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Why deferred prosecutions may be fairest for accusers and the accused in business crime

3 April 2012

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By Aziz Rahman, specialist business crime and fraud solicitor of Rahman Ravelli Solicitors

When it comes to corporate prosecutions, it seems that those in authority believe a change is needed in the way that the criminal justice system handles corporate prosecutions. At present, if a company faces prosecution, its staff, creditors, shareholders and trading partners can all be severely harmed - whether the allegations prove to be with or without foundation.

The consequences for a company can be devastating, regardless of whether it faces prosecution or civil recovery of proceeds thought to have been gained inappropriately. The Serious Fraud Office has made it clear that it not only faces difficulties in securing convictions - it even struggles to gain evidence for a prosecution and to obtain undertakings from companies to work to ensure such illegal behaviour is not repeated. And that is why some senior SFO figures are looking across the Atlantic to the United States' use of Deferred Prosecution Agreements (DPA's).

A DPA involves the authorities coming to an arrangement with a company whereby any criminal prosecution is deferred on the condition that the company makes certain changes and agrees certain terms. So, for example, a prosecution could be deferred for three years while the company agrees to terms such as paying a fine, removing the staff responsible for the illegal activity, moving out of the market where the illegality took place or agreeing to have its activity monitored while it introduces anti-corruption measures to avoid repeat offending.

DPA's have had their critics in the US; mainly over the cost of court-appointed monitors. But they have been successful in helping the US Department of Justice weed out bad practice and illegal behaviour in companies. While the SFO has expended huge amounts of time and money on prosecuting companies for offences such as bribery its conviction rate has been, at best, modest. With little reason to believe the SFO's success rate will improve in the near future, it is easy to see why DPA's could prove a valuable tool. Companies that would now deny all wrongdoing and take their chances in a trial may accept and admit illegal behaviour if they are able to undertake a DPA; which will cause less cost and damage to its finances and reputation. A company that is given the chance to be seen to put its house in order is in a much better position than one that has to endure an expensive, lengthy and potentially disastrous trial. In short, the DPA offers a company a chance of staying on its feet rather than being knocked out for the count once allegations of wrongdoing start to surround it.

In agreeing to enter a DPA, a company has to admit any criminal behaviour. This can still mean that individuals guilty of criminality can be prosecuted. There is no way it can be accused of being a fraudsters' charter, as the guilty people will still be treated as they are now. But for the company the consequences under a DPA can be less severe than a conventional prosecution, mainly because there is an element of admission of guilt and a dedicated will and effort to right past wrongs. This does not mean, however, that the courts will be off limits to DPA's. If wrongdoing is discovered and the SFO considers a DPA the right course of action, it is likely that a judge will be involved in overseeing any potential agreement. This could lead to one bone of contention being the absence of Court of Appeal case law on corporate sentencing, which makes it difficult for both the SFO and the company to anticipate what the deferred sentence will be once the company has met the agreed conditions. In the US, there is practically a sliding scale of punishments that can be consulted prior to entering into a DPA. The UK offers no such opportunity. It is likely, however, that DPA outcomes will be attractive because of their negotiated nature.

For that reason alone, the UK will have to work hard to make sure that any use of DPA's - specifically the deferred sentences and terms and conditions attached to them - is fair and not simply an emergency exit for firms looking to dodge the consequences of their illegal actions. If DPA's arrive in this country and are seen to work they can not only benefit the companies who agree to them - they could also be a potential face saver for the SFO; which needs to up its conviction rate. With the SFO having suffered some high-profile court defeats, the DPA could be a vital way of working with companies to help them clean up their act while gaining the high-quality evidence needed to prosecute the bad guys at the heart of the wrongdoing.

Rahman Ravelli Solicitors are specialists in fraud, regulatory, business and complex crime cases.

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