DPAs for the FCA? A New Year's enforcement treat

As New Year's resolutions go, "read Schedule 16 to the Crime and Courts Bill" may not have been top of anyone's list.  Buried, however, in the Bill's provisions on deferred prosecution agreements ("DPAs") are some interesting pointers to the future use of DPAs and their potential availability to prosecutors other than the Serious Fraud Office ("SFO") and Crown Prosecution Service ("CPS").  In particular, the offences listed as being capable of resolution using a DPA suggest that, contrary to earlier indications, DPAs may comprise an additional tool in the armouries of the Financial Conduct Authority ("FCA"), and HRMC, in 2014/15.  In this post we briefly explain the relevant provisions.

Deferred Prosecution Agreements: a recap

DPAs are a proposed alternative to criminal prosecution, which will be used to address the commission of economic crimes by commercial organisations.  Under a DPA, a company will agree to certain conditions (which are likely to include a financial penalty, reparation to victims, repayment of profits and measures to prevent future offending), and an agreed statement of facts setting out its wrongdoing.  The prosecutor will lay – but not immediately proceed with – criminal charges against the company.  The charges will be withdrawn after a specified period if the company has complied with the DPA conditions, with the result that the company will not be formally convicted of an offence.  The DPA will be a public document, approved by a judge in open court.  

The intention is to encourage self-reporting by companies and to promote just and efficient disposals of cases of serious corporate economic crime.  The DPA concept has been imported from the US, where DPAs have been widely used by the Department of Justice to settle cases – notably in the corruption sphere – but with some modifications, including in particular a greater degree of early judicial oversight. 

The Ministry of Justice published a Consultation Paper on DPAs on 17 May 2012 (the "Consultation"); our briefing on the subject is available here: http://hsf-fsrandcorpcrimenotes.com/2012/08/01/deferred-prosecution-agreements-consultation-one-week-to-go/.  On 23 October 2012, the Consultation Response (the "Response") was published and the Government confirmed that it intended to introduce DPAs by way of an amendment to the Crime and Courts Bill; our briefing on the Response is available here: http://hsf-fsrandcorpcrimenotes.com/2012/10/31/government-gives-green-light-to-deferred-prosecution-agreements/.  The Crime and Courts Bill ("Bill") completed its first reading in the House of Lords on 18 December 2012.  It is expected to have its second reading debate in the House of Commons on 14 January 2013, before moving to Committee. 

DPAs: Eligible offences

DPAs were originally proposed to be available "to deal with offending behaviour by commercial organisations that can be classified as economic crime, in particular fraud, bribery…and money laundering".  The Response stated that the Government "do[es] not intend to broaden the scope of the offences for which DPAs will be available at this time…However, we recognise the need to maintain flexibility…and will review the list of offences which [DPAs] encompass before considering whether there is a case to broaden the range of economic crimes…".  As such, the Government concluded that it would "Limit the application of DPAs to economic crimes, but provide for the list of economic crimes for which a DPA is available to be amended". 

The proposed list of economic crimes is now available, at Part 2 of Schedule 16 of the Bill.  Most of the listed offences come as no surprise.  For example, it is proposed that a DPA will be capable of being used in respect of specified offences under the Theft Act 1968 (including theft and false accounting), the Forgery and Counterfeiting Act 1981, the Bribery Act 2010 (including the so-called s.7 'corporate offence'), the Fraud Act 2006, conspiracy to defraud, and, under the Proceeds of Crime Act 2002, the money laundering, failure to report and tipping off offences. 

What is much more interesting, and perhaps out of step with what one would expect from reading the Consultation, the Response, and the Impact Assessment, is the inclusion of:

•  financial services regulatory offences: contravention of the prohibition on carrying on a regulated activity unless authorised or exempt (s.23 of the Financial Services and Markets Act 2000 ("FMSA"), contravention of restrictions on financial promotion (s.25 FSMA), contravention of the prohibition on dealing etc in transferable securities without an approved prospectus (s.85 FSMA), the provision of false or misleading statements to an auditor or actuary (s.346 FSMA), misleading statements and practices (s.397 FSMA), and misleading the FSA (s.398 FSMA);
• an offence under reg.45 of the Money Laundering Regulations 2007 (ie. a breach of the compliance requirements rather than a substantive money laundering offence);
• A variety of tax and customs offences, including: cheating the public revenue, fraudulent evasion of VAT (s.72 Value Added Tax Act 1994), and offences under the following sections of the Customs and Excise Management Act 1979: (a) s.68 (offences in relation to exportation of prohibited or restricted goods); (b) s.167 (untrue declarations etc);  (c) s.170 (fraudulent evasion of duty etc); and
• Companies Act 2006 offences: breach of the general rule against a limited company acquiring its own shares (s.658), prohibited financial assistance (s.680), and fraudulent trading (s.993).  

Other than a comment in the Response to the effect that some 48% of respondents supported a wider application of DPAs, this is the first concrete indication that DPAs will be available to deal with such a broad range of offending of a regulatory nature[i].   

DPAs: Eligible prosecutors

But wait!  The Impact Assessment told us that the Government assumed that DPAs would be used "primarily…by the SFO…This Impact Assessment focuses on the SFO cases but acknowledges that the CPS (and potentially other prosecutors in the future) could also deal with some cases, though this is likely to be a very small number" (see para 2.15 of the revised Impact Assessment).  If the SFO (primarily) and the CPS (to a lesser extent) will be the users of DPAs, is the inclusion of the FSMA offences otiose?

 The Bill now specifies the prosecutors that will have the power to enter into DPAs.  These are (see para 3 of Schedule 16):

"(a) the Director of Public Prosecutions;

(b) the Director of the Serious Fraud Office;

(c) any prosecutor designated under this paragraph by an order made by the Secretary of State".

Sub-paragraph (c) appears to leave the door open to the widespread deployment of DPAs.  One can only assume that the odds are good that the FCA will be designated by the Secretary of State in fairly short order; unless one assumes that the listing of a large number of the crimes referred to above is redundant/pointless, the reference in the Impact Assessment to DPAs being used by "potentially other prosecutors in the future" seems somewhat disingenuous. 

Comment

DPAs were proposed against the backdrop of the very real difficulties that law enforcement face in investigating and prosecuting offending by (larger) corporate entities.  Other than criminal prosecution, the SFO currently has no alternative enforcement tools (other than the use of civil recovery orders, which are aimed at a different type of conduct, and have been the subject of recent criticism).  Further, SFO investigations and prosecutions tend to particularly lengthy and expensive.  In that context, there is an obvious rationale for the deployment of DPAs.  Even so, their proposed introduction has met with some concern, particularly given the widespread perception that, in the US, they have been used as a means of exerting unwarranted pressure on companies to settle cases. 

By contrast, the FSA already has powerful civil enforcement remedies available to it, and settles the majority of enforcement actions[ii].  Does the FSA/FCA really need a further mechanism to settle criminal cases?  Should this not be the subject of rather more debate?

Happy New Year!