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First Reactions to the U.K.'s Second Deferred Prosecution Agreement

The New York Law Journal
By Matthew Schwartz and Matthew Getz

Over the past few years, there has been a quiet revolution in the state of corporate criminal law in the United Kingdom, as the country approaches ever closer to the American model of large settlements and huge fines. In 2011, the UK Bribery Act came into force, brushing aside a century of outdated laws with a law that many consider even stricter than the United States' Foreign Corrupt Practices Act. In 2014, the first ever sentencing guidelines for corporate bribery were passed, with the intent and expectation that fines for corporate misbehavior would be significantly enhanced. Also in 2014, the U.K. took the large step of introducing the American practice of deferred prosecution agreements (DPAs).

These changes, significant as they were, took some time to come to fruition. In part, this was by design: The Bribery Act only applied to new crimes (post-2011), and the law setting out DPAs requires significant court approval, which takes time. But prosecutions for bribery have started appearing, fines are increasing, and now, as of July 8, 2016, the U.K.'s Serious Fraud Office (SFO) has secured only its second-ever DPA, based partly on breaches of the Bribery Act.

These moves show that law and practice in the U.K. really are changing, and practitioners and corporations alike need to be prepared for a continued wave of enhanced corporate criminal enforcement.

Short History of DPAs in U.K.

As noted, DPAs are new to the U.K. Although the government announced in 2012 that it would adopt some type of DPA, officials lacked authority to enter into DPAs until 2014, when the Crime and Courts Act 2013 became effective.1

As in the United States, under a U.K. DPA, the government files criminal charges that are suspended, and are ultimately dismissed if the defendant meets certain requirements. Those requirements may include financial payments, compliance undertakings, promises to cooperate, and factual admissions.

U.K. DPAs have several unique features, however. First, they are available only against corporate entities. That is a significant difference from the U.S., where corporate DPAs evolved from their use against individuals.

Second, U.K. DPAs are not available for every offense. Instead, the statute lists qualifying offenses. Although the list is long, DPAs are generally available in cases involving fraud, bribery, money laundering, and certain tax and securities violations.

Third, by statute, the penalty under a DPA "must be broadly comparable to the fine that a court would have imposed" following a guilty plea. There is no discount for entering into a DPA.

Finally, a U.K. DPA is subject to court approval as to whether it is "in the interests of justice" and whether its terms "are fair, reasonable and proportionate." This is different than in the U.S., where prosecutors and most courts believe that the only role of judges is to exclude the period of deferral from speedy trial computations. Indeed, in approving the first-ever DPA, the court observed2 that in the U.K., "the court retains control of the ultimate outcome," "a critical feature" that is in "contra-distinction to the United States."

The SFO entered into its first DPA3 in November 2015 with Standard Bank plc, which disclosed violations of the Bribery Act—the U.K.'s analog to the FCPA—in relation to $6 million in payments made to Tanzanian officials (resulting in $8.4 million in fees). As part of its DPA, the bank paid $25.2 million in fines and disgorgement, plus £330,000 in costs; it also paid the government of Tanzania $7 million; and it gave the U.S. SEC $4.2 million more.


On July 8, 2016, the SFO entered into its second-ever DPA.4 Because it relates to an on-going investigation, the identity of the company has not been revealed; the case is captioned SFO v. XYZ Ltd.

This is what we know: The defendant, a subsidiary of a U.S. company, is a small- to medium-sized business that was to be charged with conspiracy to corrupt, conspiracy to bribe, and failure to prevent bribery (the so-called corporate offense of the Bribery Act) "all in connection with contracts to supply its products to customers in a number of foreign jurisdictions" between 2004 and 2012. The SFO reported that 28 of the company's 74 contracts over that time (about £17.24 million) were the result of bribery. Put differently, about 20 percent of the company's profits were the product of bribery.

The reviewing court, the Crown Court, which is the court of first instance for more serious criminal matters, found that this represented "a course of systematic conduct over eight years" and that "[i]n terms of gravity," the company's misconduct was "of an entirely different order" than in the previous DPA. (The same judge, one of England's most senior, approved both DPAs).

It was the company's cooperation that convinced the court to approve the DPA. In late 2011, the company implemented a global compliance program that revealed these issues, disclosed them to the SFO, and in 2013—before DPAs even existed—the company voluntarily reported the findings of an "independent internal investigation."

The company also agreed to pay approximately £6.5 million, primarily as disgorgement, along with a small (£352,000) penalty. Just under £2 million was paid by the company's U.S. parent, which had received that much in dividends. The parent company, however, was not named as a defendant and was "entirely ignorant" of wrongdoing, according to the court. The company also agreed to cooperate fully.

SFO Director David Green pointed to the size of the fine—a fraction of what was expected—explaining that this was an example in which "the company accused of criminality has limited financial means with which to fulfill the terms of a DPA but demonstrates exemplary co-operation."


Although it is always difficult to identify clear trends from a sample size of two, several things stand out.

First, cooperation is key. The SFO has stated5 that it "will only invite a company into DPA negotiations if our Director is persuaded that they have offered genuine cooperation," which was characterized as a high bar. So far, the SFO has only given DPAs to companies that self-reported wrongdoing, conducted an internal investigation, and disclosed the results. This mirrors statements by U.S. officials, most notably in the DOJ's "Yates memo," that cooperation credit will only be available to companies that cooperate completely and without reservation.

Second, both DPAs involved violations of the Bribery Act. Observers have long thought that corruption would be the most likely subject matter for U.K. DPAs—much of the conduct occurs abroad, making bribery cases hard to detect and resource-intensive to investigate—and the SFO's actions have proven them right.

Third, the SFO means it when it says that companies will not receive a break on financial penalties. The first DPA involved penalties commensurate with what the bank would have received had it pleaded guilty, and while the second DPA technically did not, the SFO got more than it otherwise would have. By persuading the U.S. parent company to disgorge £2 million—something it was under no obligation to do—the SFO received more money than the defendant could pay by itself. Moreover, the payment represented all of the company's "unencumbered cash."

This much is clear: The U.K. DPA is here to stay. While the SFO has shown it will be used sparingly and only in the right circumstances, it is a potent new tool for prosecutors and corporate counsel alike.







Reprinted with permission from the August 5, 2016, issue of the New York Law Journal. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Related Lawyers: Matthew L. Schwartz, Matthew Getz