LONDON (Reuters) - British legislation intended to boost the fight against corporate crime was successfully used for the first time this week when a judge approved a plea deal in which a bank agreed to pay fines in return for a bribery prosecution being suspended.
Lawyers say many more such deals are set to follow as companies are incentivised to come clean when they uncover wrongdoing, even though the legislation is unlikely to be a panacea in the battle against white collar offenders.
Under the deferred prosecution agreement (DPA), ICBC Standard Bank agreed to pay $32.2 million (£21.4 million) in penalties for failing to prevent bribery by a former sister company in Tanzania, while the Serious Fraud Office (SFO) agreed to suspend prosecution for the offence for three years.
“This case is bound to encourage other companies to come forward and there is no doubt that this is the first of many DPAs in the future,” said Stephen Parkinson, head of the criminal litigation team at law firm Kingsley Napley.
For a company facing criminal charges, the point of a DPA is to avoid the uncertainty of a trial and the risk of a criminal conviction, a disastrous outcome in terms of reputation, costs and potential blacklisting by regulators in key markets.
The new system is intended to be different from what happens in the United States, where many criminal prosecutions result in plea bargains between prosecutors and defendants. DPAs are available only to companies, not individuals, and must be scrutinised in detail by senior judges.
One lesson from the first DPA was that the bank’s early decision to report itself to the SFO and cooperate with investigators had been crucial in persuading the judge that the proposed deal was in the interests of justice.
“With new legislation in its armoury, the SFO has now firmly established the proposition that corporates should come out early with their hands up if they want to avoid prosecution,” said Ross Dixon, partner at law firm Hickman and Rose.
The case set another legal precedent, the first successful use of a corporate offence of failure to prevent bribery, known as “Section 7” after its place in the Bribery Act 2010.
To encourage UK-based companies to police foreign divisions and associates acting on their behalf, the act provides a defence against a section 7 charge, which is for firms to prove they have adequate procedures in place to prevent bribery.
SFO Director David Green has proposed extending the scope of section 7 to economic crime in general, but after initially supporting the proposal the government has recently backed away.
“This case might resurrect the dialogue and strengthen the argument that this is an important piece of legislation for bribery and should be extended to other financial crimes,” said Neil O’May, partner at law firm Norton Rose Fulbright.
In the inaugural DPA, the main fine of $16.8 million was the profit made by the bank from the corrupt deal, multiplied by three then reduced by a third to reflect self-disclosure and cooperation. That is in line with sentencing guidelines for firms convicted of an offence after entering a guilty plea.
The rationale for following those guidelines in DPAs is to allay widespread concerns that the new procedure could be a soft option for deep-pocketed firms to buy their way out of trouble, but some lawyers said the tough approach could backfire.
“It will be interesting to see if the high fines deter other corporates from using DPAs in the future,” said Michael Potts, managing partner of law firm Byrne and Partners.
Another potential weakness in the system is that it remains hard to secure a corporate conviction because prosecutors must prove that wrongdoers were the “controlling mind” of a firm, which is hard for large companies.
“This means the number of companies at threat of prosecution, and therefore keen to secure a DPA, is unlikely to increase at any great pace,” said Alison Geary of WilmerHale.
For firms that do enter a DPA, the system is designed to ensure genuine reform. Under the Standard Bank DPA, prosecution was suspended for three years and will be withdrawn after that, provided the bank has complied with stringent obligations.
Lisa Osofsky of regulatory risk consultancy Exiger noted:
“(That is like) a person admitting his guilt in a detailed recitation of the damning facts, paying a hefty fine and having a probation officer hanging over him until he has cleaned up his act.”
Editing by David Holmes