On June 17, 2015, I attended a meeting in Toronto at the invitation of Transparency International – Canada Legal Committee. My powerpoint presentation titled “Canada Should Say No to DPAs” is here.
Given the types of individuals in the room and those joining the meeting via phone (generally speaking lawyers, accountants and others who stand to benefit from more enforcement of Canada’s Corruption of Foreign Public Officials Act – CFPOA), I didn’t really expect to change minds regarding the then early push by certain Canadian participants to adopt DPAs to resolve alleged instances of CFPOA scrutiny.
Thus, I was not surprised to read this July 2017 report released by TI-Canada titled “Another Arrow in the Quiver? Consideration of Deferred Prosecution Agreement Scheme in Canada.” This post analyzes the TI-Canada report and just like I urged the U.K. not to adopt DPAs (see here), just like I urged Australia not to adopt DPAs (see here), I urge Canada not to adopt DPAs.
For starters, in my 2010 article “The Facade of FCPA Enforcement” I warned that one of the reasons why the facade of enforcement matters is because of “modelling” and “the increasing frequency by which other nations are modeling enforcement of their own bribery laws on U.S. enforcement methods and theories. These methods and theories, unless addressed and corrected here in this country, will continue to be replicated elsewhere, perhaps leading to a global facade of enforcement.”
Given what happened in the U.K., what is happening in Australia (and France), and what some want to happen in Canada, this warning turned out to be true.
The main thrust of TI-Canada’s recent report seems to be that low CFPOA enforcement levels are somehow an inherent problem that must be corrected and that more CFPOA that may result from DPAs is the solution that is inherently good.
For instance, the forward to the TI-Canada report states:
“[A] consensus did emerge that in the Canadian context – where enforcement levels are chronically low – DPAs, if promptly designed and implemented, have the potential to support increased enforcement of anti-corruption laws and increased self-disclosure and compliance by corporations.”
Elsewhere, the report states:
“On balance, as a means of pursuing greater enforcement of and compliance with anti-corruption laws, we urge the Government of Canada to consider adopting a properly designed DPA mechanism.”
[…]
“Trials for corporate economic crimes are under-prosecuted and overly complex, which makes them the perfect candidate for DPAs …”.
Aside from the quantity vs. quality focus of the TI-Canada report, another deficiency (like prior deficiencies in the pro-DPA movement in the U.K. and Australia) is the complete absence of any discussion of why a legal system that only ascribes criminal liability to a business organization based on the acts or omissions of high-ranking corporate officials even needs the DPA option.
Unlike the U.S. respondeat superior model, Canadian law (generally speaking) requires that a “senior official” must be involved in the improper conduct for there to be corporate criminal liability. Thus, if a business organization faces legal liability based on the acts or omissions of high-ranking corporate officials, this seems like a just and reasonable result for which a DPA is not needed. Sure, the TI-Canada report predictably advances the “Arthur Anderson effect” (i.e. the notion that criminal charges alone with lead to corporate death), but the Arthur Anderson effect, long debunked as a myth (see here for the prior post) is truly dead (see here for the prior post).
Given how corporate criminal liability attaches under Canadian law, prosecuting such a case via a DPA would seem to represent “under-prosecution” of egregious corporate conduct.
The TI-Canada report states that it has “review[ed] the experience of other countries, who have adopted, or who are considering adopting, DPA.” However, the problem is that much of what is asserted to be fact in the TI-Canada report actually represent highly debatable, disputed points that are often undermined by actual facts.
For instance, the TI-Canada report asserts, on a number of occasions, that DPA’s increase self-disclosure and compliance.
However, there is no evidence that the DOJ’s (or SEC’s) use of DPAs (or NPAs, or “declinations with disgorgement” for that matter) have increased self-disclosure of FCPA issues. Indeed, the DOJ’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 DPAs) to motivate self-reporting were not successful.
Likewise, there is no reliable evidence to suggest that alternative resolution vehicles used to resolve alleged FCPA offenses has enhanced compliance or 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.”
Moreover, the statement that DPAs increase compliance is undermined by the fact (as highlighted in this recent post) that several companies that resolved alleged FCPA offenses through DPAs have since become FCPA repeat offenders.
The TI-Canada report further states:
“DPAs should be based on the understanding that it is the individuals within a corporation, rather than the corporation itself, that make or carry out decisions that produce illegal conduct. This is consistent with the Yates memorandum in the United States and the legislation in the United Kingdom.”
And now for some facts about DOJ FCPA enforcement actions since the September 2015 Yates Memo. As highlighted in this post, there have been nearly 20 corporate FCPA enforcement actions by the DOJ, approximately $1.4 billion collected, and not one company employee has been charged with FCPA offenses by the DOJ.
In short, the TI-Canada report states that “DPAs in the United States have been met with great success,” but this assertion is highly debatable and often undermined by actual facts.
It is interesting to note that TI-Canada suggests that a DPA “can sometimes serve as a middle ground” and should be “considered as an extraordinary measure.”
Well, that’s how things started off in the U.S. In 2008 when NPAs and DPAs were first explicitly mentioned in DOJ official policy documents, 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.
Even though the TI-Canada report skips analysis of certain relevant issues and portrays as fact several debatable points often undermined by actual facts, kudos to the TI-Canada report for recognizing that “DPAs in the United States have no statutory basis and are not subjected to any specific legal framework.”
Kudos as well to the TI-Canada report in the following respects:
Like the U.K. and Australia, the TI-Canada reports implicitly rejects NPAs.
Like the U.K. and Australia, the TI-Canada report rejects the U.S. DPA model. As stated in the TI-Canada report:
“In light of the controversies surrounding the lack of judicial involvement in the US, we believe it wise to adopt the UK approach should Canada adopt a DPA regime, which mandates strong court supervision in matters involving a DPA.”
[…]
“Should DPAs be adopted in Canada, Transparency International Canada believes it is crucial to take precautions to avoid perceived pitfalls experienced in the United States. For a DPA scheme to be effective, it should be enacted through specific legislation, carried out under transparent judicial purview and include specific measures aimed at the following objectives: 1) Financial reparations 2) Sincere compliance reform 3) Accountability of individual wrongdoers.”
[…]
“In light of American and British models that have been discussed above, we believe that the following elements should be considered by the Canadian government, should it enact its own DPA scheme. In general terms, if Canada were to adopt a DPA scheme we would favour a scheme closer to the UK model, as well as proceeding through the legislative route, rather than solely through memoranda and prosecutors’ guidelines.”
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