Category: Deferred Prosecution Agreements

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

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

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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.”

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

As 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.”

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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 here, here, here, 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

If 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.”

A Recent Decision in France Applies “International Double Jeopardy” Principles to U.S. DPAs

Today’s post is from Frederick Davis and Antoine Kirry of Debevoise & Plimpton. The post originally appeared in the firm’s always stellar FCPA Update and is republished below with permission.

The post provides a comprehensive summary and analysis of a recent French court decision that applies double jeopardy principles to U.S. deferred prosecution agreements.

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Multi-national corporations – and the individuals who work for them – increasingly confront criminal investigations by authorities in two (or even more) countries at once for essentially the same acts. A very recent decision in France rules, for the first time, that companies that signed Deferred Prosecution Agreements (“DPAs”) in the United States cannot be further prosecuted in France.

The practical effect of the decision may for the moment be limited to multinational investigations involving France (and since it is subject to appeal, it may not definitively state the current status of the law even there). But the issue of “international jeopardy” is of increasing concern and importance, and this decision may well have an impact in the development of the law.

The Problem

There are several scenarios that could lead to multiple (or parallel) prosecutions: often the acts constituting a criminal offense may have occurred in several different countries, thereby making each country potentially competent to investigate the entire crime of which the acts that took place on its territory were a part; most countries’ criminal laws provide that the government can prosecute its own nationals for criminal acts committed outside the national territory, which may overlap with “territorial” jurisdiction in other countries; and some countries – notably the United States – are expansive in determining their own power to prosecute, and may base a criminal investigation, for example, on the mere fact that a target used U.S. dollars to consummate an activity that otherwise took place entirely abroad. Generally speaking, a company or person in this situation faces a difficult (and often critical) strategic challenge of how to manage the various threats. One obvious risk is that if a target enters into any agreed-upon outcome – such as a guilty plea, a Deferred Prosecution Agreement or Non-Prosecution Agreement (“NPA”) – or even if he/she/it enters into discussions with authorities in one country in the hope of persuading them not to prosecute, the authorities in another country may learn of the underlying issues – either independently or because of publicity of the outcome of the first set of negotiations – and begin a new investigation seeking further penalties.

Most countries recognize that it is unfair to subject the same person or company to multiple prosecutions for the same acts. This principle is enshrined in the U.S. Constitution in the well-known Double Jeopardy Clause appearing in the Bill of Rights; in Europe and elsewhere the principle is generally known under the Latin phrase “ne bis in idem.” While such domestic constitutional provisions or laws are quite similar, there does not exist a universally accepted international norm, and the protection afforded by the laws in one country may offer no protection in another. As a result, targets of multiple investigations and their counsel generally rely more on their strategic negotiating skills than on a research of legal rights to avoid (or minimize) the risk of multiple prosecutions across borders. As multi-national investigations increase, however, the issue is receiving renewed attention in academia, in colloquia, and in “blog” discussions of the subject.Corporate counsel often inveigh against the threat of multiple prosecutions, and call for reform.

A very recent decision of the Criminal Court in Paris has taken a bold step in advancing this debate: In a decision announced on June 18, 2015, but explained in a written decision released only in September 2015, the Court acquitted four French corporations that were facing trial under French anti-corruption laws on the ground that they (or their corporate parents) had already signed DPAs with the United States Department of Justice (“DoJ”) and thus could not, consistently with French international obligations, be prosecuted a second time for what the Court found to be the same facts. The significance of this ruling remains to be seen: as a non-common law country, France does not consider such decisions to be “precedent,” and in any event the Public Prosecutor is appealing this acquittal (which French criminal procedures permit him to do) and the Paris Court of Appeals may reach a different conclusion when it rules on the matter, presumably in 2016. At a minimum, however, the decision provides an interesting and useful perspective on a matter of increasing importance.

The Basic Framework

Multiple prosecutions are not new, and can occur under a wide variety of criminal laws; the current prosecution and continuing investigation of senior officials of the international soccer organization FIFA for alleged fraud and corruption is perhaps the most noteworthy recent example. In terms of numbers, however, the surge of multiple prosecutions dates to international efforts to fight overseas corruption, and in particular to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted by the Organization for Economic

Co-Operation and Development (“OECD”) in 1997, which has been signed by all the major countries of Europe as well as many others, and which led to the transposition into domestic laws of signatory nations of criminal prohibitions generally similar to the U.S. Foreign Corrupt Practices Act (“FCPA”). A person or company engaging in overseas corruption anywhere in the world now faces the risk of prosecution in any signatory country where he/she/it may have sufficient contacts, either by citizenship or place of incorporation, or as a place where relevant acts took place.

The OECD Convention clearly contemplated the likelihood of multiple or parallel investigations. Article 4.1 of the Convention obligates each signatory country to “take such measures as may be necessary to establish its jurisdiction over the bribery of a foreign public official when the offense is committed in whole or in part in its territory” (emphasis added), and in Article 4.2 contemplates that each signatory country may have jurisdiction “to prosecute its nationals for offenses committed abroad . . . .”

Having recognized the conditions that create a risk of multiple investigations, the Convention then provided for no legally enforceable ban on multiple prosecutions, but rather stated (in Article 4.3) as follows:

When more than one Party [i.e., signatory country] has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution.

This provision clearly envisioned that each offender should ideally face no more than one prosecution, since it directs the multiple nations that may have had “jurisdiction over an alleged offense” to consult “with a view to determining the most appropriate jurisdiction for prosecution.” What the drafters apparently hoped was that, through such consultations, one, but only one, country would actually prosecute. While this provision has been cited for the proposition that a unitary prosecution should be a goal, arguments that it requires a single prosecution by prohibiting multiple ones have been routinely rejected, as illustrated by United States v. Jeong, 624 F.3d 706 (5th Cir. 2010), a case in which a businessman already convicted of corruption in Korea claimed that Article 4.3 of the OECD Convention preluded further prosecution in the United States for the same facts. The Court rejected this argument, noting:

[W]e conclude that the plain language of Article 4.3 does not prohibit two signatory countries from prosecuting the same offense. Rather, the provision merely establishes when two signatories must consult on jurisdiction.

As a result, multiple prosecutions for the same acts have in fact occurred with some regularity. One of the earliest under an OECD Convention-compliant national prosecution involved the Norwegian state oil giant, StatOil. As is well known, StatOil was prosecuted by Norwegian authorities and ultimately paid a significant penalty there. Apparently to its shock – and to the surprise of the Norwegian prosecutors – the United States Department of Justice thereupon commenced an independent investigation, which resulted in StatOil agreeing to additional fines for what apparently was the same set of facts that had been involved in the Norway case.

The Approach in the United States

The Double Jeopardy Clause found in the Fifth Amendment to the United States Constitution provides that no person shall be “subject for the same offense to be twice put in jeopardy of life or limb . . . .” This provision, however, has been subject to two interpretive limitations that restrict its scope.

First, it has always been the law in the United States that the Clause applies only to prosecutions by the “same sovereign” – that is, it prohibits the federal government, or any individual state, from twice prosecuting someone for the same facts, but does not prohibit the federal government from prosecuting a person convicted or acquitted by a state, or vice versa, or one state from prosecuting a person convicted or acquitted by another.

And, second, U.S. laws provide very few restrictions on the ability of the government to pursue simultaneous (and cumulative) criminal and administrative remedies for the same conduct, even if the latter results in painful financial penalties that are difficult to distinguish from criminal ones. In United States v. Hudson, 522 U.S. 93 (1997), the Supreme Court held that separate administrative sanctions can follow criminal conviction or acquittal, unless there is the “clearest proof ” that the legislature intended the administrative sanction to be penal in nature (which is virtually never the case) or if the sanctions are “so punitive” as to render them, in essence, criminal. As one commentator has written, after Hudson, “double jeopardy protection from civil sanctions will attach now only in the rarest of circumstances.” As a result, it is very common for a company to face simultaneous, or even successive, investigations by the DoJ and the SEC for the same conduct.

The absence of legally-enforceable protections noted here is tempered to some degree by self-imposed – but not legally binding – “guidelines” or “principles” announced by the Department of Justice. The most important of these is the socalled “Petite Policy,” known more formally as the “Dual and Successive Prosecution Policy,” which provides that a prosecution in a state will generally bar a federal prosecution, absent some unusual circumstances such as indications that the state result was affected by incompetence or fraud, or in cases where there is an important federal interest. These principles are real in the sense that the federal government rarely engages in double prosecution domestically, but they nonetheless do not state rights that can be enforced in court.

Internationally, the DoJ admits of no legal requirement that it give any legal standing or significance to a prosecution elsewhere in the world. With respect to corporations, the announced general policy of the Department of Justice – when faced with a situation that has already resulted in a criminal prosecution elsewhere – is that the Department of Justice, in those situations where it considers that it has jurisdiction to do so and sees any U.S. interest, will determine whether the foreign outcome was “adequate”; further, as a matter of both announced principle and observed practice, the Department of Justice gives credit for fines actually paid outside the United States by deducting them from its calculation of a fine or other payment that would be due under U.S. laws. As a result, counsel advising parties involved in potentially multiple investigations can prepare for negotiations with the U.S. Department of Justice and argue that a non-U.S. outcome should bar any U.S. proceedings at all, or, at a minimum, should limit a U.S. prosecution to those areas not already addressed elsewhere. Recently, the former argument – that the U.S. government should do nothing at all – appears to have been successful in the case of SBM Offshore, where the Department of Justice announced that it would drop its two-year investigation after the target, a Dutch oil services company, announced an agreed-upon outcome in the Netherlands, where it paid a significant fine. Many other cases result in joint or coordinated negotiations where the prosecuting authorities have agreed on the charges to be admitted, and the respective payments made, by the investigated corporation; a “credit” is then given for payments made in each country. But these negotiations are based entirely on the discretion of the American prosecutor; in the absence of judicially enforceable rules, and heeding the adage that “adequacy” may well be “in the eye of the beholder,” it is often problematic to start a defense or negotiations in another country if there is a likelihood that the U.S. government may consider itself jurisdictionally competent to proceed and will later get involved.

The Developing Law in Europe and France

The legislatures and courts in Europe have, over time, engaged in a number of efforts to provide some semblance of coherence with respect to prosecutions in that continent. Traditionally, European countries have recognized some form of the “dual sovereignty” principle which, as in the United States, permits multiple prosecutions. In France, via legislation going back to the 19th century, this approach has been amended to distinguish between cases in which prosecutions in France are based on a “territorial” application of its criminal laws to acts committed in France, on the one hand, and, on the other, “extra-territorial” applications of them – such as occurs if conduct taking place abroad is committed by a French person or corporation, or where a French person or corporation is a victim. In the latter case, Article 692 of the French Code of Criminal Procedure provides that “no prosecution can take place with respect to a person who has been definitively convicted in another country for the same facts, and, in case of conviction, where the penalty has been performed or suspended.” However, for all “territorial” prosecutions, domestic French law does not provide any ne bis in idem protection for prosecutions overseas.

A number of European treaties have contributed to the debate regarding this issue. Protocol Number 7 of the Convention for the Protection of Human Rights and Fundamental Freedoms, adopted in 1984 by the Council of Europe and signed by most but not all of its members, provides in its Article 4 that “no-one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offense for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.” While by its terms – and specifically the mention of “the same State” – this provision did not purport to “internationalize” the principle of ne bis in idem, its appearance in this Convention may have contributed to a heightened perception of the importance of the rule. The Council of Europe also took a step towards recognizing – and in fact internationalizing – the principle of ne bis in idem when in 1975 it modified its procedures for trans-European arrest warrants set forth in the European Convention on Extradition of 1957 by providing, in the First Additional Protocol, that a requested country need not extradite a person to a requesting country if that person had already been convicted or acquitted in a third country. This principle was also recognized in Article 4(5) of the Council Framework Decision of 13 June 2002 on the European Arrest Warrant,15 which was transposed into French law in Article 695-22(2) of the French Code of Criminal Procedure. Separately, in 1996, France’s highest administrative court, the Council of State, reviewed, at the request of the Prime Minister, the then-working version of what became Article 20 of the Treaty of Rome (which provides that the International Criminal Court cannot prosecute individuals convicted or acquitted in national courts – nor vice versa – absent a showing that the prior judgment was not conducted “independently and impartially.”) Noting that the issue was of an important and constitutional dimension, the Council expressed the view that “international law” recognized as an exception to the principle of ne bis in idem only circumstances involving a situation in which a prior judgment was based on fraud.

As of 2009, when the Charter of Fundamental Rights of the European Union entered into full legal effect, citizens in the European Union are now protected, under Article 50 of the Charter, by the provision that states:

No one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law.

In 1966, the United States, France and a number of other countries signed the International Covenant on Civil and Political Rights (“ICCPR”); the ICCPR, which was central to the recent French decision, will be explored in greater detail in the next section.

Thus, the situation in France and in Europe generally has been that the principle of ne bis in idem has achieved increasingly important status and widespread acceptance. This evolution in approach has accompanied changes in European laws with respect to the vulnerability of companies to be pursued for both criminal and administrative sanctions, the issue that was largely resolved in the United States in favor of permitting multiple actions by the Hudson decision mentioned above. In 2014, the European Court for Human Rights ruled in the Grande Stevens decision that administrative penalties obtained by the Italian Companies and Stock Exchange Commission precluded a criminal prosecution for the same acts by the same company, a decision echoed in 2015 in France by a decision of the Constitutional Court, which barred an imminent criminal trial of a number of individuals and companies accused of insider trading of shares in EADS on the ground that the same defendants had already been absolved of responsibility after an administrative investigation by the French Autorité des Marchés Financiers, the rough equivalent of the SEC.

The Recent French Decision

In 2007, French authorities commenced an investigation into approximately 20 French companies suspected of having violated the terms and conditions of the so-called “Oil for Food” program administered by the United Nations that provided for strictly limited and supervised humanitarian transactions with the Iraq regime headed by Saddam Hussein. Four of those companies had – either directly or through agreements negotiated by their corporate parents – already entered into Deferred Prosecution Agreements with the Department of Justice and, in some instances, into similar agreements with the Securities and Exchange Commission, whereby they had paid significant fines. Under the terms of the various DPAs, the period during which the Department of Justice could reopen the investigations had expired, and thus through the DPAs the respective companies benefitted from the commitment that they would not be prosecuted for the matters set forth therein. During the course of the investigation in France, these four companies all asked that the investigation be dismissed as to them on the basis of ne bis in idem, which was denied, and as a result the four of them, together with the others, all proceeded to be tried on the merits. In a decision publically announced on June 18, 2015, but not fully explained until the written judgment was released some months later, the Court acquitted all of the defendants. With respect to the four that had signed DPAs, the Court concluded that the principle of ne bis in idem precluded prosecution in France; the other corporations were acquitted on the basis of the factual insufficiency of the proof against them.

On the issue of protection against multiple prosecutions, the Court first rejected the argument that it was bound by Article 692 of the Code of Criminal Procedure, cited above, which applies to French prosecutions based upon its extraterritorial principles, noting that some of the acts alleged to have been committed took place on French territory, and thus this was a “territorial” prosecution and did not benefit, under French domestic law, from the principle of ne bis in idem because judgments of foreign criminal tribunals have no res judicata effect when they concern facts committed on French territory. The Court was, however, convinced that it was bound by Article 14(7) of the ICCPR which provides as follows:

No one shall be liable to be tried or punished again for an offence for which he has already been finally convicted or acquitted in accordance with the law and penal procedure of each country.

The Court concluded that this text is not limited to guard against multiple prosecutions by the same state, but rather by its open-ended terms appeared to protect against multiple prosecutions wherever the events had taken place. And noting that France had not only signed but implemented the ICCPR, the Court felt constrained to apply it in the case before it.

In order to apply this reasoning to the specific facts, the Court then took two steps. First, with respect to each defendant, it compared the facts recited in its respective DPA and concluded that they appeared to be the same general facts as those appearing in the accusations in France. And second, the Court concluded that the DPAs had the essential qualities of a “judgment,” thereby qualifying the companies for ne bis in idem protection. The Court’s reasoning on this second issue is a bit unclear. It notably does not refer to any specific act by a U.S. court as having been the basis for the prior act, but rather referred to the DPA as “a decision from the Department of Justice [in French: Ministère Public].” In so concluding, the Court noted that it was relying on an expert opinion submitted by a well-known international criminal legal specialist and professor of law in Paris, Didier Rebut. Its apparent reasoning is that the combination of a significant payment together with a protection against further prosecution had all the hallmarks of a prior “judgment.”

This decision is noteworthy in at least two respects: First, it may be the first time that a European court has turned to the ICCPR and relied on it to reject an otherwise procedurally appropriate prosecution on the basis of a prior prosecution in the United States. And second, the Court took a large step forward in interpreting an executed (and completed) DPA as a “judgment” worthy of ne bis in idem / double jeopardy application. Particularly since neither French criminal procedure nor its traditions and culture recognize DPAs as a means of addressing criminal investigations, and given the “asymmetry” noted below (because the United States will not recognize a French criminal judgment as preclusive under the ICCPR), this leg of the Court’s reasoning may be subject to scrutiny on appeal.

The Implications of the Decision

The Oil-for-Food decision is likely to have short-term and longer-term impacts.

In the short term, the Public Prosecutor has appealed the decision. In France, an appeal is in essence a new trial, and the Prosecutor can appeal an acquittal, even if based on insufficiency of evidence; thus, it is possible that both the acquittal of four companies on the basis of ne bis in idem but also of the other companies may be reviewed. Further review of the ne bis in idem decision may well occur in France’s Supreme Court (Cour de Cassation), which reviews only questions of law.

The decision will certainly affect defensive strategies for companies involved in multi-national investigations that involve or may involve France. With respect to any actual or threatened prosecutions in France in which companies have already signed a DPA (or equivalent agreement) in the United States and any other country, or will do so in the future, counsel will certainly urge acceptance of the Court’s reasoning.

The more intriguing implications, however, are longer term.

First, the decision may inadvertently increase the predominance of U.S. investigations relative to the efforts in other countries: if it is established that U.S. negotiated outcomes preclude prosecutions elsewhere, it would become especially useful to reach such an agreement. This is particularly true because the French Court’s decision will not be “symmetrical” in the sense of contemplating that U.S. courts would give similar recognition to French judgments of any sort (let alone negotiated outcomes): the United States signed the ICCPR (the cornerstone of the French decision) but expressly stated upon signature that it did not create any enforceable rights in the United States, and the legislature did not implement it by adopting conforming legislation. As a result, all efforts in the United States to rely on it in the courts have routinely failed on the ground that the treaty is not “self-executing,” and as such may have “moral authority” but does not provide a right or defense in U. S. courts. Thus, the decision may in fact encourage a “race to the courthouse” in countries that offer attractive outcomes, of the very sort that some commentators have predicted as an unwelcome side-effect of any effort to adopt an “international double jeopardy” regime.

Second, the decision reflects a situation that cries out for international collaboration. Ideally, the signatories to the OECD Convention might contemplate a more procedurally comprehensive, and binding, version of Article 4.3 that would allocate responsibilities for pursuits of corruption that spread across borders. More practically, the principal countries involved should, and undoubtedly will, engage in more effective and transparent cooperation. Officials in the United States, as by far the most active, aggressive and effective enforcers, should in particular be more clear in articulating the standards for the “adequacy” of non-U.S. prosecutions that they would find sufficient, which would have the salutary effect of encouraging non-U.S. outcomes like that in the SBM Offshore case.

Oral Argument Heard In Notable DPA Appeal

Non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) are the predominate way in which the DOJ resolves Foreign Corrupt Practices Act enforcement actions against business organizations.

Indeed, as highlighted in this prior post, since 2010 86% of corporate DOJ FCPA enforcement actions have involved either an NPA or DPA.

Even though U.S. v. Fokker Services is 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.

Last Friday the D.C. Circuit heard oral arguments in the appeal 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.