the UK. The underlying premise of DPAs is that should the terms be breached or not met, a criminal prosecution will follow. But criminal law enforcement has not proven to be easy over recent years as the SFO has faced structural, evidential, procedural, legal and financial obstacles that hinder prosecution, even where the will to enforce the law is high.
For this reason, the likelihood of a prosecution should the terms of a DPA not be met is minimal without formal admissions of ‘guilt’ of bribery – the DPA Code indicates that ‘there is no requirement for formal admissions of guilt’: thus criminal prosecution may remain implausible and this appears to undermine the DPA policy.
The DPA ‘get-out’ and the moral and symbolic importance of criminal law
Although criminal prosecution is unlikely – which, despite rhetoric to the contrary, investigators and prosecutors are fully aware of – DPAs provide the SFO with a ‘get-out’. The reality of enforcement obstacles, as above, has encouraged the SFO to explore supplementary models of enforcement away from criminal prosecution, and DPAs are an example of this.
However, the shift towards ‘negotiated justice’ is not just practical, but also reflects wider ideological, political and economic concerns; for example, governments need to protect their economic interests while also appeasing the expectations of anti-corruption organisations.
In any case, DPAs are located within the criminal law framework and this remains important for purposes of moral retribution and perceived social fairness. Meanwhile, its symbolic and (potentially) deterrent nature (though empirical data here is lacking) enables the state (i) to negotiate regulation with corporations through the underlying threat of prosecution for non-compliance (corporations cannot be sure that prosecution is unlikely) and in doing so (ii) demonstrate to the various publics that it is actively criminalising domestic corporations using illicit means in overseas jurisdictions.
In these sense, DPAs enable the SFO to reinforce its prosecutorial role while accomplishing ‘justice’ through negotiation and persuasion which fits in with ideological and political agendas.
It is clear that enforcement responses need to include a variety of sanctioning mechanisms that have both political and judicial support – but also sufficiently appease the publics’ understanding of how ‘justice’ is accomplished in the complex area of corporate bribery in international business.