Corruption, DPAs and the prosecution landscape

Introducing GoodCorporation’s anti-corruption debate, Lord Gold began by affirming that the primary role of the Serious Fraud Office (SFO) is to investigate and prosecute. While the Conservative Party manifesto proposes absorbing the SFO into the National Crime Agency, there is unlikely to be any deviation from that primary purpose. 

Deferred prosecution agreements (DPAs) are also likely to remain part of the prosecution armoury. The current perspective on DPAs is that they must be in the interest of justice. Under the current regime they will only be offered if: 

• the company has fully co-operated and waived privilege 
• the SFO is convinced that the reforms have been made and are genuine 
• the SFO is ready to prosecute if the negotiations collapse – a DPA will not be offered before the SFO has completed its investigations 
• the courts agree with the SFO’s DPA recommendation – the bar for this will be high – judges need to be persuaded that changes made by the company are properly embedded, effective and that there is nothing to be gained from a prosecution 

Since their introduction in 2014, there have been three deferred prosecution agreements: Standard Bank, XYZ company and Rolls Royce.  

One condition of a DPA may be the introduction of a monitor, this was the case for Standard Bank but not for Rolls Royce. This may be significant as monitors can be both intrusive and expensive (Zimmer paid $50m for their monitor in the US). Full cooperation with the authorities, the ability to demonstrate that the company has changed and has a fully effective compliance regime, including independent oversight of a form acceptable to the court, will be crucial to avoiding a monitor. 

Having an effective compliance regime, however, goes beyond the avoidance of a monitor. It is critical to complying with Section 7 of the UK Bribery Act. To demonstrate effectiveness, companies must be able to evidence that they monitor compliance robustly, take action against wrong-doers and are willing to disclose any new problems that may emerge. 

So will the DPA regime lead to more companies reporting or is there still an unwillingness to do so? 

Those encouraged to report cited the following reasons: 

• When there is clear evidence of corruption it is better to engage with the process that is calling for disclosure than fight against it and deny issues  
• Transparency would be in the company’s best interests 
• The leniency offered for self-reporting is attractive 
• When there is clear evidence of bribery, it is the best way of managing the investigative process 
• If the company is confident that it has adequate procedures in place, self-reporting would help control the narrative 
• It will help negotiations with the SFO and is more likely to result in a DPA as it will build trust 

The following concerns were expressed: 

• The possible negative impact on the company of losing privilege 
• Reports are expected too early, before companies have even had the time to properly investigate themselves 
• Lack of guidance on what and when to report 
• Reporting places control with the SFO – preventing the company from completing its own investigation 
• The speed of the DPA process is too slow 
• There is no guarantee that reporting will avoid prosecution or mitigate the penalty, so it is not obviously in the company’s best interest 
• Lack of confidentiality – concerns were expressed that details of disclosure leak into the public domain, showing up on screening checks which could have an impact on the future stability of the business, including jobs. 

Reporting is clearly a challenging issue. Public opinion increasingly demands that corporates show the same level of integrity as citizens. Reporting therefore can be viewed as both a moral and a fiduciary duty as corporates should not be in the business of hiding wrongdoing. In addition, concealment could ultimately lead to greater reputational and financial damage.  

Others argued that revealing information about the organisation that could be highly damaging and might otherwise remain unknown would be going against their fiduciary duty. However, caution was expressed about the ability to keep evidence of corruption out of the public domain in the social media era.  In addition, the increase in international cooperation is having an impact, inhibiting bad behaviour within organisations. 

Businesses under investigation should also be aware that if they choose not to self-report and more evidence is found, they will lose the trust of the prosecutor and the only solution will be a wholesale change of senior personnel. 

Few felt that DPAs would reduce corruption per se. However, both the Bribery Act and the changing prosecution landscape have clearly led to a greater emphasis on how companies operate and an increased awareness of the need to monitor and manage those with whom they do business. 

The GoodCorporation View 

While DPAs themselves may not prevent corruption, it is clear that the tougher regulatory and enforcement environment has had an impact on corporates, with anti-corruption compliance increasingly being approached from the corporate culture perspective. Those organisations in the top quartile of the GoodCorporation Adequate Procedures Benchmark score most highly for their top-level commitment, with clearly articulated and well communicated policies, an effective zero-tolerance approach and tough sanctions for any breaches. All strong examples of an effective business culture. 

Adequate procedures are clearly essential, not just to ensure legislative compliance but to ensure that in the event of a breach there is a robust defence in place that can be used to effectively negotiate a DPA. Organisations will need to evidence that this is understood and properly monitored throughout the operation.