UK’s Deferred Prosecution Agreements Come One Step Closer

UK’s Deferred Prosecution Agreements Come One Step Closer

On 20th May this year, Ben Morgan, the Serious Fraud Office’s Joint Head of Bribery and Corruption, told the Global Anti-Corruption and Compliance in Mining Conference 2015 that the SFO had sent out its first letters of invitation to companies to enter into Deferred Prosecution Agreements. Shortly afterwards there was speculation that Tesco, under investigation by the Serious Fraud Office (SFO) for accounting irregularities since October 2014, was one of the companies that might be involved in negotiations for such an agreement.

Deferred Prosecution Agreements (DPAs) became available for use in February 2014. DPAs are potentially a significant improvement on the secret settlements and civil recovery orders for corruption that the SFO entered into under Richard Alderman, which amounted to little more than a light slap on the wrist and which were heavily criticised by the OECD. For a start DPAs require judicial oversight and under present SFO Director, David Green, the SFO has made clear that prosecution will remain the norm and that there are very strict criteria around how a company has self-reported and cooperated with the SFO before it will be offered a DPA. However, DPAs are controversial and the question remains as to whether justice will be done and seen to be done where they are used.

US jitters

The UK is embarking on the Deferred Prosecution Agreement process just as this instrument is becoming increasingly contentious in the US. In the US, DPAs have been used to deal with the almost all foreign bribery cases and other corporate financial wrongdoing over the past decade. US judges, who in the past have played a mainly rubber stamping role, are starting to flex their muscles. In 2013, Judge Rakoff described the use of DPAs by the US Department of Justice as ”technically and morally suspect”.

A key case is currently before an appeals panel in the US as to whether and on what grounds a judge may throw out a DPA. The case revolves around a judgement in February 2015 by Judge Leon who rejected a DPA between the Department of Justice and Dutch aerospace company Fokker, accused of making illegal shipments to countries under sanctions such as Iran and Myanmar. Judge Leon described the DPA as too lenient and “grossly disproportionate” to the gravity of the company’s conduct. That case will determine the role that judges can and should play in approving DPAs in the US.

DPAs have also been controversial in the US because individuals from the companies involved have rarely gone on to be prosecuted. On 16th September this year, the US Department of Justice issued a new memo, the Yates memo, that states that companies wishing to resolve criminal charges against them must provide all relevant facts relating to the individuals involved in the wrongdoing.

Further controversy over lack of information and transparency in the settlement process in the US led the US Senate to pass the bipartisan Truth in Settlements Act on September 22nd this year.  The aim of the act is to increase transparency in settlements reached with corporations by US enforcement agencies, particularly with regard to the terms of the settlement and the amount of fine a company would have to pay. The fine a company pays in the US is often significantly less than the headline figure because settlement fines are tax deductible.

NGO concerns

As the UK gets read to enter into its first DPAs – a radical departure for the UK justice system – UK NGOs Corruption Watch, Global Witness and Transparency International raised concerns about their use in a letter sent to David Green, Director of the SFO, in June 2015. The three anti-corruption NGOs urged the SFO to abide by key principles in applying DPAs. These include:

– that prosecution should be the norm;

– there must be no immunity clauses either for individuals or undisclosed acts;

– a full admission of wrongdoing must be made by the company;

– open justice principles must be followed with regard to court hearings;

– there must be full transparency including full details of the wrongdoing and of the public interest arguments in favour of a DPA;

– victim and community impact statements should be presented at DPA hearings;

– affected states must be informed of the DPA process and invited to participate;

– and, finally, sanctions must have significant detterent value.

In his reply to the NGOs, David Green said that the issues raised would be taken into account when considering the overall public interest.

It remains to be seen how DPAs will work out in practice as there are several weaknesses in the DPA Code of Practice. One of these is that companies are not required to admit wrongdoing in order to get a DPA. Another is that a DPA can be offered where a conviction “is likely to have disproportionate consequences” on the company and where a conviction would have “collateral effects on the public”. Article 5 of the OECD Anti-Bribery Convention requires signatories to ensure that investigation and prosecution of bribery is not influenced by ‘national economic interest’ or the identity of the natural or legal person involved. The concern is that the Code effectively allows prosecutors to take such things into account.

DPAs in the press

In July 2015, the Independent ran a front page article entitled “Justice for sale: Big companies could soon escape prosecution for corporate corruption by paying their way out” reporting again on NGO concerns that companies should not be allowed to a ‘get out of jail’ free card and that big companies may bully the SFO into DPAs. David Green has publically said these concerns are ‘misplaced and premature.

Over the summer, there was feverish ongoing speculation in the press as to who would be eligible for the first DPAs. On July 21st Sky News reported that Barclay Bank had received an offer for a DPA in relation to payments made to Qatari investors in 2008. The FCA found that Barclays had failed to reveal £322 million paid in two advisory services agreements. Barclays denied that they had been offered a DPA.

On the 23rd July the FT reported that 2 companies had started talks with the SFO with a view to entering into a DPA. One of companies according to the FT was a SME (Small and Medium Sized Enterprise), Sarclad – a Rotherham based company that provides technology products to the metal industry. The FT reported that Sarclad and one other company were well advanced in their negotiations for a DPA and that two other companies had been invited to enter into discussions for a DPA. David Green was reported as saying that he hopes that the agency will conclude 2 DPAs by the end of the year. According to the Guardian, he has also said that he hopes to conclude the Tesco investigation by the end of this year adding to speculation that Tesco is in the frame.

Public furore… private justice

An interesting point about this speculation, as the website pointed out is that DPA negotiations are, under the DPA Code of Practice, meant to be confidential. The question is, who is talking to the press? Is it people associated with the SFO who want to prove that the SFO is implementing a key government policy at a time when its future is still under threat? Or is it people associated with the company wanting to assure people that an end is in sight where the wrongdoing is concerned (announcement of DPAs in the US classically lead to a rise in share prices)? Or is it idle legal gossip?

This cuts to the heart of an issue that Corruption Watch has been raising with the Serious Fraud Office for some time now about how transparent DPAs are actually going to be. Under the DPA Code of Practice, hearings at which DPAs will receive final approval will for the most part be heard in private to avoid “uncertainties and destabilisation” and a DPA will only become public knowledge once it has been approved. Theoretically a DPA would remain totally secret until it is a done deal. Corruption Watch has repeatedly raised its concerns with the SFO over the past year as to whether this meets open justice principles. In effect, it allows a company that is being given the privilege of escaping criminal liability for wrongdoing, the double privilege of private justice to boot.

Corruption Watch has asked the SFO to explain whether they will list applications they make for the approval hearings to be held in private and inform the media they have done so, so that the media (and we would argue public interest organisations) can make representations as to why such hearings should be held in public. It is hard to see how DPAs can be fully transparent, if all the legal arguments and evidence as to why a DPA should be approved are heard in private. As Lord Justice Toulson said in a key open justice ruling in 2012, “transparency of the legal process” is critical to the rule of law. DPAs can be no exception. Four months on we are still awaiting the SFO’s answer.

The Companies in the Frame


Sarclad, which has regional offices in the US, China and India, says in its company overview that it supplies to 46 countries around the world and has an extensive network of local agents. Over the past few years, Sarclad has won orders in Saudi Arabia, Brazil, India, Turkey and China. It has a turnover of around £15 million and employs 64 people. It first reported in its 2012 accounts, signed off in September 2013, that the company was “involved in discussions with governmental authorities following report of possible irregularities in relation to the conduct of its business in a number of jurisdictions”. While involved in these discussions, which began after a new director started at the company, Sarclad has managed to almost double its turnover according to its 2013 accounts, “through winning orders in challenging environments, with a number of sales being to emerging markets overseas”. Sarclad appears to be in the frame for a DPA for offences under the Bribery Act.


Tesco has been under investigation since October 2014 by the SFO for accounting irregularities. At the end of August 2014, Tesco is alleged to have misstated profits by £263 million, by booking payments from suppliers early. This was apparently reported to the new chief executive, Dave Lewis, who started in August 2014, who immediately called in forensic accountants from Deloitte and suspended 8 senior executives. Lewis reported the misstatement to the City in September. Tesco tried and failed to withhold payouts of £2 million to its former chief executive and finance director and has said it may try to claw them back at a later date. Both the former chief executive and finance director were reported in August 2015 to have been called in for interviews at the SFO.

On the face, of it, the fact that Tesco self-declared the wrongdoing, has removed those responsible, and would appear to be helping the SFO with a case against individuals, would make them a contender for a DPA. Tesco is also under investigation by the Financial Reporting Council and faces further facing legal action from shareholders both in the UK and the US.


Barclays is under investigation by the Serious Fraud Office for two advisory services agreements it made with Qatar Holding LLC in June and October 2008. The Financial Conduct Authority (FCA) opened an investigation in July 2012 into whether these agreements were connected with Barclays’ capital raisings in June and November 2008. Barclays paid fees of £322 million which were not disclosed under the agreements. The FCA issued warning notices against Barclays in September 2013. The FCA Warning Notices state that the fees paid were not for advisory services but rather were payments for the Qatari participation in raising capital for Barclays. The Warning Notice conclude that Barclays was in breach of disclosure obligations but also in breach of Listing Principle 3 (the requirement to act with integrity towards shareholders), and that it had acted recklessly. The FCA were due to fine Barclays £50 million but the FCA proceedings have been stayed because of the SFO investigation which started in August 2012. Barclays was set to contest the FCA’s ruling.

Barclays reported in October 2012 that the DOJ and SEC are also investigating whether Barclays’ relationships with third parties to win business for Barclays are compliant with the US FCPA and under this are also investigating the Qatari agreements. Barclays relationship with a third party is also under investigation by another undisclosed regulator.

The SFO, DOJ and SEC are said to be investigating whether the fees paid under the advisory services agreements amounted to an attempt to ‘induce’ the Qataris to invest £4.6 billion in the bank. Barclays was able, as a result of its capital raising, to avoid being part re-nationalised by the UK government, as RBS and Lloyds were.

If Barclays has been offered to enter into talks for a DPA, this would be a very contentious choice by the SFO. The fact that Barclays did not self-report to the SFO and was due to contest the FCA ruling raises questions as to how cooperative it has really been. And the fact that it is under investigation for further corruption offences in the US would militate against it being given a DPA. Under the DPA Code of Practice a main public interest factor in favour of prosecution rather than an agreement would be a history of similar conduct. The Codes states that “failure to prosecute in circumstances where there have been repeated or serious breaches of the law may not be a proportionate response and may not provide adequate deterrent effects.”

It is possible that a DPA has been offered to Barclays as part of a global settlement involving a DPA with the US DOJ with regard to FCPA violations. However, if the UK were to give Barclays a DPA when it is either still under investigation by the DOJ for corruption and bribery allegations, or where the SFO only enters into an agreement with Barclays with regard to Qatar while the DOJ enters into an agreement with regard to broader corruption offences committed, the SFO will look extremely weak.