Author: Azizur Rahman
3 January 2018
4 min read
The Geneva-based private banking unit of HSBC has agreed to pay 300 million euros under the terms of France’s first deferred prosecution agreement (DPA).
It has been reached to settle allegations that HSBC helped French clients evade local taxes and launder money.
The DPA was entered into by the French National Financial Prosecutor and HSBC Private Bank (Suisse) after a series of negotiations between the two parties. It stemmed from a leak of data in 2008 by a former employee in the bank's IT group, Herve Falciani, which showed the bank’s illegal activities.
The Paris Public Prosecutor opened an investigation into HSBC in April 2013 but withdrew in favour of the National Financial Prosecutor. According to the newly-finalised DPA, in 2011 HSBC "initiated a complete overhaul of its structure, controls and procedures aimed at adapting its risk profile." The result is France’s first DPA.
Under a new French law called Sapin II, which became effective in December 2016, DPA’s became an option in France. Two years earlier, the UK introduced DPA’s under the provisions of Schedule 17 of the Crime and Courts Act 2013; which made them available to the Crown Prosecution Service (CPS) and the Serious Fraud Office (SFO).
It is likely DPA’s will become increasingly common in both countries. Those doing business in the UK and France – and the US, where DPA’s have been in existence far longer – will, therefore, need to know what they are.
A DPA is an agreement regarding fraud, bribery or other economic crime that is reached between a prosecutor and an organisation which could be prosecuted. It allows a prosecution to be suspended for a defined period, providing the organisation meets certain specified conditions.
For the organisation that was facing possible prosecution, a DPA has the benefit of allowing it to avoid a criminal conviction. It also gives formal recognition to – and credit for – any efforts that the organisation has made to put right the wrongs that led to it being under investigation. As a result, a company obtaining a DPA is able to continue to function without the massive reputational damage and the likely resulting loss of business that a criminal conviction could bring.
From the authorities’ point of view, a DPA is an opportunity to make sure that an organisation does pay a penalty for its wrongdoing; usually in the form of a fine and / or compensation. It also ensures that the organisation takes steps to prevent any recurrence of the illegal behaviour that prompted the investigation. And yet it does so without the authorities facing the cost and huge drain on resources that would be involved in a criminal trial.
It is not difficult, therefore, to see why DPA’s have been brought into both the UK and French legal system. There are benefits to using them when they are appropriate and, for this reason, it is hard not to believe that they will become increasingly popular: either through greater use here or in France or by being adopted as an option by more countries.
In the UK, each DPA is concluded under the supervision of a judge, who must be convinced that it is in the interests of justice and fair, reasonable and proportionate. Under a DPA, a prosecutor charges a company with a criminal offence but proceedings are automatically suspended if the DPA is approved by the judge. Each DPA will contain certain conditions that the company must abide by. Failure to follow these conditions can lead to the DPA being abandoned and the prosecution being resumed.
The SFO has made it clear that a company will only be invited to enter DPA negotiations if it has cooperated fully with its investigators. It is important to note that DPA’s are not handed out left, right and centre. While they may become increasingly common, the UK has so far only seen four granted. They are only likely to be offered to what the SFO or CPS consider to be deserving cases.
While DPA’s may become more common, therefore, it would be a mistake to expect them to become the norm – offered to anyone and everyone suspected of business crime.
In the UK, the SFO or CPS may be keen to avoid every case going to a lengthy, costly trial with no guarantee of a successful outcome. But that will not prevent them being sparing in their use of DPA’s. Companies, therefore, have to take it upon themselves to make sure they are suitable candidates for a DPA. This involves more than a few token gestures designed to be “window dressing’’ to impress the authorities. They have to make a concerted effort and show a genuine will to tackle the problems that have – or are about to – prompt investigation by the authorities.
A large part of this can be down to a company taking the decision to self-report wrongdoing before the authorities are aware of it. Self-reporting has been noted by the judge in at least one UK DPA as being in the interests of justice. Credit, therefore, is likely to be given to a company that discloses its problems to the authorities before any investigation has commenced.
This does not necessarily mean, however, that self-reporting guarantees a DPA. The equation is just not that simple. If it was, we would have had more than four DPA’s in the UK by now. It is also worth noting that not all of those four DPA’s have involved self-reporting. Being open and upfront about the wrongdoing in a company is commendable in its own right. It may also help secure a DPA. But advice has to be taken from specialists in this area of law before a company discloses its illegal activity to the authorities. Obtaining a DPA is about more than confessing your wrongdoing.
Early in 2017, Rolls-Royce obtained a DPA from the SFO in relation to its systematic and widespread use of bribery around the world over many years. It did not self-report this wrongdoing. But what it did do was expend a great deal of time and effort cooperating with the investigation.
When the DPA was finalised, the judge specifically referred to Rolls-Royce’s full cooperation as being a factor in the amount the company had to pay. Without such cooperation, the financial penalty would have been higher. This cooperation was considered to be genuine, consistent cooperation throughout the investigation – not a gesture of help designed to get the company “off the hook’’ when criminal charges looked likely.
Rolls-Royce carried out its own internal reviews, appointed outside experts to examine its workings and make recommendations and took action against those it blamed for what had happened. Its cooperation was backed up by deeds.
Such an approach requires fine tuning in each and every case. But only by taking such an approach can a company hope to obtain a DPA, whether that be here, in France or the US.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.