Ten DPAs (better make that 12) and counting. The process comes of age
When deferred prosecution agreements (“DPA”) first became available, it was intended that they would provide a means of resolving alleged instances of economic crime by commercial organisations more quickly, cheaply and appropriately than under the existing procedures. Aligned with that was the secondary aim of encouraging companies to self-report illegality. How successful has the DPA regime been at achieving these aims?
Cooperation and the need to self-report
From the outset it was understood that, in order to be offered a DPA, a commercial organisation would have to demonstrate substantial cooperation with the prosecutor and its investigation. Initially it was thought that this needed to include self-reporting the wrongdoing before the prosecutor learnt of it another way.
However, it has become apparent that a self-report may not always be necessary, provided the company concerned makes amends during the course of the investigation. Rolls-Royce Plc was able to secure the third DPA despite failing to self-report what the judge termed “egregious criminality over decades”, (SFO v Rolls Royce Plc and anor, Judgment 17 January 2017, at para 61) as a direct result of its “extraordinary co-operation” with the SFO. This included permitting the SFO to interview witnesses first and agreeing to disclose all memoranda relating to its own internal interviews, waiving privilege (on a limited basis).
On discovering substantial irregularities in its reported accounts, Tesco Plc promptly met the SFO and immediately committed to full co-operation, including refraining from interviewing potential witnesses and agreeing a limited waiver of privilege. Airbus SE was aware of issues in its business from 2014 but only reported to the SFO in April 2016 and even then, only because it was concerned about third party disclosure. Nonetheless, due to its “exemplary” cooperation, it was able to secure a DPA (SFO v Airbus SE, Judgment 31 January 2020). Even where the court does not consider a company’s cooperation to reach those levels, it may still be granted a DPA and the extent of the company’s cooperation will be reflected in the level of discount.
Fines, penalties and other terms in a DPA
As is to be expected, we have seen a significant range in the fines and penalties levied in the DPAs agreed to date. Güralp Systems Limited (“GSL”) paid no fine at all - it could not afford to do so - and its payment of a little over £2 million related solely to disgorgement of profits. At the other end of the scale, Airbus’ multi-jurisdictional record-breaking settlement totalled €3.6 billion, of which €991m was paid in the UK.
As Ms Osofsky said in her recent statement relating to Amec Foster Wheeler Energy Limited (“AFWEL”), “[j]ustice also means compensating victims”. While it can be difficult always to identify appropriate victims of the wrongdoing, compensation has been paid in a few instances, including by Standard Bank, which made a compensation payment with interest of just over US$7 million, and AFWEL, which paid £210,610 in compensation to the people of Nigeria in respect of tax evasion. The DPA agreed by Serco Geografix Limited in July 2019 included a compensation payment of £12,800,000 to the Ministry of Justice. (In the event, this payment was held already to have been paid by parent company Serco Group as part of an earlier compensation settlement - see SFO v Serco Geografix Limited, Judgment 4 July 2019, at paras 36 and 37). As well as agreeing to a DPA with the SFO in April 2017 which included payment of a fine of £129 million and the SFO’s costs, Tesco Plc made significant restitution payments to affected shareholders and bond holders under a separate statutory compensation scheme agreed with the Financial Conduct Authority (“FCA”) under the Market Abuse Regulations.
Preventing future wrongdoing
Another main aim of DPAs is to prevent future wrongdoing and many DPAs include compliance reporting requirements to be met either by the company or an external advisor/reporter. While we are yet to see the imposition of a full-blown US-style monitor here, several of the DPAs agreed so far include a monitor-type arrangement, such as the appointment of Lord Gold to report on the steps taken by Rolls-Royce Plc to ensure its future compliance measures were appropriate and sufficient (see SFO v Rolls-Royce Plc as above, para 131).
Involvement of parent companies
One point of particular interest has been the involvement of parent companies in DPAs directed at resolving misconduct committed by a subsidiary company. This was most clearly seen in the tenth DPA, agreed with AFWEL earlier this month. Although found by Lord Justice Edis to be “an innocent party” and “twice removed” from the management of AFWEL responsible for the misconduct (see SFO v Amec Forest Wheeler Energy Ltd, Judgment 1 July 2021, at para 13), parent company John Wood Group Plc undertook to ensure the performance by AFWEL of all its obligations under the DPA, including effectively underwriting payment of all financial penalties, disgorgement and costs.
Whether it was envisaged when DPAs were first introduced that parent companies would take the rap for their subsidiaries’ wrong-doing, even if that wrong-doing occurred years before the parent acquired the company, is unclear. However, the solution must be a welcome one for the SFO in cases where misconduct would otherwise effectively go unpunished.
The potential for international settlements
One way in which DPAs have proved to be particularly effective as an enforcement tool is in their ability to accommodate the resolution of criminal misconduct across a number of countries involving authorities from several jurisdictions. In this way, international companies can resolve widespread misconduct within their organisation in one joint set of proceedings.
So, for example, in January 2020, Airbus SE reached its record-breaking €3.6bn settlement with UK, French and U.S. authorities regarding allegations of bribery and corruption across 16 jurisdictions. Similarly, Rolls-Royce Plc resolved allegations of bribery in seven jurisdictions in one all-encompassing settlement in January 2017.
So has the DPA regime achieved its aims of resolving alleged instances of economic crime by commercial organisations more quickly, cheaply and appropriately than before, while also encouraging companies to self-report that illegality? Certainly, a DPA can be entered into more quickly than a trial of all the issues would take. And while that process is not without its own costs, it is undoubtedly cheaper than full blown litigation. It is also clear from the DPAs agreed to date that account can be and has been taken of the individual circumstances of defendant organisations; the inclusion of a parent company in a DPA; the decision not to fine a failing company and jeopardise the livelihoods of innocent employees; the ability to resolve multi-jurisdictional wrongdoing in one settlement.
Have they encouraged self-reporting? It’s difficult to give a definite answer on that one but it is certainly true that some very large companies have come forward in the last few years and disclosed considerable wrongdoing. Whether they would have been prepared to do that without the carrot of a DPA will never be known.
However, it is perhaps another, arguably more practical, outcome, which has proved to be the main achievement of the DPA regime so far – the promotion of proportionate, effective and relevant corporate polices to prevent bribery and corruption by employees and agents, both in the UK and abroad. We will look at the top ten compliance lessons businesses have learnt in the next post in this series.
A longer and more detailed version of this article is available here.