Fraud deals set to cost companies £30m

Government plans deferred prosecution agreements for 2014

Companies that admit fraud could pay fines that average as much as £30m in new US-style prosecution agreements, which the UK government plans to have in place by 2014.

Deferred prosecution agreements, or DPAs, will be enacted after the government tabled amendments to the crime and courts bill, the Ministry of Justice confirmed on Tuesday.

A DPA sees a company admit wrongdoing, pay a fine and agree to independent monitoring. In exchange, prosecutors postpone any criminal charges, which can automatically debar companies from lucrative government tenders around the world.

“The objective is that the DPA will allow prosecutors to hold offending organisations to account for their wrongdoing in a focused way without the uncertainty, expense, complexity or length of a criminal trial,” said the ministry in Tuesday’s response to a consultation paper on DPAs.

It estimates that a DPA will take 4.8 years to conclude from the moment it admits wrongdoing, compared with 9.2 years for a contested criminal trial.

However, lawyers warned that lingering uncertainty over what the eventual framework will look like could deter companies from coming forward.

“Because of the public nature of DPAs and the admissions of wrongdoing that will be required, it is little wonder some [companies] are left wondering at the so-called benefits,” said Ali Sallaway, partner at Freshfields Bruckhaus Deringer. “Others are concerned that pressure will be brought to bear on businesses to co-operate in agreeing a DPA in circumstances where, in truth, a prosecution would be unlikely to succeed.”

The Serious Fraud Office, under budgetary and reputational pressure, is intended to be the main deployer of DPAs. It recently warned companies that if they admitted bribery they would not be shielded from prosecution, which has only added to uncertainty, said Monty Raphael QC of Peters & Peters.

“There is also the question of individuals: to what extent are companies going to be required to throw their senior executives under a bus?” he said.

The Sentencing Council – an independent judicial body that sets penalties – was to publish guidelines on economic crime that would give clarity on the level of fines, said the ministry.

“DPAs only work where there is a meaningful risk of prosecution,” said Emily Thornberry, the shadow attorney-general. “A demoralised and underfunded SFO combined with an archaic law on corporate criminal liability means that too often, there is still little chance of that. The government also needs to look at strengthening the penalties and bringing them more in line with fines in the US.”

One of the main differences from the US model is that judges will become involved at an early stage of discussions. They will also determine whether the agreement is “in the interests of justice” and whether it is fair.

But it is still unclear how judges will fit in this extra work; the ministry estimates that as many as 15 DPAs could be brought each year. There is also concern that a decision to approve a DPA could be brought swiftly under the scrutiny of a judicial review.

“This will only work if there is the clearest obligation on the parties to make full disclosure to the judges, and to guarantee in writing that they have made full disclosure,” said Sir Anthony Hooper, a former Court of Appeal judge who is now at Fulcrum Chambers.

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