Pragmatic and profitable, but do DPAs deliver justice?

Imagine if you defrauded HMRC for a large sum, say £500,000, and then you were caught, sent for trial and found guilty: you would expect to receive a lengthy prison sentence. Similarly, if you offered a hefty bribe to an MP, a company director, or a public official, you would expect the same treatment. As individuals, we are all equal before the law. But perhaps some are more equal than others, especially if you are a major public company being investigated and prosecuted by the Serious Fraud Office (SFO).  
 
As constituent members of the FTSE100, Rolls-Royce and Tesco are household names: standard bearers of British excellence in the automotive and retail sectors, employing more than 500,000 staff between them. As companies, both have also admitted their corporate guilt as part of Deferred Prosecution Agreements (DPAs). Introduced in 2014, a DPA is an agreement reached between the SFO and an organisation which could be prosecuted, under the supervision of a judge. This allows a prosecution to be suspended for a defined period provided the organisation meets certain specified conditions.
 
The most notable element is a large fine. In January, Rolls-Royce paid £497.25m after admitting bribery and corruption in multiple jurisdictions. Meanwhile Tesco is hoping that its DPA, involving a fine of £129m for overstating profits by £263m in its annual accounts, will be approved within days in the High Court by Lord Justice Leveson. Some commentators are cynical, suggesting that DPAs allow big corporations to buy their way out of a criminal trial and that the SFO is not serious enough about bringing difficult prosecutions.
 
However, when approving the Rolls-Royce DPA, Leveson made it clear that future criminal charges could still be brought against senior managers. But experience in the US, where DPAs have a long history, may suggest otherwise: few individual defendants are ever prosecuted following a DPA, fewer still ever go to jail. Indeed, since the first two DPAs were agreed in the UK – Standard Bank in November 2015 and an unnamed company in July 2016 – no individual relating to either case has been charged. 
 
‘DPAs give the prosecution certainty,’ explains Nigel Rowley, Managing Partner of Mackrell Turner Garrett, who has acted for clients brought to trial in several SFO prosecutions. ‘The SFO works to a slide rule principle of how many defendants they can convict in a year – it gives them the certainty and removes the risk of a phenomenally expensive trial. It is therefore inevitable that the authorities have jumped on the DPA bandwagon. There is huge pressure put on prosecutors to gain a conviction. 
 
‘Anything the SFO can do to eliminate the risk of losing, they are going to embrace with great vigour. When you win as a defendant and you are acquitted in a prosecution brought by the SFO, the publicity that you give to the prosecution’s loss is phenomenal. That is the very last thing that they need, particularly in complex fraud cases that have huge knock on effects. Losing in court against Tesco would be such an enormous blow. They are desperate to avoid losing.’ 
 
In terms of the latest DPA, Rowley adds: ‘The logic of the agreement that the SFO has reached with Tesco is because the publicity that goes with it when they lose is so great. Why wouldn’t they try and resolve it instead? Doing a DPA loses the risk factor. I don’t think justice has much to do with that. It just removes risk from the authorities and puts £129m in the bank.’ 
 
At another firm, which has acted for multiple defendants in SFO investigations and prosecutions, a prominent partner says: ‘The advent of DPAs has allowed the state to do something it has been lamentably bad at doing: to use the criminal justice system as, potentially, an effective tool in the regulation of business. Unlike America, which has a long history of doing this, the UK is playing catch up in a dramatic fashion. The area that remains unresolved is holding senior individuals in large corporates to account. The UK has an appalling track record in doing that.’ 
 
It is noteworthy that three former Tesco executives have been charged with fraud and false accounting: Carl Rogberg, former UK finance director, Christopher Bush, former UK managing director, and John Scouler, former food commercial director. They will stand trial in September. Meanwhile former chief executive Philip Clarke and former group commercial director, Kevin Grace, who had been investigated, will not face charges. 
 
This is something of a first. In the multiple Libor trials, involving rate rigging by banks to fix the London Interbank Offered Rate, all the guilty banks in the US entered into DPA agreements alongside settlements with the SEC. In the UK, the same banks entered into settlements with the FCA for sums running into hundreds of millions, but there was no prosecutorial settlement, i.e. no senior banker was prosecuted. The only individuals held to account in the Libor trials were relatively junior. Although some senior individuals have been interviewed, none has yet been charged. Indeed, no senior UK banker has been prosecuted for any of the fraudulent malpractice in the City that led to the financial crisis nearly a decade ago.
 
According to a senior figure close to the Libor investigations: ‘It is inconceivable on any rational analysis that the systemic manipulation of Libor did not go above a particular level within the banks concerned. It may be, evidentially, that the prosecution can’t get there – except for lowballing, when you go all the way up to the Governor of the Bank of England and the Cabinet Office. Then the evidence is everywhere. They were encouraging it because of the particular financial crisis they were then facing. In terms of the SFO, it was an entirely political decision as to who they went for.’ 
 
The case of BAE Systems provides a further example of political pragmatism overriding a serious breach of the criminal law. In 2004, the SFO started an investigation into suspected accounting irregularities relating to BAE and a government to government deal struck in 1985: Britain signed the Al-Yamamah arms for oil deal with Saudi Arabia, the biggest ever UK export contract involving the sale of 120 Tornado fighter jets. 
 
Following a settlement agreement with the US Department of Justice in 2010, and a fine of $400 million, a settlement was then reached with the SFO: BAE Systems pleaded guilty to one charge of breach of duty to keep accounting records and paid a £30m penalty, some of which was distributed as a charitable payment for the benefit of Tanzania. Again, no individual was ever charged. 
 
The justification for offering DPAs is to incentivise companies to co-operate fully with the SFO and to save public funds in administering justice. Just four DPAs have already delivered more than £650m to UK PLC with more set to follow this year. And they are cost effective for very big companies as a way of buying themselves out of trouble. ‘We see their commercial value to companies under suspicion,’ said Ben Morgan, head of bribery at the SFO in a recent speech. But, counters one legal observer, ‘The SFO needs to be tasked with fairly fearlessly investigating issues, and not be susceptible to political pressure.’ 
 
Only then perhaps will those wrongdoers in positions of real power and influence finally face justice.  
By Dominic Carman, journalist, writer and legal commentator

 

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