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The U.K. Deferred Prosecution Agreement Regime: Aligning Rhetoric And Reality

SFO2

A guest post from David Corker (a Partner at Corker Binning Corker in London).

The cornerstone of the Deferred Prosecution Agreement (‘DPA’) regime in our jurisdiction is the centrality of the court. At the start of both his preliminary and final judgments delivered in the first DPA in 2015, Leveson P intended that his affirmation of this principle would become, as indeed it has, axiomatic. Almost every subsequent judgment endorsing a DPA has recited his words about the indispensable judicial role. Opening her 32-page judgment concerning the Airbus DPA in 2020[1], for example, Sharp P (Sir Brian’s successor as head of the Queen’s Bench Division) reproduced (paras 7 and 8) the relevant passages in full.

For this article this extract provides sufficient colour:

“In contra-distinction to the United States, a critical feature of the statutory scheme in the UK is the requirement that the court examine the proposed agreement in detail, decide whether the statutory conditions are satisfied and, if appropriate, approve the DPA. […] The court retains control of the ultimate outcome. […] even having agreed that a DPA is likely to be in the interests of justice and that its proposed terms are fair, reasonable and proportionate, the court continues to retain control and can decline to conclude that it is, in fact, in the interests of justice or that its terms are fair, reasonable and proportionate.”

In view of these statements, it would be tantamount to heresy if a judge seised with an application for a DPA believed that their role was supine. Sir Brian’s axiom requires the presiding judge to satisfy him/herself by means of rigorous inquiry that the interests of justice and the public interest really are served by a proposed DPA. Not to accept at face value what the parties submit.

This article raises a concern about whether what Sir Brian proclaimed, and his successors have intoned, is in the more recent Bribery Act-related DPAs being borne out. I do not contend that his proclamation is being honoured only in the breach. There is insufficient publicly disclosed information about the course of court proceedings which precede a final judgment to justify such a conclusion. I can only draw an inference from the little that enters the public domain.  I believe however that there is enough material to justify calling into question whether rhetoric and reality in this corner of our criminal law are aligned.

By necessary implication, I query whether the SFO has been acting, as it is obliged to do, in the interests of justice.

Before identifying my grounds for concern, I should, as DPAs are such an extraordinary means of disposing of allegations of serious organised criminality, describe the context in which they exist.

The near existential importance of DPAs to the SFO

2020 was the most important year hitherto for DPAs. During 2020 there were three and one of these overshadows all the others. In its deal with the SFO, Airbus agreed to pay a penalty greater than the total of all the sums paid pursuant to the then previous six DPAs and the sums paid pursuant to the subsequent two.

The SFO’s appetite for resolving criminal allegations of complex fraud via a DPA, one that avoids the risks, delay and expense of a trial, is strong. In recent years they constitute the lion’s share of the SFO’s sparse litigation successes. They stand in contrast to, and from an SFO standpoint, go a long way towards eclipsing, its unimpressive record as regards the trial and conviction of individuals. DPAs are doing more than shoring up the SFO’s reputation; they are helping it to survive. The fact that the amounts paid to the Exchequer by the nine companies that have entered into DPAs exceed the SFO’s running cost must help it to overcome the intermittent calls from within government for its abolition in favour of being supplanted by or merged with the National Crime Agency (‘NCA’). Secondly, in relation especially to the sextet of DPAs concerned with foreign bribery, the SFO’s DPA record enables the UK to assure the Organisation for Economic Co-operation and Development (‘OECD’) and other transnational observers that, despite its previous dismal record on combatting UK corporate complicity in bribery in international trade, our jurisdiction now has effective laws enabling the punishment and deterrence of such conduct.

Errant companies remain willing to enter into DPAs

DPAs are also popular for those on the other side to the SFO. The lack of convictions of individuals even of those whose prosecutions were based on the same or similar alleged criminality admitted in a prior DPA, has not daunted the SFO. More importantly, it has not engendered reluctance by companies to seek and enter into a DPA. There is a broad consensus amongst the SFO, corporate crime lawyers and most relevant commentators that DPAs provide an invaluable means of resolving corporate crime. This is demonstrated by the March 2019 report of the House of Lords Justice Committee that reviewed DPAs five years on and received evidence from many such participants. This committee’s conclusion was that DPAs are an excellent way of holding companies accountable for bribery.

Section 7 of the Bribery Act (‘s7’) has dominated DPAs

DPAs were not contemplated when the Bribery Act was passed. They only became a means of resolving economic crime offences in 2014. Since their advent two thirds of the DPAs have concerned foreign bribery. The Bribery Act created four discrete offences which encompass this type of criminality (sections 1, 2, 6 and 7). However, of this quartet, only the s7 offence has been utilised in a DPA, and thus this section is alone the predicate offence for those two thirds. The DPA has become intertwined with s7.

DPAs have dominated the enforcement of s7

Looking back over my 31 years plus career in crime, I cannot think of a section in a criminal law statute that has precipitated greater behavioural change than s7. Its onset appears to have brought about a paradigm shift in corporate thinking and conduct about winning business overseas; what was once condoned is now condemned. The great irony of this achievement is that s7 has hardly ever been prosecuted since it was implemented a decade ago. There are only two occasions: Sweett Group in 2015 (which was a plea) and plucky little Skansen Interiors in 2018 (an SME that remains the only person ever to have contested a s7 indictment – it was convicted after a two-day trial and was awarded an absolute discharge). S7 for all practical purposes has therefore only been enforced in the six DPAs.

The section 7(1) Offence

The creation of the s7 offence in 2010 was an unprecedented way of making commercial organisations criminally liable[2]. The Law Commission and the then government which sponsored the parliamentary passage of the bill were anxious to alleviate fears expressed by the Confederation of British Industry (‘CBI’) and others that the proposed offence would be one of strict liability.  The latter sought to rebut claims made that any company whose overseas agent paid a bribe would be liable to prosecution despite its lack of knowledge or support for this practice. This imperative might explain why parliamentary counsel entitled the offence in the bill and then Act as “Failure of a commercial organisation to prevent bribery”. Such lawyers typically add in headings to bills to assist legislative debate.

The offence that is created by s7 is inconsistent with this title. “Failure” is not a condition of the liability that it creates. Substantively this offence is identical to the other bribery offences created by sections 1, 2 and 6. Any prosecution of s7 must prove bribery pari passu to that trio of preceding sections. Accordingly, a complete defence to s7 is that the prosecutor has failed to prove that the alleged bribery occurred. The only significant distinction between the s7 offence and the trio is that the alleged bribery can be committed by a wider class of the company’s associates and the offence’s extraterritorial reach is greater (i.e. where foreign bribery is alleged under s7 it is less vulnerable to a lack of jurisdiction objection than the trio).

A company convicted under s7 is therefore convicted of complicity in bribery. Not of a failure to have prevented it. A comparison with the situation in France illustrates the difference. French companies are obliged to prevent corruption by the adoption of requisite ABC measures and may be heavily fined for failure to implement them. That mandate is absent from the Bribery Act.

Whilst it may be attractive to any company willing to admit a contravention of s7 to describe its conduct as a failure to prevent bribery, on the basis that the appearance or “optics” of this admission make its conduct seem less egregious than an admission to complicity in bribery, it is nonetheless fallacious to present s7 as such an offence.

As to whether it is a strict liability offence, it is not. It is instead a half-way house between absolute or strict and conventional fault-based liability. The defendant might commit the offence without moral turpitude (the bribery committed by an associate over whom it unfortunately had little control) but it may then be able to exculpate itself pursuant to s7(2). By proving (to the civil standard) that the bribery was not a consequence of its negligence or fault; and that it performed due diligence despite the proven bribery. The defence under s7(2) in effect defines such diligence as “adequate procedures designed to prevent [bribery]”.

The section 7(2) defence

Adequacy is obviously a relativistic concept. Context driven or fact specific. The Act eschews (and wisely) a definition of this vacuous concept. Instead s9 mandated government to promulgate guidance to assist companies to comprehend what s7(2) should mean for them. However, and significantly, it imposed no requirement to descend to a level of assisting them with what adequacy should entail.

Where there is a legislative vacuum like this one, it is normal notwithstanding that there is some official guidance for it to be filled in due course by judicial interpretation. This is in the nature of a common law system. Normally an offence once implemented would be enforced by prosecution and points of law would thus arise for decision by the trial judge and, eventually, the Court of Appeal. For s7, the obvious points of controversy are the breadth or jurisdiction to try the offence under s7(1) where the bribery concerns overseas acts of foreign agents, and under 7(2), the meaning of adequacy or adequate procedures. Ten years post implementation, there would normally be a corpus of jurisprudence about it. However, there is nothing. The reason why this is so, is because prosecution of s7 has almost always been sidestepped in preference for a DPA. And as will be explained shortly, none of the relevant judgments have considered the s7(2) defence in any detail, or at all.

A paucity of jurisprudence concerning s7(2) is antithetical to the public interest. It breeds expensive and unnecessary compliance procedures, stifles innovation and results in opportunities to win business legitimately, especially in non-OECD countries, not being taken.

So, what’s there to be concerned about?

I now want to explain why I have the concern that I mentioned at the start of this article. To repeat, that there are signs from the recent s7-related DPAs of an absence of the judicial scrutiny that Sir Brian heralded to be essential.

What are these signs?

  • The statements of facts accompanying the DPAs are uninformative about why the companies did not avail themselves of the s7(2) defence.

The statement of facts in the first DPA (Standard Bank) was 55 pages. It is clear that its authors wanted the public to appreciate why the bank’s ABC systems were inadequate. Section I of it, “Applicable Policies”, describes them and narrates how they were subverted. This summary is fleshed out by Appendices 2 and 3, pages 37-55 of the statement. There is a lot of detail. A reader wanting to learn lessons and check whether their businesses’ ABC systems are satisfactory would be assisted.

Skip forward to the Rolls Royce DPA. Here the criminality was far more significant and complicated. Whereas Standard Bank faced one count of bribery under s7, Rolls Royce faced 12 counts of which five (counts 8-12) were predicated on s7. The statement of facts, however, was shorter, 53 pages, and those five counts occupy 20 pages of that. It is far less detailed about Rolls Royce’s ABC systems. There is little revealed about why that multinational’s ABC controls, which it had in place, particularly in the shadow of the enactment of the Bribery Act, failed. The impression, partly due to its brevity, is that they were necessarily inadequate because there was bribery. A test of hindsight which of course is alien to the test which s7(2) creates. A company necessarily has a defence under s7(2) despite its complicity in the bribery covered by s7(1).

Finally, to the blockbuster Airbus DPA which admitted five s7(1) offences. Now the statement of facts has shrunk to 40 pages. It states that Airbus did not have adequate procedures although it also mentions that in 2012, they were thoroughly overhauled and then evaluated as good by external experts. The appetite is whetted; what then went wrong or why were its ABC systems nonetheless inadequate? Unfortunately, satiety is not obtained by reading this statement. Why they were inadequate remains enigmatic.

It is understandable why, when both sides have resolved that they want to settle their litigation via a DPA, that they are disinterested in dwelling on the issue as to why s7(2) is unavailable as a defence. But their preference does not excuse the judge from not inquiring and/or expecting that the s7-related statement of facts is explanatory about s7(2). Companies may rationally decide to admit to the s7(1) offence despite having a stout defence and the SFO may be delighted to accept their admission in order to chalk up another win. None of that sits comfortably with the pursuit of the interests of justice.  The statements of facts appended to the more recent DPAs makes me concerned that the judges may not be implementing Sir Brian’s proclamation. Their judgments unsurprisingly do not concern s7(2).

  • The alacrity with which preliminary and final approval of a proposed DPA is granted.

Schedule 17 of the Crime and Courts Act 2013 prescribes the procedure to be followed. Essentially once the two sides have reached a private compromise concerning the terms of their DPA, they must seek an in camera hearing before a judge. The purpose of this hearing being to seek a declaration from him/her that their proposal is likely to be in the interests of justice. If such a declaration is granted then there is a second hearing which may also be in camera where the judge declares definitively that their proposal is in the interests of justice. What must be publicised, albeit ex post facto, are the judge’s reasons for the making of these two declarations. In all the more recent DPAs their reasoning is rolled up into a single judgment which makes it appear de facto that the preliminary and final stages are conflated.

A review of the s7 related DPAs reveals that the process from start to finish is very swift. Oral submissions to the judge and the announcement of the preliminary declaration occur in a single day. In the gigantic Airbus DPA, it was wrapped up on 28 January 2020. Similarly, for the second biggest DPA (Rolls Royce), 13 January 2017. Of course, prior to these hearings a considerable body of written material must have been delivered to the judge who, and on their own, had considered it in chambers. But is their solo reading of the papers and one court day really sufficient for the judge to ask incisive and penetrating questions and receive satisfactorily reasoned submissions about inter alia ss7(1) and (2)?  It appears that only in the Sarclad application did the judge (Sir Brian) ask the parties to retire and come back in a few days with answers to his questions. Otherwise, there is no example of a judge initially declining to make a declaration. There is no example either of a judge asking for an advocate to the court to be appointed to assist in scrutinising the papers and preparing for the hearing.

Without access to the transcripts of the court hearings, one cannot tell how demanding and incisive the judge was. Unfortunately, they are never released. The published judgments do of course contain the judge’s reasoning; they summarise the admitted criminality that is more fully narrated in the parties’ statements of facts and tend to deal extensively with how the level of fines were calculated. Whilst ostensibly they satisfactorily explain why the DPA was in the interests of justice, the nagging possibility or uneasy feeling remains when one judge is left to toil solo with a mountain of paperwork and there is only a one-day hearing. These judgments may predominantly adopt the parties’ submissions and may not be an exercise of independent judgment. In a case like Airbus, with great respect, how could Sharp P have acted as an effective guarantor of the interests of justice with such meagre time and resources allocated to her?

  • The preferred but suspended indictments concerning s7.

Schedule 17 (para 2) requires that the DPA application process is kicked off by the prosecutor preferring their indictment in the normal way. If a DPA is upheld, it remains in abeyance and can only be activated on application by the prosecutor to the Crown Court. If the terms of the DPA are honoured by the company, the indictment at the end of the agreed period is cancelled.

What would have happened, however, if say Rolls Royce or Airbus had decided to renege on their promises or commitments? If the SFO had obtained leave to restart their prosecution, could there have been a trial of either? The answer turns, at least in part, on whether there is any reason to think the indictments are defective in law.

This is the s7 part (Count 3) of the indictment preferred against Sarclad:

“Failure to prevent bribery, contrary to section 7 of the Bribery Act 2010

Particulars of Offence Sarclad Limited, between the 1st day of July 2011 and 13th day of June 2012, through its employees or agents, bribed other persons, intending to obtain or retain business for Sarclad Limited or to obtain or retain an advantage in the conduct of business for Sarclad Limited.”

Now compare this to the one preferred against Airbus:

“COUNT 3 [TAIWAN] Statement of Offence Failure of a commercial organisation to prevent bribery, contrary to Section 7 of the Bribery Act 2010

Particulars of Offence Between 1 July 2011 and 1 June 2015 Airbus SE failed to prevent persons associated with Airbus SE from bribing others concerned with the purchase of aircraft by TransAsia Airways from Airbus, namely a director and employee of TransAsia Airways, where the said bribery was intended to obtain or retain business or advantage in the conduct of business for Airbus SE.”

See the difference? The former correctly alleges the commission of the offence created by s7(1), bribery. Whereas the latter alleges an offence which does not exist. S7(1) does not create an offence of failure to prevent someone from bribing another.

A defective indictment cannot be cured by reference to another document or act. The Airbus Statement of Facts for example cannot come to the SFO’s rescue. An indictment stands or falls on its own wording. And on its wording, I would argue that the Airbus indictment is defective.

I accept that the Statement of Offence for Count 3 of the Airbus indictment reproduces the Act’s heading for s7. “The question then”, as the House of Lords put it in R v Montila [2014] UKHL 50 “is whether headings and side notes, although unamendable, can be considered in construing a provision in an Act of Parliament”. The House held that they could; they are there for guidance but cannot alter the meaning of the statutory words contained in the section. I contend therefore that the Statement cannot rectify the proposition advanced by Count 3 in its Particulars, that there is an offence of failure to prevent. A proposition which is alien to s7(1) and relates to wording within s7(2) whose purpose ironically is to create a defence to s7(1).  Putting this another way, pursuant to CrimPR 10.2(1)(b), the particularised conduct is not capable of constituting the offence identified by the Statement.

So, if under new management, Airbus made an obscene gesture to the SFO and the suspended indictment was restored, would the trial judge have to accede to an Airbus motion to quash it as it disclosed no offence known to law? Suppose that albeit with great reluctance, having strained every sinew against doing so, the trial judge quashed Count 3. If that happened, would the SFO be able to repair the defective indictment by means of a voluntary bill of indictment?

The leading authority is SFO v Evans[3], which insofar as is relevant to this scenario, holds that the application to succeed must show the trial judge made a basic error of law in quashing the indictment. I therefore contend that this application would fail.

Of course, it is extremely unlikely that a cooperating company which waives privilege, voluntarily provides information, removes complicit Board members, implements expensive compliance changes, agrees a statement of facts which is publicly available and which will likely cause its share price to drop, and agrees a large sum under the DPA, would contrary to all of those acts, adopt a less cooperative stance and “pull a legal fast one” on the SFO by seeking to have the indictment quashed. But just imagine this happened and the indictment was found to be a nullity; what would that say about the level of judicial scrutiny that had been applied during the proceedings for a DPA?

In conclusion, I contend that there are several indications that what Sir Brian promulgated about the judicial role in scrutinising DPAs is not being fully complied with in respect of the sextet of s7-related DPAs. A means of alleviating or testing my concerns would be to allow publication of the transcripts of the proceedings where a DPA was applied for and ultimately granted.

***

[1] https://www.judiciary.uk/wp-content/uploads/2020/01/Director-of-the-Serious-Fraud-Office-v-Airbus-SE-1.pdf

[2] The s7 model has since been used once again; sections 45 and 46 of the Criminal Finances Act 2017 regarding the facilitation of tax evasion. Neither of these offences have ever been litigated or formed part of a settlement involving criminal law. Time will tell whether these offences lapse into desuetude.

[3] [2015] 1 WLR 3526

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For prior articles highlighting similar issues in the U.S. see:

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