knowledge 6 August 2019 |

Disputes – Investigations and White Collar Crime - Deferred Prosecution Agreements

In its Report on Regulatory Powers and Corporate Offences,¹ the Law Reform Commission has recommended that Deferred Prosecution Agreements based on the UK model be introduced in Ireland.

A Deferred Prosecution Agreement (“DPA”) is an agreement between a prosecutor and a corporate body (or other undertaking, such as a partnership) in which the prosecutor agrees to ultimately dismiss pending criminal charges if the undertaking complies with certain conditions.² This can include acknowledging culpability, cooperating with the prosecutor and submitting to a variety of financial penalties and redress measures. Any subsequent material breach of the DPA by the body concerned usually reactivates prosecution for the relevant offence.

Following US practice, but with a different model involving statutory judicial oversight, DPAs were introduced in the UK under the Crime and Courts Act 2013. They are only available in respect of specific offences that relate to serious economic crime. DPAs must be approved by the court before they can take effect.

Recent UK DPA Activity

It was recently announced that The Serious Fraud Office (“SFO”) had received court approval for a DPA with the company Serco Geografix Ltd (“SGL”). The SGL DPA is the fifth DPA that the SFO has secured since the introduction of these agreements in 2013.

On entering its recent DPA, SGL accepted responsibility for various fraud and false accounting offences including dishonestly misleading the UK Ministry of Justice (“MoJ “) as to the extent of the profits being made over a three year period by SGL’s parent company from a contract it held with the MoJ.

Under the DPA, SGL will pay a financial penalty of GBP19.2 million and all of the SFO’s investigative costs of GBP3.7m. This is an addition to GBP12.8m compensation already paid by Serco to the MoJ as part of a GBP70m civil settlement.

The DPA will last for three years. During that time, SGL has agreed to fully cooperate with the SFO as well as with other domestic and foreign law enforcement and regulatory authorities, to report evidence of fraud by itself or related companies and individuals and to improve and provide annual reports on the efficacy of its ethics and compliance programme.

Interestingly, this last element of the DPA is supplemented by an undertaking, the first of its kind, from SGL’s parent company to provide similar cooperation on a group wide basis. This is in recognition of the fact that SGL is now a dormant company and so its obligations under the DPA are in reality of limited value. The court noted that only the undertakings of its parent are of “genuine and substantial effect” and described them as a “key component” of the DPA.

In a separate development, the SFO also recently provided further information on a DPA reached in 2016 with Sarclad Ltd. This followed the removal of reporting restrictions imposed until criminal proceedings in relation to a number of its former employees had concluded.

Under that DPA, the charges related to corruption and failure to prevent bribery in respect of the systematic use of bribes to win 28 contracts to the value of GBP17m for the company. Sarclad agreed to pay a GBP352,000 financial penalty and a GBP6.2m disgorgement of gross profits. GBP1.95m of that disgorged sum was provided by Sarclad’s US parent as reimbursement of a proportion of dividends that it received from Sarclad during the relevant period. During the DPA, Sarclad was also obliged to fully cooperate with the SFO and to report on all third party intermediary transactions as well as provide yearly reports on the completion and efficacy of its existing anti-bribery and corruption controls. In this case, SFO costs were not pursued due to the financial position of the company.

These cases from the UK highlight the breadth of remedies that can be secured by regulatory agencies through the use of DPAs together with the certainty that can be achieved by corporate bodies in maintaining (through reaching agreement) a degree of control over the risks associated with criminal prosecutions.

What can be expected in an Irish context?

The Law Reform Commission (“LRC”) has recommended that to ensure consistency with constitutional requirements, if introduced, DPAs in Ireland should be (a) placed on a statutory basis, (b) subject to judicial oversight, (c) subject to guiding principles, and (d) contain sufficient procedural safeguards. It is envisaged that the DPP would work closely with financial and economic regulators in determining whether a DPA was suitable in any given case.

As in the UK, the LRC envisages that the court would have to satisfy itself that the DPA was both (a) fair and proportionate and (b) in the interests of justice. The LRC has indicated that transparency in the process is key. It proposes that any DPA regime in Ireland should be dealt with in open court and that the relevant arrangements should be published.

Comment

DPAs are gaining traction globally. Detection and prosecution of corporate crime can be lengthy, complex and expensive. DPAs offer an alternative option for prosecutors who may not have sufficient evidence for a successful prosecution or where the piecing together of the evidence is going to be a very time and resource intensive exercise. DPAs can also encourage self-reporting by corporates.

It remains to be seen how the Irish legislature will approach this issue. The growing body of jurisprudence in the UK and the terms of the DPAs mentioned above as well as those also concluded with Standard Bank, Rolls Royce and Tesco may be instructive when considering how the DPP and the Irish courts might approach similar scenarios.

Our experienced Investigations and White Collar Crime Group or your usual contact in McCann FitzGerald would be pleased to provide further information in relation to DPAs or investigations generally.