Those named in deferred prosecution agreements are at risk of reputational damage yet have no right to be heard by the court,
The first so-called deferred prosecution agreement (DPA) approved by Sir Brian Leveson last week has spawned much interest. What may have been overlooked, however, is the collateral damage to those who are not party to the proceedings but named or identified in them.
The SFO and Standard Bank plc agreed a “Statement of Facts” on which the court ordered the preferring of an indictment and its immediate deferral on terms that included final penalties and costs totalling $32 million.
The indictment concerned an offence of bribery under the Bribery Act 2010 in that the Bank had failed to prevent persons (both individual and corporate) associated with it in Tanzania from committing bribery.
The only parties to the DPA were the SFO and Standard Bank plc. The Statement of Facts, which by the terms of a DPA must be accepted by the parties as as accurate, ran to 55 pages. No doubt the parties had their own proper reasons for agreeing the terms of the DPA and presenting it to the court for approval. But they are not the only ones potentially affected by the proceedings.
In the Statement of Facts and, indeed, in the rulings of the court, individuals with no right to be heard by the court were identified and, on occasion, criticised. Those persons were not party to the negotiations and had no right to make representations, comments or corrections to the court. And yet the reputation of those who are identified in the DPA public proceedings and documentation may be significantly affected.
They may suffer reputational damage well beyond that immediately contemplated, even where the SFO has no intention of prosecuting the individuals concerned. Yet, worryingly, unlike the position in Financial Conduct Authority (FCA) proceedings, the legislation providing the structure of DPAs makes no provision for the rights of those third parties.
The FCA has recently taken heed, when drafting notices, of the rights of third parties under the Financial Services and Markets Act 2000 (FSMA). If a third party is identified in a way which is prejudicial in a decision notice, the FCA must give him a copy of the notice so that he may then make representations to the FCA. If the FCA fails to give such a notice to him he can challenge that to the Upper Tribunal.
In the light of criticism of the FCA by the Upper Tribunal in May, the FCA has been careful not to identify individuals by the terms of its public notices. In the recent JP Morgan case, the FCA had improperly identified a former manager in the final notice, in which it had referred to the former chief investment officer based in London by position.
Even though his name was not published, the Upper Tribunal, upheld by the Court of Appeal, found that he was identified and “was a person prejudicially affected by matters stated in the reasons contained in the notice”; according to the legislation, he was entitled to an opportunity to respond to the allegations made before the issuance of a final notice against JP Morgan. The conduct of the FCA had prevented that from happening.
On November 26 the FCA issued a final notice against Barclays Bank. The notice stated that Barclays had failed to perform enhanced due diligence checks in respect of politically exposed persons in a £1.8bn deal, because it feared losing the transaction. Barclays was fined £72 million. The FCA deliberately did not identify any individual in the notice.
Those named in DPAs are at significant risk. The court and the SFO should be careful not to identify third parties; the corporate may well be in a conflict of interest position with that third party in agreeing the facts and the terms of its DPA. At the very least, there should be a mechanism in DPAs to provide third parties who are named in draft notices or judicial rulings, with the right to make representations to the court where their reputation and, possibly, their future livelihood is at risk.