Archive for the ‘Deferred Prosecution Agreements’ Category

Like A Kid In The Candy Store

Friday, January 29th, 2016

Kid in Candy StoreLike every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[...]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[...]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[...]

“[Regarding the 2015 BNY Mellon "internship" enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.

On The Concentration Of Power …

Thursday, December 17th, 2015

ChecksThe DOJ often speaks of the rule of law in connection with Foreign Corrupt Practices Act enforcement.

For instance, in 2010 then DOJ Assistant Attorney General Lanny Breuer delivered a speech before the Council on Foreign Relations titled “International Criminal Law Enforcement:  Rule of Law, Anti-Corruption and Beyond” and how the increase in FCPA enforcement was consistent with U.S.’s global approach to promote the rule of law. Breuer began his speech by asking two rhetorical questions:  is the rule of law “more than just a catch phrase” and “does the rule of law have any real meaning” and concluded his speech by saying that there is nothing “more critical, both to our country and to other nations, than establishing true rule of law.”

A commonly accepted rule of law principle includes limited government powers.

The World Justice Project defines this factor as a “system of checks and balances to limit the reach of excessive government power” and “the distribution of authority in a manner that ensures that no single organ of government has the practical ability to exercise unchecked power.”

Regardless of what one thinks about the efficacy and policy merits of non-prosecution and deferred prosecution agreements, one must concede that NPAs and DPAs represent a concentration of power by a “single organ of government” (the DOJ).

This concentration of power has, with increasing frequency, been criticized including on these pages since 2010 (see here for the article “The Facade of FCPA Enforcement,” and here for the more recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement”).

A notable development this year has been U.S. v. Fokker Services.

Although not an FCPA case (it involves criminal charges against the company to unlawfully export U.S. origin goods and services to Iran, Sudan, and Burma), the case has been followed closely here at FCPA Professor because of its potential impact on FCPA enforcement.

As highlighted in this prior post, U.S. District Court Judge Richard Leon (D.D.C.) refused to rubber stamp the DPA agreed to by the DOJ and Fokker Services.  Judge Leon’s decision is being appealed to the D.C. Circuit and as noted in this prior post the DOJ’s position is basically “hands off our DPAs.” See here for additional briefs filed in the matter. In September, the D.C. Circuit heard oral arguments and the audio file of the arguments is here. For a good summary of the oral argument, see here. The appeal presents an uncommon situation in which the DOJ and criminal defendant share similar positions – that is, wanting the DPA to be approved so both sides can move on. Yet as evidenced in the oral argument, the court seems to have serious concerns regarding the substantive and procedural arguments of the parties.

Big picture, what is at issue in Fokker Services is the concentration of power.

While we await the D.C. Circuit’s decision, it is worth noting that concentration of power has always been issue of concern in this country.

In 1788 James Madison penned what would become known as Federalist Paper No. 51 titled “The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments.”

In pertinent part, Madison wrote:

“To what expedient, then, shall we finally resort, for maintaining in practice the necessary partition of power among the several departments, as laid down in the Constitution? The only answer that can be given is, that as all these exterior provisions are found to be inadequate, the defect must be supplied, by so contriving the interior structure of the government as that its several constituent parts may, by their mutual relations, be the means of keeping each other in their proper places. Without presuming to undertake a full development of this important idea, I will hazard a few general observations, which may perhaps place it in a clearer light, and enable us to form a more correct judgment of the principles and structure of the government planned by the convention.

In order to lay a due foundation for that separate and distinct exercise of the different powers of government, which to a certain extent is admitted on all hands to be essential to the preservation of liberty, it is evident that each department should have a will of its own; and consequently should be so constituted that the members of each should have as little agency as possible in the appointment of the members of the others. Were this principle rigorously adhered to, it would require that all the appointments for the supreme executive, legislative, and judiciary magistracies should be drawn from the same fountain of authority, the people, through channels having no communication whatever with one another. Perhaps such a plan of constructing the several departments would be less difficult in practice than it may in contemplation appear. Some difficulties, however, and some additional expense would attend the execution of it. Some deviations, therefore, from the principle must be admitted. In the constitution of the judiciary department in particular, it might be inexpedient to insist rigorously on the principle: first, because peculiar qualifications being essential in the members, the primary consideration ought to be to select that mode of choice which best secures these qualifications; secondly, because the permanent tenure by which the appointments are held in that department, must soon destroy all sense of dependence on the authority conferring them.

It is equally evident, that the members of each department should be as little dependent as possible on those of the others, for the emoluments annexed to their offices. Were the executive magistrate, or the judges, not independent of the legislature in this particular, their independence in every other would be merely nominal.

But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

This policy of supplying, by opposite and rival interests, the defect of better motives, might be traced through the whole system of human affairs, private as well as public. We see it particularly displayed in all the subordinate distributions of power, where the constant aim is to divide and arrange the several offices in such a manner as that each may be a check on the other — that the private interest of every individual may be a sentinel over the public rights.”

In more modern times, it is worth noting (see here) that the United Kingdom rejected NPAs because they represented too extreme a concentration of power.  In the words of the U.K. Ministry of Justice, “the lack of judicial oversight is likely to make [NPAs] unsuitable for the constitutional arrangements and legal traditions in England and Wales.  We have concluded that [NPAs] are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight.”

Moreover, it is worth noting that the U.K.’s regime for DPAs does provide for a system of early and consistent checks and balances by the judiciary.

New Article – Measuring The Impact Of NPAs And DPAs On FCPA Enforcement

Tuesday, December 15th, 2015

Ruler3My new article was recently published in the U.C. Davis Law Review.

*****

The summary is as follows.

Historically, the Department of Justice (“DOJ”) had two choices when a business organization was the subject of Foreign Corrupt Practices Act (“FCPA”) scrutiny: either charge the entity with an FCPA violation or not charge. However, in 2004 the DOJ brought to FCPA enforcement a third option: alternative resolution vehicles called non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”).

The use of alternative resolution vehicles to resolve FCPA scrutiny is not authorized by the FCPA nor any other specific Congressional legislation. Moreover, DOJ policy states that alternative resolution vehicles are to be used only “under appropriate circumstances.” However, this article demonstrates that alternative resolution vehicles have become the dominant way the DOJ resolves corporate FCPA scrutiny and serve as an obvious reason for the general increase in FCPA enforcement over the past decade. To the many cheerleaders of increased FCPA enforcement, NPAs and DPAs are thus worthy of applause.

Yet in a legal system based on the rule of law, quality of enforcement is more important than quantity of enforcement. Through empirical data and various case studies, this article measures the impact NPAs and DPAs have on the quality of FCPA enforcement and concludes that NPAs and DPAs — while resulting in higher quantity of FCPA enforcement — result in lower quality of FCPA enforcement. This disturbing finding matters not only in the specific context of the FCPA but more broadly as other nations with “FCPA-like” laws adopt U.S.-style alternative resolution vehicles.

The article can be downloaded at this link.

In analyzing the impact NPAs and DPAs have on the quality of FCPA enforcement, readers are encouraged to ponder the numerous statistics highlighted in the article such as:

  • The percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees prior to alternative resolution vehicles being introduced to the FCPA context compared to the percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees after alternative resolution vehicles were introduced to the FCPA context;
  • Since 2008, the percentage of corporate FCPA enforcement actions there were the result of a criminal indictment or resulted in a guilty plea that have resulted in related criminal charges of company employees compared to the percentage of corporate FCPA enforcement actions resolved solely with an NPA or DPA that have resulted in related criminal charges of company employees; and
  • Two aggressive FCPA enforcement theories (not subjected to any meaningful judicial scrutiny) that have yielded 17 DOJ enforcement actions against business organizations in which the DOJ extracted approximately $350 million in corporate settlements, yet 0 of these enforcement actions have resulted in any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

A Closer Look At The U.K.’s First Deferred Prosecution Agreement

Tuesday, December 8th, 2015

Closer LookAs highlighted in this post, there were two firsts in last week’s U.K. Serious Fraud Office enforcement action against Standard Bank Plc (currently known as ICBC Standard Bank Plc): (i) the first use of Section 7 of the Bribery Act (the so-called failure to prevent bribery offense) in a foreign bribery action; and (ii) the first use of a deferred prosecution agreement in the U.K.

This prior post analyzed “what” was resolved (an alleged violation of Sec. 7 of the Bribery Act for failure to prevent bribery).

This post continues the analysis by highlighting “how” the enforcement action was resolved (through a deferred prosecution agreement).

That the U.K’s first DPA was used to resolve a Bribery Act offense is perhaps fitting as U.K. anti-corruption enforcement officials have long expressed a fondness for U.S. alternative resolution vehicles used to resolve alleges instances of FCPA violations. Such fondness was widely seen as a significant driver for the U.K. to adopt DPAs (as highlighted in this prior post, the U.K. rejected NPAs) although DPA’s are authorized to resolve other alleged instances of financial crime as well.

Knowledgeable observers already know that U.K. style DPAs are significantly different than U.S. style DPAs, but in analyzing the U.K.’s first DPA, this fact bears repeating.

Sir Brian Leveson’s Approved Judgment and Preliminary Judgment provide a detailed overview of the U.K’s process for DPAs, including the judicial review aspect of the process, and should be required reading for anyone trying to better understand the DPA process in the U.K.. (This aspect is largely absent in U.S. style NPAs and DPAs – indeed the DOJ has argued on several occasions that the judiciary has no substantive role to play in the DPA process – an issue that is currently before the D.C. Circiut in Fokker Services).

If a nation is to have DPAs, the U.K. model is far more sound than the U.S. model and an initial observation from the U.K.’s first DPA is that it was incredibly refreshing to read a document relevant to an alleged bribery offense drafted by someone other than the prosecuting authority.

The Standard Bank (SB) DPA is similar in many respects to DPAs used to resolve alleged FCPA violations. For starters, the term of the DPA is three years (the typical term of U.S. DPAs tends to be from 18 months to three years).

In the DPA, SB accepted responsibility for the alleged conduct at issue, agreed to on-going cooperation with the SFO and other law enforcement agencies, and agreed to pay the components of the settlement amount. In the DPA, SB also agreed to post-enforcement action compliance reviews and enhancements, including the engagement of PwC to conduct an independent review of the company’s progress.

Similar to U.S. DPAs, the SB DPA also contains a so-called “muzzle clause” in which:

“Standard Bank agrees that it shall not make, and it shall not authorise its present or future lawyers, officers, directors, employees, agents, its parent company, sister companies, subsidiaries or shareholders or any other person authorised to speak on Standard Bank’s behalf to make any public statement contradicting the matters described in the Statement of Facts.”

That the U.K.’s first DPA contains a “muzzle clause” is interesting given that, as discussed in this previous post, Lord Justice Thomas was critical of the SFO’s attempt to insert a “muzzle clause” into the Innospec resolution documents.  Lord Justice Thomas stated: “It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.”

Despite the similarities between the SB DPA and U.S. style DPA’s, there are key differences.

For instance, in U.S. DPAs the DOJ claims unilateral power to declare a breach of the agreement (a contractual term many have criticized see here). The SB DPA states, under the heading “Breach of Agreement,” as follows.

“If, during the Term of this Agreement, the SFO believes that Standard Bank has failed to comply with any of the terms of this Agreement, the SFO may make a breach application to the Court. In the event that the Court terminates the Agreement the SFO may make an application for the lifting of the suspension of indictment associated with the DPA and thereby reinstitute criminal proceedings.

In the event that the SFO believes that Standard Bank has failed to comply with any of the terms of this Agreement the SFO agrees to provide Standard Bank with written notice of such alleged failure prior to commencing proceedings resulting from such failure. Standard Bank shall, within 14 days of receiving such notice, have the opportunity to respond to the SFO in writing to explain the nature and circumstances of the failure, as well as the actions Standard Bank has taken to address and remedy the situation. The SFO will consider the explanation in deciding whether to make an application to the Court.”

Another difference, albeit rather minor, concerns the time period to resolve the action. The SFO’s release states that SB’s counsel made the voluntary disclosure in late April 2013. Thus, the time period from start to finish was a relatively swift 2.5 years (at least compared to the typical time frame in the U.S.).

Other interesting aspects of the U.K’s first DPA are as follows.

Regarding SB’s voluntary disclosure and cooperation, Sir Leveson stated:

“Standard Bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter [...] In this regard, the promptness of the self-report and the extent to which the prosecutor has been involved are to be taken into account [...] In this case, the disclosure was within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) its own investigation.

Credit must also be given for self-reporting which might otherwise have remained unknown to the prosecutor. [...] In this regard, the trigger for the disclosure was incidents that occurred overseas which were reported by Stanbic’s employees to Standard Bank Group. Were it not for the internal escalation and proactive approach of Standard Bank and Standard Bank Group that led to self-disclosure, the conduct at issue may not otherwise have come to the attention of the SFO.

[...]

Standard Bank fully cooperated with the SFO from the earliest possible date by, among other things, providing a summary of first accounts of interviewees, facilitating the interviews of current employees, providing timely and complete responses to requests for information and material and providing access to its document review platform. The Bank has agreed to continue to cooperate fully and truthfully with the SFO and any other agency or authority, domestic or foreign, as directed by the SFO, in any and all matters relating to the conduct which is the subject matter of the present DPA. Suffice to say, this self-reporting and cooperation militates very much in favour of finding that a DPA is likely to be in the interests of justice.”

Regarding “Compensation,” Sir Levenson stated in pertinent part:

“A DPA may impose on an organisation the requirement to compensate victims of the alleged offence and to disgorge profits made from the alleged offence.”

[...]

In the present DPA, Standard Bank would be required to pay the Government of Tanzania the amount of US $6 million plus interest of US $1,153,125. This sum represents the additional fee of 1% of the proceeds of the private placement, paid to EGMA the local partner engaged by Stanbic and very swiftly withdrawn in cash. The fee was paid from the US $600 million capital raised by the placement and the consequence was that the Government of Tanzania received US $6 million less than it would have received but for that payment. The interest figure of US $1,153,125 is calculated by reference to interest paid on the loan and, by the time of repayment, will amount to US $1,153,125.”

That the Government of Tanzania was a victim is speculative and an open to question.

The private placement bond offering SB facilitated was unrated (and thus risky) and represented, according to SB, the first ever benchmark-sized private placement by a sub-Saharan sovereign. According to SB, “the transaction was privately placed with 116 investors with a wide geographic mix of accounts and resulted in the government raising substantial funds for infrastructural investment in a most efficient and cost-effective manner.”

To properly analyze whether the Government of Tanzania was a “victim” of SB’s conduct, two factors would have to be analyzed: (i) did the government have other options in the transaction or was SB the only investment bank willing to facilitate the transaction given its risky nature?; and (ii) if there were other options, what was the fee structure for the other options – more specifically did other investment banks offer to structure the transaction for less than 2.4% of the proceeds (representing the original 1.4% fee plus the additional 1% fee at issue in the enforcement action)? In this regard, it must be noted, as the SEC found in its related enforcement action, that the Government of Tanzania “had been unsuccessful in obtaining a credit rating, making a EuroBond offering unfeasible.”

Regarding disgorgement, Sir Levenson stated:

“The legislation specifically identifies disgorgement of profit as a legitimate requirement of a DPA. [...] The provision is clearly underpinned by public policy which properly favours the removal of benefit in such circumstances. In this case, no allowance has been made for the costs incurred by Standard Bank (to such extent as they can be put into money terms) and the proposal is that it should disgorge the fee which Standard Bank and Stanbic received as joint lead managers in relation to this transaction, namely 1.4% or US $8.4 million. Again, there is no suggestion that Standard Bank does not have the means and ability to disgorge this sum.”

The above logic is simplistic – as it often is in many FCPA enforcement actions – and ignores basic causation issues. (See prior posts hereherehere, and here). Moreover, the disgorgement in the SB action follows the oft criticized “no-charged bribery disgorgement” approach often used in the U.S.

Regarding the financial penalty, Sir Levenson stated:

“[F]or offences of bribery, the appropriate figure will normally be the gross profit from the contract obtained, retained or sought as a result of the offending. As has been discussed in regard to appropriate disgorgement of profits, in this case, it has been taken as the total fee retained in respect of the transaction by Standard Bank and Stanbic as the Joint Lead Managers, that is to say, the sum of US $8.4 million. The Sentencing Council Guideline identifies the starting point for a medium level of culpability as 200% of the ‘harm’ i.e. gross profit, with a range of 100% to 300% (cf. a starting point of 300% with a category range of 250-400% for high culpability).

It is then necessary to fix the level by reference to factors which increase and reduce the seriousness of the offending. As regards aggravation, although not an offence of bribery, there were serious failings on the part of Standard Bank in regard to the conduct at issue at a time when the Bank was well aware that further regulatory enforcement measures were in train: these led to a fine by the FCA for failings in internal controls relating to anti-money laundering. Further, in this context, it must be underlined that the predicate offending by Stanbic resulted in substantial harm to the public and, in particular, the loss of US$ 6m. from the money being borrowed by the Government of Tanzania for much needed public infrastructure projects.

On the other side of the coin, the mitigating features include the fact that Standard Bank (a company without previous convictions) volunteered to self-report promptly and both facilitated and fully cooperated with the investigation which the SFO conducted. Further, there is no evidence that the failure to raise concerns about antibribery and corruption risks (as opposed to money laundering concerns which led to the FCA regulatory action) was more widespread within the organisation. Finally, the transaction took place when the Bank was differently owned and, additionally, the business unit that carried it out is no longer owned by Standard Bank.

In the circumstances, I consider it appropriate that the provisional agreement is to take a multiplier of 300% which is the upper end of medium culpability and the starting point of higher culpability. This leads to a figure of US $25.2 million before the court must (following Step 5 of the Sentencing Council Guideline) ‘step back’ and consider the overall effect of its orders such that the combination achieves “removal of all gain, appropriate additional punishment and deterrence”. Bearing in mind, inter alia, the value, worth or available means of the offender and the impact of the financial penalties including on employment of staff, service users, customers and local economy (but not shareholders), the guideline is clear that: “The fine must be substantial enough “to have a real economic impact which will bring home to both management and shareholders the need to operate within the law”.

In assessing the financial penalty, Sir Levenson found comfort as follows.

“Bearing in mind the observations of Thomas LJ in Innospec Ltd [see here for the prior post], a useful check is to be obtained by considering the approach that would have been adopted by the US authorities had the Department of Justice taken the lead in the investigation and pursuit of this wrongdoing. Suffice to say that the American authorities have been concerned with the circumstances and have been conducting an inquiry in connection with possible violations of the Foreign Corrupt Practices Act, 15 USC para. 78dd-1. Noting the co-operation of Standard Bank and Stanbic with them, the Department of Justice has confirmed that the financial penalty is comparable to the penalty that would have been imposed had the matter been dealt with in the United States and has intimated that if the matter is resolved in the UK, it will close its inquiry. In the circumstances, there is nothing to cast doubt on the extent to which these aspects of the proposed approach are fair, reasonable and proportionate.”

In  conclusion, Sir Levenson stated:

“It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a large scale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, Standard Bank would have been better served by taking a course which did not involve self report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, I have no doubt that Standard Bank has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business. It can also serve to underline the enormous importance which is rightly attached to the culture of compliance with the highest ethical standards that is so essential to banking in this country.”

That SB “far better served its shareholders” and other stakeholders by voluntarily disclosing is of course an opinion.

In this regard, it bears repeating that SB voluntarily disclosed “within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) its own investigation.” In the minds of many, SB’s disclosure is likely to be viewed as premature, careless and indeed reckless.

As it turned out – as further explored in yesterday’s post – the conduct at issue in the SB enforcement action involved just one transaction, against the backdrop of SB having various policies and procedures designed to minimize the same conduct giving rising to the enforcement action, and against the further backdrop of – in the words of the judge - “Standard Bank [having] no previous convictions for bribery and corruption nor has it been the subject of any other criminal investigations by the SFO” and “there is no evidence that the failure to raise concerns about anti-bribery and corruption risks … was more widespread within the organization.”

Given these circumstances, an alternative to voluntary disclosure – and an approach that would have likely better served SB’s shareholders – would have been, after a thorough investigation, promptly implementing remedial measures, and effectively revising and enhancing compliance policies and procedures – all internally and without disclosing to the SFO or other law enforcement agencies.

Reading Assignment: The Latest Judicial Opinion Regarding The DOJ’s Use Of DPAs

Monday, October 26th, 2015

Read ThisIf you have an interest in the DOJ’s frequent use of deferred prosecution agreements (DPAs), then this recent judicial opinion by U.S. District Court Judge Emmet Sullivan (D.D.C.) should be required reading.

Prior to Judge Sullivan’s opinion, there have been (it is believed) just two prior judicial opinions to address the issue of what power, if any, courts have in approving DPAs.  The DOJ’s position in all three cases has been that the courts have no role.

In all three cases, federal courts have rejected such a minimalist role of the courts.

See here for the prior post concerning a July 2013 decision by U.S. District Court Judge John Gleeson (E.D.N.Y.) in a DOJ prosecution of HSBC. See here for the prior post concerning a February 2015 decision by U.S. District Court Judge Richard Leon (D.D.C.) in a DOJ prosecution of Fokker Services. As noted in the post, Judge Leon rejected the DPA, an issue that is currently on appeal before the D.C. Circuit (see here for the post highlighting the oral argument in September).

Like Judge Gleeson in the HSBC matter, Judge Sullivan approved two DPAs in separate matters involving Saena Tech Corp. and Intelligent Decisions Inc.  In doing so however, Judge Sullivan wrote a law review-like opinion concerning the issue of “the Court’s role, if any, in determining whether [the DPAs] should be approved at all.”

To begin, Judge Sullivan set forth the history of the Speedy Trial Act, the “statutory provision upon which deferred-prosecution agreements are based and concludes that court involvement in the deferral of prosecution was specifically intended by Congress.” Judge Sullivan also examined, apart from the Speedy Trial Act, whether a court has power to approve or reject DPAs under its general supervisory power. According to Judge Sullivan, “the Court agrees that the Speedy Trial Act and the judiciary’s supervisory power appear to be the only potential sources of court authority to review deferred-prosecution agreements.”

Speedy Trial Act

Regarding the Speedy Trial Act, “the Court discusses the extent to which the current use of deferred prosecution agreements for corporations rather than individual defendants strays from Congress’s original intent when it created an exclusion from the speedy trial calculation for the use of such agreements.”

In the words of Judge Sullivan:

“The relevant legislative history demonstrates that deferred prosecution agreements were originally intended to give prosecutors the ability to defer prosecution of individuals charged with certain non-violent criminal offenses to encourage rehabilitation. At this time, however, [...] deferred-prosecution agreements appear to be offered relatively sparingly to individuals, and instead are used proportionally more frequently to avoid the prosecution of corporations, their officers, and employees.

The legislative history thus demonstrates that Court involvement in the deferral of a prosecution was specifically intended by Congress when it passed this legislation. The Court analyzes the contours of that involvement.”

After noting and reviewing case law concerning the traditional reluctance of courts to wade into prosecutorial decisions, Judge Sullivan concludes that the Speedy Trial Act subjects DPAs to “limited, but meaningful, court review.”

According to Judge Sullivan, the language of the Speedy Trial Act “does not grant the Court plenary power to review” DPAs but rather the “approval authority is located within a sentence stating that the agreement must be “for the purpose of allowing the defendant to demonstrate his good conduct.” 28 U.S.C. § 3161(h)(2).”

Judge Sullivan then states:

“Arguably, then, court review must be tied to determining whether the agreement satisfies this purpose. Had Congress intended courts to review a deferred prosecution agreement for other purposes, it presumably would have provided courts with guidance as to those purposes.

Faced with arguably ambiguous text that most clearly reads as tying the Court’s authority to approve the agreement to determining whether it is truly designed to hold prosecution in abeyance while a defendant demonstrates good conduct, and arguably ambiguous legislative history that most clearly reads as intending that same result, the Court concludes that its authority under the Speedy Trial Act is limited to assessing whether the agreement is truly about diversion. This limited interpretation is especially appropriate where a broader one could effectively seize authority by the Judicial Branch over a traditional Executive Branch function. Accordingly, the Court finds that approval of a deferred prosecution agreement should be granted under the Speedy Trial Act when the agreement is intended to hold prosecution in abeyance while a defendant demonstrates good conduct.”

Notwithstanding the above, Judge Sullivan stated in a footnote:

“This ambiguity, combined with the fact that Congress’s original purpose had nothing to do with the broad-ranging corporate deferred-prosecution agreements that have become commonplace, suggests that congressional action to clarify the standards a court should apply when confronted with a corporate deferred prosecution agreement may be appropriate.”

Elsewhere in the opinion, Judge Sullivan stated:

“This authority necessarily involves limited review of the fairness and adequacy of an agreement, to the extent necessary to determine the agreement’s purpose. In this respect, the Court finds that its authority is greater than the largely administrative authority contemplated by the government. The Court must determine whether an agreement is truly about permitting a defendant to demonstrate reform.

Accordingly, the Court is persuaded that it retains authority under the Speedy Trial Act, albeit limited, to consider the terms of a deferred-prosecution agreement to determine whether they provide the defendant an opportunity to demonstrate good conduct while prosecution is deferred.”

Supervisory Powers

Turning next to the court’s general supervisory powers, Judge Sullivan noted “of utmost importance, the supervisory power serves “to protect the integrity of the federal courts.”

He stated:

“In the context of prosecutorial decisions, “the federal judiciary’s supervisory powers over prosecutorial activities that take place outside the courthouse is extremely limited, if it exists at all.”

In this vein, the Court would have little authority, if any, to review an out-of-court non prosecution agreement between the government and a defendant.

The question remains what standard the Court should apply in deciding whether a request for approval of a deferred prosecution
agreement and placement of that agreement on the Court’s docket must be rejected “to protect the integrity of the
federal courts.”

With respect to the contents of the agreements, the Court is of the view that the amicus’s proposal of largely plenary court review, discussed above in connection with the Speedy Trial Act, is too broad. The power to protect the integrity of the judiciary keeps courts from becoming accomplices in illegal or untoward actions, but the Court’s review is necessarily limited. Here, in particular, Congress, in passing the Speedy Trial Act, has arguably prescribed a narrower role for courts in reviewing these very sensitive and important decisions.  Respect for the separation of powers thus counsels in favor of Judge Gleeson’s view of the role the supervisory power plays [as noted in the HSBC opinion]:

An agreement with especially problematic collateral consequences—whether intended or not—might be viewed as involving the Court in something inappropriate. In that regard, the Court can envision an especially unfair or lenient agreement as transgressing these bounds and therefore justifying rejection, independent of a court’s review under the Speedy Trial Act.

The Court need not opine further on the precise circumstances in which the Court’s authority under the Speedy Trial Act or the supervisory power would warrant rejection of an agreement. The agreements in these cases [...] do not implicate the integrity of the Court. For that reason, the Court will approve both agreements and grant the requested exclusion of time under the Speedy Trial Act.”

The final section of Judge Sullivan’s opinion is titled “Original Intent vs. Current Use of Deferred-Prosecution Agreements” and states:

“Although the Court approves the two deferred-prosecution agreements in these cases, the Court observes that the current use of deferred-prosecution agreements for corporations rather than individual defendants strays from Congress’s intent when it created an exclusion from the speedy trial calculation for the use of such agreements.

The legislative history of the Speedy Trial Act [...] shows just how far the use of Section 3161(h)(2) to defer the prosecution of corporations departs from what Congress intended. The history demonstrates that the provision was intended to encourage practices that had been ongoing in certain courts, which permitted the deferral of prosecution on the condition that a defendant participate in a rehabilitation program

Notwithstanding Congress’s intent in enacting Section 3161(h)(2) of the Speedy Trial Act, rather than offering deferrals to individuals charged with certain non-violent criminal offenses to encourage rehabilitation, the government increasingly now offers—as it did to the defendants in these cases—to defer prosecution of a corporation for criminal misconduct in exchange for the payment of a fine and the institution of compliance measures.

[...]

Often, but not always, [...] the corporation is the only entity ever charged and the individuals responsible face no charges.

In response to criticism surrounding the practice of failing to prosecute the individuals whose actions are actually the cause of corporate crimes, the Department of Justice recently issued guidance designed to strengthen its ability to hold individuals accountable for corporate wrongdoing in future investigations and pending investigations “to the extent it is practicable to do so.”

[...]

Despite this evolution in the use of deferred-prosecution agreements, the Court does not find that approving such agreements with corporations to be legally improper: Congress provided the deferred-prosecution tool without limiting its use to individual defendants or to particular crimes. Notwithstanding clear congressional intent, however, the Court is disappointed that deferred-prosecution agreements or other similar tools are not being used to provide the same opportunity to individual defendants to demonstrate their rehabilitation without triggering the devastating collateral consequences of a criminal conviction.”

The last part of Judge Sullivan’s opinion focuses on individual prosecutions and the general lack of DPAs.

“Regrettably, despite the renewed focus on such reforms [concerning individual prosecutions], the deferred-prosecution agreement and other similar tools have not been used as much as they could to achieve reform. This oversight is lamentable, to say the least!

The Court recognizes that prosecutors are confronted regularly with difficult questions of how to exercise their discretion. The decision how to proceed in each case is within the expertise and constitutional responsibility of the Executive Branch, and this Court has neither the desire nor the authority to dictate charging decisions. The Court is, however, extremely dismayed that despite all of the focus on providing tools for prosecutors to reduce over-incarceration, attack the root causes of crime, and mitigate where possible the collateral consequences of criminal convictions, deferred-prosecution agreements for individuals and other similar tools have gone largely unmentioned.

Deferred-prosecution agreements could provide a powerful opportunity for a second chance for deserving individuals.

[...]

The Court is of the opinion that people are no less prone to rehabilitation than corporations. Drug conspiracy defendants are no less deserving of a second-chance than bribery conspiracy defendants. And society is harmed at least as much by the devastating effect that felony convictions have on the lives of its citizens as it is by the effect of criminal convictions on corporations. Extending the use of deferred-prosecution agreements to individuals who are charged with certain nonviolent offenses would be a powerful tool to achieve one of the goals proposed by President Obama this year: “give judges some discretion around nonviolent crimes so that, potentially, we can steer a young person who has made a mistake in a better direction.”

In conclusion, Judge Sullivan states:

“Unless and until Congress amends the Speedy Trial Act to provide for broader involvement by the judiciary in assessing the substance of deferred-prosecution agreements, courts will be constrained to reviewing an agreement for: (1) whether it is truly intended to hold prosecution in abeyance while a defendant demonstrates rehabilitation, as required by the Speedy Trial Act; and (2) whether the agreement involves the Court in the type of illegal or untoward activity that might impugn the Court’s integrity. That authority, however, is not as limited as the government might prefer. Because the agreements in these cases transgress neither boundary, the Court approves them, and does not have occasion to set forth the full scope of a district court’s authority to review and reject a deferred-prosecution agreement. Nothing in this Opinion should be interpreted to approve the judicial abdication of this review authority. Even agreements that clearly meet the requirements of the Speedy Trial Act and do not at all implicate a court’s supervisory authority warrant searching review to establish why they should receive court approval.

The Court respectfully requests the Department of Justice to consider expanding the use of deferred-prosecution agreements and other similar tools to use in appropriate circumstances when an individual who might not be a banker or business owner nonetheless shows all of the hallmarks of significant rehabilitation potential. The harm to society of refusing such individuals the chance to demonstrate their true character and avoid the catastrophic consequences of felony convictions is, in this Court’s view, greater than the harm the government seeks to avoid by providing corporations a path to avoid criminal convictions. If the Department of Justice is sincere in its expressed desire to reduce over-incarceration and bolster rehabilitation, it will increase the use of deferred-prosecution agreements for individuals as well as increase the use of other available resources as discussed in this Opinion.”