DPA penalty discount for self reporting: change recommended by House of Lords committee
02 April 2019
The operation of the Bribery Act 2010 has been subjected to post-legislative scrutiny for the first time since it came into force. A House of Lords Committee heard evidence from businesses, NGOs, lawyers, judges, enforcement authorities and the government. The report, published on 14 March, is largely very positive about the impact of the Act. It does however suggest that some changes need to be made to the Deferred Prosecution Agreement (DPA) regime relating to self reporting and penalty discounts. It is a shame that the Committee did not address concerns about the impact of the DPA regime on individuals, nor see the benefit of adding non-prosecution agreements (which are available in the U.S.) to the options available to the SFO.
Lack of self report not a bar to a DPA
The Committee saw no need for the role of self reporting in the DPA process to be formalised. Supporters of this idea have called for a clear written process that:
• if a company does not self report, it could (with cooperation and remediation) still potentially qualify for a DPA, and
• if it has self reported, then the presumption should be that it will be offered a DPA unless certain exceptions apply (for example, if the self report is not full and frank).
The Committee described as ‘too simplistic’ the idea that there should be such a presumption for self reports, as, in its view, it would have too many exceptions. Whilst self reporting is a key factor, “the degree of cooperation is at least as important as a self-report.”
This sounds sensible. There are many factors that an investigating authority will have to consider when assessing whether a self report is a mark of genuine cooperation or just an attempt to do the minimum required to ‘tick the box’. In addition, a company may not self report, but still qualify for a DPA, through genuine cooperation, as we saw with Rolls Royce.
Factors that would need to be considered include, for example:
• How historic the conduct is. This may impact on the information available to a company when a report is made.
• What could the company have reasonably been expected to disclose, given the knowledge of the individuals currently in charge?
• How much of the wrong doing has been self reported?
• Has the company been forced to self report following an investigation by another authority (e.g. a foreign authority which is likely to report to the SFO)?
• Has the company already had to report to another entity (for example to the NCA)?
In reality, each self report should be judged on its facts, as the House of Lords Committee observed, and it is only part of what constitutes the ‘cooperation’ required for a company to be considered for a DPA.
Committee suggests that lack of a self report should impact on discount on fine
If self reporting is to be encouraged, the Committee thought that there needs to be a distinction drawn between the discount granted to a company which has self reported and one which has not. It recommended that the highest discount should only be available where there is a self report followed by excellent cooperation. In contrast, it considered that in other cases where there has been ‘extraordinary cooperation’, a company that has not self reported should normally receive a lesser discount than a company which has done so.
This seems to be too rigid a response to a complex issue. A company may be planning to self report, or perhaps be unaware of an issue before an employee, disgruntled ex-employee or third party reports it to the prosecuting authority. In other circumstances, a company may be assimilating the results of its internal investigation in order to assess whether there is criminality which needs to be reported, and if so, whether there is potential corporate criminal liability which could lead to a self report. A company should be allowed to investigate internally without the fear of losing the chance of a discount by virtue of being beaten to it by a third party report. Previous SFO statements are supportive of a company undertaking its own investigation prior to reporting. And, as the case of SFO v ENRC confirmed, there is a clear public interest in encouraging companies to investigate allegations from whistleblowers or investigative journalists under the protection of legal professional privilege before approaching the authorities.
The pressure of simultaneous, but uncoordinated, investigations in many different jurisdictions, or by multiple agencies in one jurisdiction, can also make it very difficult for companies to navigate issues such as legal professional privilege and questions relating to self reporting. Mandatory reporting obligations in one jurisdiction may trigger corresponding mandatory or voluntary reporting in others. Corporates should be aware that one of Lisa Osofsky’s priorities is cooperation and information sharing between the SFO and overseas regulators.
Committee says no need for DPAs to have more financial incentive
The first DPA in the UK, awarded to Standard Bank, provided for a discount on the fine of 33%, which is the same as the maximum discount available for a guilty plea prior to trial. This led some commentators to ask what benefit there is for a corporate which self reports – why not wait to see if the SFO has sufficient evidence to charge the corporate, particularly where, for many offences, there are difficulties for prosecutors in proving the requisite intent for corporate liability? Whether in response to this criticism or not, the subsequent DPAs have reflected additional discounts. One can see the justification for this, given that a greater discount reflects the benefit to the SFO of avoiding a trial and the attendant litigation risk, plus the saving of SFO costs of a full investigation.
The idea of formally improving the financial incentive did not appeal to the Committee as it considered that it ignored the other incentives for DPAs, such as the avoidance of a criminal conviction for a corporate which could in turn lead to being debarred from public procurement contracts, or a requirement to cease trading in some jurisdictions. Whilst avoiding debarment is undoubtedly an incentive in some cases (as it would have been for Rolls Royce), in others it will be less relevant.
No consideration of DPA impact on individuals
The Committee did not consider the impact on individuals who may face criminal trials following the agreement of DPAs and the fact that specifically naming those individuals or referring to their alleged conduct in publicly available statements of fact can have a huge impact on them. Given that the Enterprise Act 2002 allows for representations to be made by an individual impacted by Statements of Objections within the cartel / competition regime, and similar provisions following FCA v Macris exist within the FCA regime, surely this is something that should be considered carefully by the government in the near future. This may be especially pertinent in cross-border cases where individuals in other jurisdictions may face prosecution or other adverse consequences in their home jurisdiction after being named in a UK DPA.
Non Prosecution Agreements (NPAs), as well as declination with disgorgement pursuant to the U.S. DOJ’s FCPA policy, are still a frequently-used tool by U.S. prosecutors and arguably provide a greater range of flexibility. In the U.S., agreements can be tailored more precisely to reflect specific circumstances, such as self-reporting and cooperation. The FCPA Corporate Enforcement Policy (in place since 2017) provides for a presumption of declination where there has been voluntary self-reporting, full cooperation, timely and appropriate remediation, and payment of all disgorgement and restitution. Limited credit is offered where there has not been voluntary self-disclosure but the other conditions have been met. This approach was re-enforced earlier this month, when the Assistant AG Brian Benczkowski confirmed that in respect of FCPA violations, “aggravating factors like high-level executive involvement in the misconduct will not necessarily preclude a declination when the company’s actions are otherwise exemplary.”
The HL Committee considered NPAs very briefly and concluded that they would not add anything of value to the current law on DPAs. This is disappointing as there are arguments for such agreements to be provided to corporates by the SFO where all wrong-doing is historic, there has been complete cooperation, systems and controls are adequate in the corporate and all of the wrong doing (albeit by a directing mind of the company) was by former directors, in respect of whom evidence is handed over by the corporate. At the moment, no such tool exists within the statute books of the SFO.
This blog post was co-authored by Eve Giles (Partner), Brandon O’Neil (Senior Associate) and Amy Edwards (Senior Professional Support Lawyer).