Deferred Prosecution Agreements All the Rage in the Global Enforcement Sphere

Alternative to prosecution is the latest tool in various international regions.

The emergence of Deferred Prosecution Agreements (DPA) across a significant number of new jurisdictions is putting compliance staff at multinationals under more pressure than ever to shore up their risk mitigation systems and avoid any potential corporate prosecution.

DPAs allow firms to cut a deal and stave off formal prosecution of alleged criminal conduct, which encourages firms to self-report instances of perceived financial crime, cooperate fully with investigations, and improve their compliance processes under remediation, rather than risk an ugly conviction in court.

Singapore, France, Argentina, Australia and Canada are now all drawing up their own version of the legislative tool in the same vein as that employed in the UK and US, who have really pioneered the approach.

Countries not noted for their strict pursuit of white collar crime are suddenly changing the environment, and while there are international pressures to drive out corruption, experts suggest there are other reasons behind this development.

“The cynical answer is to look at statistics comparing the UK Serious Fraud Office’s running costs versus what it has raised in DPAs,” said Alison Geary, white collar counsel at WilmerHale law firm in London, “it is a revenue generator for the Treasury.”

Geary added that while the key benefit to prosecutors is the assistance a corporation can provide in prosecuting offenders, the UK has so far not tested the waters properly in this regard.

The US is a different example, and has for many years provided the standard template for firms to aim for when drawing up anti-bribery and corruption policies. Being US compliant may soon not be enough to cover liabilities in other areas of the world.

“Companies that have in the past got themselves ‘match fit’ for that threat and have good compliance in place need to think again about all of this,” said Ben Morgan, white collar partner at Freshfields Bruckhaus Deringer law firm in London. “The game has moved on, and what they face is a more sophisticated, nuanced compliance environment.”

Morgan, former co-head of bribery and anti-corruption at the UK Serious Fraud Office, said the best course of action is bolstering compliance, and taking account of the changing landscape.

The shifting environment of anti-bribery and corruption enforcement globally has also often meant that accompanying the laws are domestic tweaks to corporate criminal liability, experts said, which widens the spectrum of potential for how firms can get caught out.

“The direction of travel is, the US had this for quite some time and used it very effectively,” Morgan told Radar. “A lot of businesses then designed their compliance systems and their contingency plans on that basis. This is all changing, without a shadow of a doubt, around the world.”

Singapore freely admits it is mimicking the British DPA model, which has so far resulted in four agreements brought by the UK Serious Fraud Office.

The first was against Standard Bank in 2015; the second a £6m agreement with an unnamed bank in which legal proceedings are ongoing. The third and fourth were with arms manufacturer Rolls-Royce, agreeing a record £671m penalty to settle a bribery case, and retailer Tesco paying £129m following allegations of improper accounting.

These numbers are undoubtedly appealing to governments, and nowhere exemplifies the difference that new laws can make better than Singapore.

In December 2017, the US Department of Justice agreed a DPA with the Brazilian arm of Singapore’s offshore oil rig builder, Keppel O&M, for US$422m after allegations of bribery.

In Singapore itself, under the Prevention of Corruption Act (PCA) an organisation or person will only be liable to a fine up to S$100,000 ($74,000), and/or an imprisonment term of up to five years if found guilty of corruption.

“The introduction of DPAs as a formal prosecutorial tool represents a significant shift in Singapore’s approach towards corporate wrongdoing – one that aligns Singapore more closely with global trends,” said Wilson Ang, Singapore dispute resolution partner at Norton Rose Fulbright law firm.

In Canada, companies and individuals who self-disclose potential criminal conduct, such as bribery or corruption, risk criminal prosecution, and there is no existing scheme that formally incentivizes such disclosures. Rather, because of the risk of prosecution, there is effectively a disincentive to disclose criminal conduct to Canadian authorities.

“The proposed Remediation Agreement Regime (RAR) scheme would change all that,” said Nowell D. Bamberger, cross-border dispute partner at Cleary Gottlieb.

Under RAR, in appropriate cases Canadian prosecutors may file criminal charges and then defer prosecution, with charges being ultimately dismissed in the event that the defendant complies with various stipulated conditions.

“Laws are changing all over the world either to create corporate criminal liability for the first time, or to make it more effective if it already existed, such as in the UK,” said Morgan.

“Agencies able to enforce the laws are being more creative in the way they behave, or being created in order to do the work, such as the PNF in France, which was created in 2014.”

Governments want DPAs to be an incentive for organizations to engage and cooperate at an early stage to achieve a better outcome. They can avoid costly and lengthy investigations and subsequent legal proceedings which are both fraught with uncertainty and lengthy proceedings, and can even and can even damage the reputation of an enforcer that fluffs its lines in court.

“Methods to resolve all of this by negotiation rather than trial are becoming increasingly common, that is definitely the way it’s going,” said Morgan.

However self-reporting without a thorough examination of any alleged failing, as a knee-jerk reaction to questions posed by enforcers, can also cause more trouble, lawyers warned.

A DPA is not going to be the right course for every company in all cases, said Geary.

If circumstances arise that trigger questions, firms still need to be highly forensic about their actions and their liability, said Morgan. “They are entitled to defend themselves, to advocate and not just sleepwalk into a resolution,” he said.

DPAs have to be approved by a judge first, itself an uncertain outcome, and admissions made during the DPA negotiations can also be used against companies later in any criminal proceedings that do occur.

In most cases the DPA will be made public, ensuring some reputational harm, and the DPA can be used against a company or individual in civil proceedings. The US aside, other regulators do not have a great track record for detecting, investigating and following through with successful prosecutions of corporate crime.

“There may be insufficient incentive to guarantee self-reporting, particularly in circumstances where the offer to participate in a DPA remains at the discretion of the prosecutor,” the specialist white collar team at Australian law firm Nyman Gibson Miralis told Radar. “Companies and individual employees may be concerned about this uncertainty and prefer to keep silent rather than risk ‘coming clean’ without the guarantee that a DPA will be on the table at the end of the process,” they said in an email.

The moving sands of bribery and corruption laws around the world mean firms have a more complex compliance challenge as they juggle their approach across a range of jurisdictions.

In many regions, companies who can show they have a strong and robust compliance program in place at the time of the alleged activities can often win mitigation from fines or even have a full defense to bribery breaches.

One thing is evident, as DPAs continue to appear more widely in global markets, and there is no sign of them diminishing, multinational firms should have little reason not to revisit and further strengthen their global compliance systems.

“A robust compliance program is critical for organizations to significantly reduce the risk of legal violations and criminal convictions,” said Lawrence Richie, litigation partner at Canadian law firm Osler. “Directors, officers, compliance and legal personnel in all organizations, small and large, should carefully assess their compliance programs to ensure that they have taken all reasonable steps to reduce the risk of legal violations and criminal convictions.”

If everyone is following the US, where is the US heading?

Lawyers from Freshfields Bruckhaus Deringer released data showing that in 2016, as part of DPAs with the DOJ and/or the US Securities and Exchange Commission, nine companies were obliged to appoint an independent compliance monitor, and a further seven were required to make changes to their compliance programs and provide regular reports on the same.

By way of comparison, only one case in each of 2014 and 2015, involved the imposition of a compliance monitor.

“This shows a shift in focus, with the SEC in particular seeking more formal ongoing oversight of compliance improvements than in previous years,” said David Scott, global head of dispute resolution at Freshfields.