The Australian Attorney General’s Department (AGD) recently released this public consultation paper in which the Australian Government seeks “a more effective and efficient response to corporate crime by encouraging greater self-reporting by companies” and a “key focus of this consideration is a possible deferred prosecution agreement (DPA) scheme.”
Set forth below is the text of my letter to the AGD urging it to reject DPAs.
This letter responds to the request of the Attorney General’s Department for submissions regarding a proposed model for a deferred prosecution agreement (DPA) scheme in Australia.
While the AGD’s DPA proposal concerns a variety of crimes, it is probable that a significant percentage of DPAs, if implemented, will be used to resolve foreign bribery enforcement actions as has happened in the U.S. where a significant percentage of DPAs and related non-prosecution agreements (NPAs) have been used to resolve Foreign Corrupt Practices Act (“FCPA”) enforcement actions. Given that my primary area of expertise is the FCPA and related anti-corruption laws, I confine my comments to potential application of DPAs to resolve foreign bribery enforcement actions.
To begin, I applaud the AGD (as I likewise applauded the U.K. Ministry of Justice) for its rejection of non-prosecution agreements (“NPAs”) to resolve allegations of foreign bribery. I can only hope that the U.S. Department of Justice sees the wisdom of your decision and likewise abolishes NPAs in the FCPA context as I have long advocated.
I am concerned however that in its consultation paper the AGD relies upon several unfounded assertions regarding DPAs including that adoption of DPAs will: (i) yield “a more effective and efficient response to corporate crime by encouraging greater self-reporting by companies”; (ii) “enhance the accountability of Australian business for serious corporate crime.”
Alternative resolution vehicles such as DPAs and NPAs were first used in the U.S. FCPA context in 2004, however, there is no reliable evidence to suggest that use of such resolution vehicles has yielded “a more effective and efficient response to corporate crime by encouraging greater self-reporting by companies.” Indeed, the U.S. Department of Justice’s launch of an FCPA Pilot Program in April 2016 – which remains in effect – to further motivate companies to self-report FCPA offenses should be seen as an acknowledgment that the DOJ’s long standing efforts spanning over a decade, including through use of NPAs and DPAs, to motivate self-reporting was not successful.
Likewise, there is no reliable evidence to suggest that alternative resolution vehicles used to resolve alleged FCPA offenses has enhanced the accountability of business organizations resolving such offenses. Indeed, the Organisation for Economic Co-operation and Development (“OECD”) report on FCPA enforcement observed that the “actual deterrent effect [of NPAs and DPAs] has not been quantified,” and it requested that the U.S. “[m]ake public any information about the impact of NPAs and DPAs on deterring the bribery of foreign public officials.” The DOJ’s response to this request stated:
“Scholars have recognized that quantifying deterrence is extremely difficult. This is equally true for the deterrent effect of DPAs and NPAs. Thus . . . measuring ‘the impact of NPAs and DPAs in deterring the bribery of foreign public officials’ would be a difficult task, save providing certain anecdotal and other circumstantial evidence. One of the best sources of anecdotal evidence demonstrating that DPAs and NPAs have a deterrent effect comes from the companies themselves. The companies against which DPAs and NPAs have been brought have often undergone dramatic changes.”
This is a most curious statement given the following fact. Even though alternative resolution vehicles have only been used in the FCPA context since 2004, several companies (Aibel Group Ltd., Marubeni Corp., Biomet Inc., and Orthofix International) that resolved FCPA enforcement actions via such resolution vehicles have already become repeat offenders.
The AGD consultation paper states that DPAs will only be used “in appropriate cases.” From a comparative perspective, that is similar to what the U.S. Department of Justice stated in 2008 when NPAs and DPAs were first explicitly mentioned in official policy documents. Specifically, the DOJ stated:
“In certain instances, it may be appropriate . . . to resolve a corporate criminal case by means other than indictment. Nonprosecution and deferred prosecution agreements, for example, occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation.”
Far from being used only “in certain instances” or functioning as a “middle ground,” since 2010 approximately 90% of DOJ corporate FCPA enforcement actions have used, in whole in part, alternative resolution vehicles.
In addition to the above concerns, my primary concern with Australia looking to the U.S. for support in considering DPAs is the material differences between Australia and U.S. corporate criminal liability principles including in the bribery context.
Under the U.S. principle of respondeat superior, a business organization can face criminal liability based on the acts of any employee or agent to the extent the individual’s conduct was in the scope of their duties and was intended to benefit, at least in part, the organization. U.S. adoption of alternative resolution vehicles largely developed out of a sense of injustice (given that the U.S. does not recognize pre-existing compliance policies and procedures as a matter of law) when this principle was applied to organizations based on isolated conduct or conduct that occurred despite the organization’s good faith compliance efforts.
Unlike the ease in which a business organization can be subject to criminal liability under U.S. law, Australian law is materially different. As you know, “bodies corporate’ can be liable for offences committed by “an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority” where the body corporate ‘expressly, tacitly, or impliedly authorised or permitted the commission of the offence.” Pursuant to the Criminal Code: authorisation or permission by the body corporate may be established in [the following] ways:
- The board of directors intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur;
- A high managerial agent intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur;
- A corporate culture existed that directed, encouraged, tolerated or led to the offence; or
- The body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.
However, under the Criminal Code, “if a high managerial agent is directly or indirectly involved in the conduct, no offence is committed where the body corporate proves that it ‘exercised due diligence to prevent the conduct, or the authorisation or permission.’”
In short, Australia’s standard for corporate criminal liability is materially different than the U.S. principle including Australia’s recognition in certain instances of a so-called compliance or adequate procedures defense.
Given this material difference, I pose the following questions the AGD should consider during its consultation process. Why does a legal regime that only ascribes criminal liability to a body corporate based on the acts or omissions of high-ranking corporate officials and a legal regime that recognizes in certain instances a compliance defense need the third option of a DPA (the first two options being prosecute vs. not prosecute)?
If a body corporate faces legal liability based on the acts or omissions of high-ranking corporate officials, this seems like a just and reasonable result and a DPA would seem to represent “under-prosecution” of egregious corporate conduct. On the other hand, if a body corporate does “create and maintain a corporate culture that required compliance with the relevant provision,” yet an isolated act of bribery by a low-ranking employee or agent nevertheless occurs, the body corporate would not face prosecution under existing law. This too seems like a just and reasonable result and there is no need for a third option of a DPA in such a case.
Finally, the AGAs consultation papers makes much of the fact that a substantial majority of submissions received in connection with a similar 2016 request for public consultation on adopting DPAs “endorsed, or conditionally endorsed, the [DPA] proposal subject to further development of the details of the scheme.”
This is hardly surprising given that the substantial majority of these submissions were received from government, business interests, law firms, and civil society groups. Government obviously likes DPAs because it makes its job easier and will lead to a greater number of enforcement actions. Business interests obviously like DPAs because they will allow body corporates to escape the most serious consequences of violating criminal laws. Law firms obviously like DPAs because they will lead to a greater number of enforcement actions and thereby expand the market for legal services including post-enforcement action compliance services. Civil society groups, who frequently prioritize quantity of enforcement over quality of enforcement, obviously like DPAs because they will lead to a greater number of enforcement actions and create the (false) impression that bribery is being reduced.
For all of the above reasons, Australia should say “no” to DPAs to resolve foreign bribery offenses.
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