On 17 May 2012 the Ministry of Justice published a consultation paper ‘Consultation on a new enforcement tool to deal with economic crime committed by commercial organisations: Deferred prosecution agreements‘.  The paper proposes – as an alternative to the current options of criminal prosecution or a civil recovery order – a variant of the US model of Deferred Prosecution Agreements (“DPAs”) to address offending by corporate entities. The consultation (https://consult.justice.gov.uk/digital-communications/deferred-prosecution-agreements) is open until 9 August 2012.  At recent meetings, the Solicitor General has urged stakeholders to respond to the consultation, so that the Government has a wide range of inputs on this important subject.  This briefing summarises the key elements of the proposal and highlights some of the potentially troubling aspects for companies which may be addressed in consultation responses.  

Key Issues

  • DPAs are intended to encourage self-reporting by companies and to promote just and efficient disposals of cases of serious corporate economic crime.  The impact assessment accompanying the consultation paper also suggests that it is envisaged that DPAs will increase penalty income (see: ‘DPAs in practice’, below).  
  • The realisation of these ‘benefits’ is dependent on the proposals providing meaningful incentives for companies to self-report and engage in negotiating a DPA, as opposed to waiting and fighting a criminal prosecution (if one is ever brought).  It is unclear whether the proposed DPA model will provide a sufficient motivation to encourage self-reporting in the majority of cases – particularly where the risk of conviction is low.  Uptake of DPAs seems most likely where the ‘corporate offence’ under the Bribery Act provides a meaningful risk of successful prosecution, or where the prospect of mandatory debarment is a compelling concern for a company.
  • Further guidance is anticipated: there will be guidance for prosecutors in relation to the factors to consider in determining whether a DPA is suitable, and a sentencing guideline covering the conditions that may be attached to a DPA.  The content of these documents, and the degree of certainty they offer, will be of significant importance to companies. 
  • It is proposed that judges will be involved at an early stage, to ensure transparency and a fair, reasonable and proportionate outcome.  Whilst there are some obvious benefits to judicial oversight and scrutiny, it is also possible that the element of judicial discretion will generate uncertainty which will, in turn, cause companies to be unwilling to engage in the DPA process.
  • The proposed model involves companies admitting to a statement of facts as part of the DPA, which will be public.  The DPA will require the company not to contest those facts or admissions in other proceedings.  The DPA may, therefore, increase the risk of civil proceedings in England and Wales and civil or criminal proceedings in other jurisdictions.  This may reduce the attractiveness of DPAs, particularly where coordinated settlements are unavailable.  Admissibility and related issues are likely to be important focus in consultation responses.
  • The Government intends to legislate in 2013/14 to introduce DPAs to England and Wales in 2014/15.


Purpose of the proposals

At present, where a company has committed or benefited from serious economic crime, English law enforcement authorities have two main routes to address its conduct: (a) criminal prosecution of the company; or (b) civil recovery proceedings under the Proceeds of Crime Act 2002, which, if successful, would result in an order from the High Court for the company to disgorge its benefit from criminal conduct.  Criminal prosecution is a lengthy, expensive, and frequently unsuccessful process.  Civil recovery has been criticised recently for being applied in a non-transparent manner[i], and involves no ‘penalty’ element.

DPAs are intended as an alternative to prosecution and a more flexible, effective and efficient mechanism for addressing serious economic wrongdoing by companies and other commercial organisations.  Under a DPA, a defendant company will agree to comply with certain conditions, for a fixed period, in exchange for the prosecuting agency that has laid charges against it refraining from pursuing a criminal conviction.  Agreed conditions typically involve the payment of a fine, reparation to victims, disgorgement of the profits of wrongdoing, and measures to prevent future offending.  The DPA is made public and, under the proposals, will be approved by the Court.

The DPA is a concept imported from the US, where it is seen as an important tool in the prosecutorial armoury of the US authorities.  The proposal to introduce DPAs in England and Wales comes at a time when the UK prosecuting authorities continue to struggle with reduced resourcing and are looking for ways to live up to the ‘hype’ surrounding the Bribery Act 2010.

One of the key rationales for introducing DPAs is said to be to incentivise commercial organisations to self-report or admit wrongdoing as early as possible.  This saves prosecutors the uncertainty, time and expense of securing convictions and, potentially, gives them the opportunity to address offending that might otherwise never come to light.  On the other side of the fence, companies are said to have the chance to achieve a more certain outcome, receive reduced fines, and avoid the debarment from EU and US public procurement tendering processes that could follow a criminal conviction.

DPAs in practice – predicted benefits

The Impact Assessment (“IA“) accompanying the consultation sets out the expected practical consequences of the introduction of DPAs.

Prosecuting agencies other than the Serious Fraud Office (“SFO”) are only expected to use DPAs in rare cases.  The Crown Prosecution Service prosecuted just four cases against commercial organisations between April 2010 and May 2012 and, as its commercial caseload mainly relates to illegitimate organisations set up for criminal purposes, its future cases are said to be unlikely to be suitable for resolution under a DPA.

As an indication of the frequency with which the SFO might offer DPAs, the IA states that 7-15 of the SFO’s current caseload of approximately 32 cases involving commercial organisations could be resolved using the new tool.  The estimated cost and time involved in obtaining each DPA (£600,000 and 4.8 years including reporting/monitoring requirements) would be roughly equivalent to those for a Civil Recovery Order, or one year shorter and £100,000 cheaper than for an early guilty plea.  These figures indicate that DPAs will not bring about dramatic efficiency savings. They will only significantly save time/costs for prosecutors and the Courts when used to avoid contested trials, late guilty pleas or discontinued prosecutions.  The net annual savings of introducing DPAs are estimated to be relatively modest (£0.8 to 1.2 million a year for the SFO and £20-60,000 for the Courts).  If the IA is correct on this, defendant companies should not expect the DPA to be a ‘quick’ or ‘easy’ option. 

The most dramatic benefit (for the Government) offered by DPAs appears to be the predicted penalty levels, with the average DPA penalty ranging (based on three different models) from £3-30 million.  This is said to translate into “a significant increase in penalty income” of £3-60 million per year.  Whether this can be achieved remains to be seen: the comparators used to generate these figures (US cases settled by DPA and fines imposed by the Office of Fair Trading) are problematic.  Assuming DPA penalties in the UK will reach even 50% of US levels seems highly optimistic, whilst UK competition law allows for penalties on an entirely different basis (a percentage of turnover).  The other uncertainty is whether criminal penalties (imposed following conviction) will see an increase from their current, relatively modest, levels[ii].  Nonetheless, it would be a reasonable working assumption that the adoption of a DPA model will see some increase in penalty levels.


It is clear that a company which is already under criminal investigation might – depending on the strength of the case against it – welcome the offer of a DPA as an alternative means of resolution. Will the proposals achieve their stated aim, however, of encouraging self-reporting by companies whose offences have not yet come to light?

At present, in deciding whether to self-report, companies balance a range of factors, including the likely outcome, the likelihood of the issue emerging in any event, and any legal obligations to report.  The question, therefore, is whether the proposals create a sufficiently attractive outcome that this balancing exercise will be materially changed.

Self-reporting may have real attractions for the minority of commercial organisations whose wrongdoing is: (a) capable of being criminally prosecuted; but (b) mild enough to satisfy prosecutors that prosecution is not the only option; and (c) likely to become public in any event. Even then, companies will want reasonable certainty that prosecutors will actually make a DPA available to them once the reported wrongdoing has been investigated, and some up-front clarity as to what its terms might involve. 

Companies which negotiate a DPA would benefit from reduced fines (the proposals suggest a maximum one-third reduction), a timelier and more certain resolution, and a better chance of escaping debarment. They would, however, still face adverse publicity, obligations to make payments to victims, and disgorgement of profits (none of which receive any cooperation discount).  Debarment might also still follow: a criminal conviction for certain specified offences (such as corruption) triggers a mandatory debarment regime; certain other conduct, including acts of “grave misconduct trigger discretionary debarment.  If prosecutors decide not to offer a DPA, the company will have achieved nothing except hastening the start of a criminal investigation.

Self-reporting will be still less attractive to the broad swathe of companies whose behaviour is not clearly unlawful.  The threat to them of an increased fine and the risk of debarment if they choose not to self-report may be outweighed by the chance that prosecutors may offer a DPA in any event if the conduct comes to light, and that, if a prosecution is pursued, it may ultimately fail.

The DPA will be particularly unattractive in relation to offences requiring proof of criminal intent by the ‘directing mind and will’ of the company.  This can be particularly hard to prove where the defendant is a large company, as it is often more junior employees who had the relevant criminal intent.  Oddly, the consultation appears to suggest that DPAs address the problem of proving directing mind and will.  That would only be the case if the Government’s intention was that companies should agree to a DPA in circumstances where they could not in any event have been criminally prosecuted – which appears wrong in principle.

If DPAs are limited to cases where a criminal offence could have been proved, their use will be confined to cases where there is clear evidence of criminality at senior levels within the defendant company, and to offences – notably the ‘corporate offence’ under the Bribery Act 2010 – where the directing mind and will test has been abandoned.  This is recognised in the IA, which notes that: “If the risk of prosecution is not a credible one, which would be the case when the volume of prosecutions is low, then there is a risk that commercial organisations will not be willing to engage in the DPA process“.

Another section of the proposals that will make companies cautious about self-reporting is the list of sample DPA terms.  These could potentially make a DPA as unpalatable as conviction.  Requiring a commercial organisation to “pull out from the market in which the wrongdoing is admitted” could have profound cost implications.  The requirement to appoint an “independent monitor…to formally review the organisation’s policies, procedures, training and compliance” will also meet with some scepticism, given the US experience of a mushrooming and costly ‘monitor industry’.  As an example, Innospec was reported to have been charged approximately $50m in fees by the corporate monitor appointed under its US DPA.

Consultation responses will doubtless seek to press the Ministry of Justice to increase the incentives for self-reporting, perhaps by offering a greater discount on the fine than the proposed one-third off – which is the same discount level that would in any event be available for an early guilty plea – or by offering discounts on sanctions other than the fine.

The DPA process: offering DPAs

Under the proposals, following an investigation of the alleged wrongdoing, prosecutors will decide whether it is “in the interests of justice to offer a DPA rather than pursue a conviction. The proposals indicate that a SFO/DPP Code of Practice will be issued (presumably following the passage of the legislation) to help prosecutors determine this issue.  The content of this Code will be significant in making the process workable and sufficiently certain.

The DPA process: the role of the judiciary

The proposals indicate that DPAs will be enshrined in primary legislation and involve greater judicial involvement than is provided by the US model.  A judge will hold a private preliminary hearing as soon as the basic facts, wrongdoing and contemplated conditions of the DPA are agreed, and will play an active role in negotiations by giving an “indication” of whether the proposed terms appear “fair reasonable and proportionate and are likely to be approved “in the interests of justice“.

A further private hearing will follow immediately before formal submission of the DPA, which the judge will then approve in public. This model of judicial involvement is aimed to ensure that the parties quickly learn if a DPA is inappropriate in the circumstances and get two chances to resolve problems with the terms.  One concern is that, as the ultimate arbiter of the “interests of justice“, a judge may pursue tougher sanctions than the prosecuting agency has proposed.  This could undermine negotiations at a relatively advanced stage (when prejudicial material has already been disclosed to prosecutors).

Whilst DPA negotiations are expected to be confidential, once crucial evidence is disclosed, this may, in reality, cripple commercial organisations if DPA negotiations fail.  Prosecutors will know where to look, and, under the proposals, evidence obtained from enquiries made as a result of admissions in an unsigned DPA (as well as documents disclosed in failed negotiations) will be admissible in criminal proceedings against defendant companies and implicated individuals.

Admissions and other proceedings

A final important aspect of the proposals is the effect that information generated or disclosed in the course of negotiations (and the final signed DPA itself) may have on other proceedings.

Every DPA will contain “a statement of facts“.  This will include formal admissions of wrongdoing.  Such admissions are likely to be admissible in civil proceedings, where a rebuttable presumption will arise that the agreed facts are true.  As such, a DPA being endorsed and made public may strengthen existing civil claims connected with the wrongdoing, and encourage new civil claims to be brought – for example by the direct victims of the wrongdoing, or third parties indirectly affected by it.

Foreign jurisdictions investigating the same or connected wrongdoing may also be able to rely on the DPA in actions against the commercial organisation abroad.  Companies that negotiate DPAs will therefore wish to ensure that they seek to coordinate settlements in multiple jurisdictions.  The proposals recognise this as an issue – but without indicating with any clarity how this will be addressed.

Proceedings may also be brought against implicated individuals.  The sample DPA terms indicate companies will typically be required to give prosecutors “all relevant, non-privileged information and material, and to provide access to witnesses” in support of investigations of individuals.

Rather than closing a bad chapter and offering a fresh start for companies, entering into a DPA (or providing prejudicial evidence in the course of negotiations) could therefore result in fresh litigation against the company, and an expensive, embarrassing and time consuming commitment to participate in the public prosecution of individuals whose actions were at the centre of the company’s wrongdoing.

Without safeguards to mitigate these effects, the risks of self-reporting and negotiating a DPA may be so high that the benefits of the proposals may be frustrated.


The current situation regarding ‘negotiated’ outcomes for cooperating corporates is unsatisfactory, but it remains unclear whether DPAs are the optimal solution.  Other options, such as the introduction of Non-Prosecution Agreements, a non-admission DPA model, or amendments to the Civil Recovery process, may be viable and important alternatives. 

Whether organisations are prepared to self-report will ultimately depend on whether DPAs provide meaningful incentives as compared to conviction, and whether there is a credible risk of prosecution.  The consultation allows stakeholders to press the Ministry of Justice for clarification on these issues; it is in all stakeholders’ interests that a workable DPA process is introduced.  The Government must, of course, avoid DPAs being seen as a soft option, but the purported benefits of the proposals cannot be achieved unless businesses know they are not being invited voluntarily to place their necks on the block.

[i] The Serious Fraud Office’s latest civil recovery order, obtained against Oxford Publishing Limited in July 2012, goes some way towards addressing these concerns, by setting out in some detail the reasons why a civil recovery order was considered appropriate, and publishing the Consent Order, Claim Form, and Application Notice in connection with the civil recovery proceedings.

[ii] Thomas LJ in R v Innospec [2010] Crim LR 665 indicated that, in principle, there was no reason why English fines for corporate corruption should not be at a similar level to those seen in the US.  There have been no further cases, to date, which have provided an opportunity for the Courts to sentence in line with these remarks.

A version of this client bulletin was first published on 20 June 2012 in the LexisNexis ‘Company Secretary’s Review’ (Volume 36, Number 5).