What enforcement tools are in the armoury of prosecutors in the US, UK and France?

by Bryan Cave Leighton Paisner
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Summary: Deferred prosecution agreements have been widely used by US prosecutors since the early 2000s.  Prosecutors in the UK and France only obtained this power in 2014 and 2016 respectively – but they are making up for lost time.  This article, the second in a series about corporate compliance from BCLP’s Global Investigations team, considers DPAs and other enforcement tools in the armoury of prosecutors in the US, UK and France.

US:  The home of DPAs

Although corporate criminal liability was established in the US early on (see our accompanying article on the current position on corporate criminal liability in the US, UK and France), there were few criminal cases against corporations until the 1980s and 1990s.  In those years, the government launched investigations into government contracting fraud and savings and loan fraud, which permeated entire industries and resulted in more corporate criminal prosecutions.  These prosecutions could be devastating.  For example, a company found criminally responsible for fraud would often be debarred from government contracting.  Although larger corporates would sacrifice a subsidiary and thus avoid crippling the entire business, smaller corporates would simply go out of business.  In the wake of the Enron scandal in the early 2000s, the US Department of Justice (DOJ) criminally charged Arthur Andersen LLP, the big five accounting firm that audited Enron’s books.  Arthur Andersen was convicted at trial and the entire partnership collapsed.  Even though Arthur Andersen ultimately prevailed in the US Supreme Court, it no longer exists.  This result led both the government and corporates to re-evaluate how and when to resolve potential corporate criminal charges.

The most significant change was the regular use of deferred prosecution agreements (“DPAs”) and related settlement agreements, such as non-prosecution agreements (“NPAs”).  Although pre-trial diversion agreements had been used for individuals for some time, they generally had not been used with corporate criminal resolutions until after the Arthur Andersen case.  DPAs allow corporates to settle with the government and continue as a business.  A typical DPA comprises:

1.     A statement of facts that generally would constitute a crime;

2.     Terms and conditions that govern the corporate’s activities for a set period of time, usually between 18 months and three years.  During that time, the corporate must satisfy those conditions, otherwise, it is prosecuted based on the admitted facts;

3.     The payment of fines, penalties, disgorgement of profits and restitution to victims; and

4.     Potentially, a provision for the appointment of a monitor, who will oversee compliance with the DPA and report directly to the DOJ and corporate.

The DPA is subject to court approval.  Although a few federal judges have required additional terms and conditions and refused to rubber-stamp the DPA, most DPAs are accepted by the courts.

DPAs mean that the government can force large settlements onto corporates with minimal judicial involvement.  This tool results in fewer corporates challenging in court the allegations against them.  Although these agreements allow the corporate to achieve certainty that it will not end up like Arthur Andersen, they have costs associated with them that are often overlooked, including:

·     Given that there is no judicial testing of the government’s prosecutorial theories, the legal analyses accompanying DPAs almost always favors a broad interpretation of relevant statutes.  Thus government overreaching is accepted more broadly. 

·     Companies entering into such agreements must pay for costs associated with cooperation – longer and deeper investigations and the possibility of paying for a meddlesome monitor on the back end.

Recently in the anti-bribery area, the government has added to DPAs and NPAs with a tool called an NPA with “disgorgement.”  This allows the government to agree not to prosecute the corporate, but the corporate must “disgorge” any profits that it made from the illegal activity.  The government has figured out how to make the corporate pay while at the same time not in fact prosecuting the corporate. 

Overall, the legal landscape in the US makes it easy for government prosecutors to force companies to settle.  The law makes corporates criminally liable for the acts of their employees, and prosecutors can use DPAs to force corporates to come to terms, with minimal judicial supervision.  As a result, multi-million (and in some cases multi-billion) dollar settlements are becoming much more frequent.

UK:  Four years, four DPAs

With the extension of corporate criminal liability in the UK, it was only natural that DPAs would follow suit.  Without it, prosecutors were at the mercy of the courts in trying to broker settlements with corporates.  The SFO under Richard Alderman found to their public embarrassment in the 2010 Innospec case that UK judges will not readily take the same approach as US courts to plea bargains.  Although Thomas LJ ultimately upheld the joint DOJ/SEC/OFAC/SFO settlement for bribery, he left the SFO in no doubt that the courts would not tolerate being bypassed on sentencing again.

Without a DPA carrot in its armoury, and with sentencing subject to judicial discretion, the SFO was simply not in a position to incentivise self-reporting like it wanted – and certainly not as effectively as its prosecuting friends in the US.

That all changed following the introduction of DPAs in 2014 in the Crime and Courts Act 2013.  Since then, David Green’s SFO has successfully secured four DPAs, starting with Standard Bank in 2015.  In three of those four cases, the defendant self-reported.  The SFO has made clear that it is very unlikely to entertain a DPA if a firm fails to self-report.  The exception was Rolls-Royce, but the level of cooperation in that case once the investigation had commenced was noted by the SFO as “extraordinary” and included handing over huge volumes of documents (and allowing the SFO to do their own sifting for legal professional privilege), deferring internal interviews until the SFO had conducted their own interviews and providing all material voluntarily without requiring recourse to compulsory powers.

A DPA is not, of course, a relief from punishment.  It may avoid the draconian consequences of a criminal conviction, such as potentially being disbarred from tendering for public contracts for a set period (under the 2015 Public Contracts Regulations), or otherwise losing regulatory licenses.  However, the firm will still likely face a significant financial penalty, the starting point for which will be commensurate with the fine for a guilty plea, with further upward adjustment for compensation and disgorgement.  Other terms may include cooperation with ongoing investigation, prohibitions on engaging in certain activities, reporting obligations and the introduction of an enhanced compliance and/or monitoring programme (including the use of an external monitorship where appropriate).  Effective negotiation of the terms is critical for the firm.

Whilst self-reporting the discovery of criminal conduct such as bribery may indicate that procedures in place have worked to uncover the criminal conduct, self-reporting is no guarantee of a DPA being granted.  If a corporate criminal offence has been committed, it will only be in exceptional cases where the corporate will not be convicted in the UK.  This would include, for example, where the corporate entity making the report was significantly differently run from the time when the criminal act took place and where, for example, the people to lose out through the criminal activity would be innocent employees made redundant or innocent shareholders.  However, it is notable that the first conviction for failure to prevent bribery secured under section 7 of the Bribery Act 2010 against Skansen Interiors arose even though the corporate had self-reported the bribery to police and was dormant at the time of prosecution by the UK Crown Prosecution Service.

We understand that the SFO is currently inundated with requests for DPAs.  Seeking to negotiate a DPA may take many months and so it is important to be well prepared in making a reference to a law enforcement agency where the relevant crime permits a DPA to be granted (such as in relation to bribery or the criminal facilitation of tax evasion).  For cross-border matters, it is also extremely important to bear in mind that reports to UK agencies would be critical and that reports to non-UK agencies in relation to cross-border criminal activities would not be likely to be deemed to be notice to UK agencies.

France:  A quick start

Following the UK, France also has chosen to follow the US example of “transactional justice”.  On 9 December 2016, France enacted the Law on Transparency, Anti-Corruption and the Modernization of the Economy known as the Sapin II Law.  Introducing new legal means to fight corruption, this law notably created the agence française anticorruption (French Anti-corruption Agency, the “AFA”) and a new legal instrument, the Convention Judiciaire d’Intérêt Public (Judicial Public Interest Agreement, the “CJIP”), enabling French Public Prosecutors to reach settlements with companies involved in offences of corruption, influence peddling or laundering of tax-fraud proceeds.

The CJIP was introduced into the Code de procédure pénale (French Code of criminal procedure, the “CPP”) in new Article 41-1-2, which describes the conditions for negotiation of a CJIP as well as the obligations and sanctions that a CJIP can include.

A legal entity entering into a CJIP may have to agree to:

1.     The payment of a “public interest fine” to the French Treasury;

2.     The implementation, under AFA’s supervision, of a compliance program; and/or

3.     The compensation of any identified victims.

Furthermore, Article 41-1-2, II, § 6 of the CPP specifies that CJIPs must be published on the AFA’s website.  CJIPs are reserved for legal entities, excluding natural persons.  The conclusion of a CJIP allows the legal entity to avoid a criminal conviction and its registration on criminal records.

On 30 October 2017, the first CJIP was entered into between the National Financial Prosecutor of the Paris Court of First Instance and a Swiss-based subsidiary of a major financial institution allegedly involved in illicit banking solicitation and laundering of tax-fraud proceeds.  This first CJIP, which did not relate to facts of corruption, received significant media coverage.  On 14 and 15 February 2018, the two first corruption-related CJIPs were entered into between the Public Prosecutor of the Nanterre Court of First Instance and two French companies.  The amount the companies agreed to pay in these three CJIPs were €300 million in the tax-fraud case and €2.71 million and €800,000 in the two corruption cases.

As of today, three CJIPs have been entered into.  Their broad publicity clearly indicates that the Public Prosecutors want to advertise that they are ready to open discussions.  To persuade companies to negotiate and avoid a trial with a public hearing, which could theoretically lead to condemnation to a lower fine than those provided for in the CJIPs, Public Prosecutors can certainly use the recent decision of the French Cour de cassation on March 14, 2018, in the notorious Iraqi oil-for-food case, which adopted a very repressive approach and confirmed the condemnation for corruption of various companies and individuals.  However, there is still some way to go with implementation, as prosecutors’ mindsets switch from pure prosecution authorities to negotiation partners.

BCLP attorneys in the US, UK and France have an in depth understanding of the use of these prosecutorial tools and the options that corporates have when faced with a government investigation with potential criminal consequences.  Moreover, BCLP’s Global Investigations team can help a company efficiently and effectively conduct an internal investigation and then determine whether to voluntarily report any wrongdoing to appropriate authorities and, if relevant,. ensure that notifications are appropriately synchronised across different jurisdictions and formulated for each agency.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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