The U.K.'s New (and Improved) Deferred-Prosecution Agreements
U.S. process for deals between prosecutors and companies is woefully lacking.
After watching from the sidelines as U.S. prosecutors settled criminal charges in case after case with U.K.-based companies, Parliament passed the Crime and Courts Act of 2013, which armed British prosecutors with a criminal-justice tool commonly wielded by their American counterparts: deferred-prosecution agreements — DPAs for short. As of Feb. 24, U.K. prosecutors for the first time will have the authority to negotiate DPAs with companies accused of criminal wrongdoing as an alternative to a formal prosecution and public trial. The new U.K. DPA differs from the American prototype in significant ways, and we think serves as a useful template for U.S. lawmakers to consider.
In recent years, DPAs have formed perhaps the central strategy for U.S. prosecutors tackling white-collar crime. The federal government has entered into 278 such agreements with companies since 2004, extracting billions of dollars in "penalties" annually. The feds have hardly limited their use of the DPA mechanism to American companies. Rather, in many respects, the U.S. government has emerged as a global enforcer of alleged wrongdoing by corporations, including large U.K. companies like GlaxoSmithKline PLC, HSBC Holdings PLC and, most recently, The Royal Bank of Scotland Group PLC, which is 82 percent owned by the British government.
DPAs emerged in the United States mainly in response to the difficulty in prosecuting corporate entities, in light of the potentially severe collateral consequences that indictment or conviction can impose on corporate stakeholders. Perhaps because U.S. DPAs arose organically in the U.S. Department of Justice, American practice in this area has been typified by a lack of congressional guidance or judicial oversight and a lack of clear, defined processes and transparency. With prosecutors across the Atlantic slapping major British institutions with billion-dollar fines and detailed corporate-compliance provisions, it is hardly surprising that Parliament would enter the DPA arena. Strikingly, however, the new U.K. rules governing DPAs are marked by a transparency, structure and judicial oversight lacking in U.S. practice.
Before entering into a DPA, U.K. prosecutors must publicly justify the grounds for the agreement by demonstrating that there is enough evidence that the corporation has committed a crime and evaluating whether the "public interest would be properly served" by the agreement — accounting explicitly for the risk of harm to shareholders, employees and creditors as well as the stability of the financial markets. Moreover, robust judicial review is built into every major phase of the British DPA process. Prosecutors must apply to the court for both preliminary and final approval. A DPA is not effective until the judge approves its terms in open court, with clearly articulated reasons — including why the agreement "is in the interests of justice" and why its terms are "fair, reasonable and proportionate" — entered into the public record.
Flaws In U.S. Practice
Such judicial oversight is woefully missing in American practice. In a notable exception, Judge John Gleeson of the Eastern District of New York on July 1 issued a decision asserting oversight of HSBC's DPA, observing that such agreements might "so transgress the bounds of lawfulness or propriety as to warrant judicial intervention" and noting that corporate defendants facing a DPA would be very unlikely to "rais[e] a purported impropriety" given the risk that speaking up might derail the agreement with the government. Both the government and the company had argued before the judge that he had no substantive authority over the DPA whatsoever. This view is implicitly endorsed in the typical judicial rubber-stamp of most such agreements, which regularly reserve to prosecutors, not the judge, sole discretion to change the agreement's terms or declare a breach — another deviation from the new U.K. process.
Although it is understandable that prosecutors and many companies who have already chosen to negotiate a DPA would prefer to avoid having to satisfy a judge, the public policy implications of "rule of prosecutors as rule of law" are profound. DPAs enable prosecutors to impose terms on companies that go beyond the fines or incarceration normally associated with criminal punishment and beyond requirements that companies correct their allegedly criminal behavior. Instead, prosecutors often call for major changes to companies' business practices, including compensation schemes or sales and marketing plans. Whether such remedies are warranted or not and whether one's criticism of DPAs hinges on the belief that corporations are getting off too easy or on the thought that these agreements unfairly present businesses with a Hobson's choice, there is a compelling case that complex regulatory decisions, which can have a far-reaching and significant impact on the global economy, should not be vested in the unilateral judgment of prosecutors, outside the public eye.
We should pay close attention to the effects of the safeguard provisions at the center of the new British DPA process, which may offer a useful guide for reforming American practice.
This piece originally appeared in National Law Journal
This piece originally appeared in National Law Journal