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December 19, 2016

Should India Adopt DPAs?


- Robert R Wyld, Partner [ Johnson Winter & Slattery, Sydney ]

Robert Wyld

A DPA is a process whereby a prosecutor, while satisfied that offences might have occurred, is prepared, for a number of public interest factors, to recognize the level of cooperation offered by a company and to defer a prosecution while certain future events occur pursuant to an agreement between the prosecutor and offending company

For many years, the United States Department of Justice (DOJ) and the United States Securities Exchange Commission (SEC) have used the administrative processes of “Deferred Prosecution Agreements” (DPAs) or “Non-Prosecution Agreements” (NPAs) in order to resolve potential criminal and civil prosecutions. The question arises: Should other countries consider them? Australia is doing so at present. Should India do so? In my opinion, the answer is yes, for the reasons set out in this article.

A DPA is a process whereby the prosecutor, while satisfied that offences might have occurred, is prepared, for a number of public interest factors, to recognize the level of cooperation offered by a company and to defer a prosecution while certain future events occur pursuant to an agreement between the prosecutor and offending company. If there is a default by the company, the prosecution, although deferred, may be enlivened and processed by the prosecutor to trial. In contrast, an NPA is similar, but no prosecution is in fact started during the term of the agreement. Both DPAs and NPAs have been used extensively in the United States over many years, although with some criticism as to the lack of real, independent judicial oversight, to encourage ompanies to voluntarily disclose conduct and agree to early settlements (with reduced penalties and fines). The desire of companies to settle potential criminal cases is largely driven by massive fines that can be imposed under the United States Federal Sentencing Guidelines and the Alternative Fines Act. While these levels of fines do not necessarily exist in many other countries, the existence of a DPA structure creates a degree of certainty for companies in resolving potentially criminal conduct. Some criticize the DPA system as permitting companies to buy their way out of criminal sanction (which public policy should not encourage). The counter view is that while companies should be sanctioned, the real sanction is still one faced by individuals who should be and are held accountable for his or her own conduct.

DPAs and NPAs were introduced in the United Kingdom in 2013 with a model that gave the courts a real, meaningful role to assess whether a DPA (but not an NPA) should be approved. In 2015 and 2016, the United Kingdom High Court delivered two sentences2 by the President of the Queen’s Bench Division3, Lord Justice Leveson, where two companies secured substantial benefits and a DPA that was approved by the courts in order to resolve potential criminal prosecutions. The question of whether to introduce a DPA is presently being considered by the Australian Attorney General’s Department. It is a topic of great interest to business and lawyers, particularly in my experience, in India, given the widespread and public perception of the level of corruption that exists or is perceived to exist in India4.

Under the Indian Prevention of Corruption Act 1988 (the POC Act), while the focus is on domestic corruption and not corruption of foreign public officials outside India, there are clear and broad powers to target those who give or offer bribes to public officials and those public officials who receive such bribes, whether they are individuals or incorporated entities. Both individuals and companies can be held liable for criminal bribery offences. India, like Australia, has a traditional common law system inherited from the United Kingdom and in India, which has been developed since independence to create India’s own common law heritage. Given the fragmented nature of governments in India, the sheer size of the population and the importance of targeting corruption for society generally, there is merit in exploring new initiatives in India to help in the fight against corruption. An Indian DPA scheme is one such initiative.

There remains a philosophical debate about the extent to which the resolution of criminal conduct based upon a DPA or NPA should or should not be limited to incorporated entities because of the fact that they are separate legal structures operating pursuant to the conduct of individuals, or whether individuals themselves should be able to benefit from such schemes. The present DPA schemes that operate in the United States and the United Kingdom are limited to companies or other forms of unincorporated associations. The DOJ and SEC under their FCPA pilot program announced earlier in 2016, making it clear that a critical feature of any voluntary disclosure and cooperation with the US authorities is the disclosure of conduct of all relevant individuals.

Ultimately, the decision to prosecute any individual will lie with prosecution authorities. Holding individuals accountable for their own conduct is at the heart of the “Yates Memorandum” published under the name of the United States Deputy Attorney General Sally Yates. In a speech given in May 2016, Ms. Yates referred to her Memorandum as the “Individual Accountability Policy” and said that5:

So, holding accountable the people who committed the wrongdoing is essential if we truly are going to deter corporate misdeeds, have a real impact on corporate culture, and ensure that the public has confidence in our justice system. We cannot have a different system of justice – or the perception of a different system of justice – for corporate executives than we do for everyone else.

This leaves open the question of how companies can or should be dealt with under criminal law – while they can face a criminal conviction, they cannot be imprisoned. This question as to the application of a DPA scheme to companies and/or individuals is under review by the Australian government.

There is no doubt that in Australia, as in many western and other developing countries including India, serious financial crime, whether it involves bribery and corruption, insider trading, market manipulation, fraud, tax fraud or money laundering are complex offences, difficult and time consuming to establish and equally time consuming and expensive to prosecute. There is no easy answer as to the question why such cases rarely if ever are prosecuted against substantial organizations (outside the United States). Some of the difficulties may lie in the complicated structure of criminal offences and in the nature of evidence that must be proved by a prosecutor beyond reasonable doubt under the inherited common law shared by Australia and India. However, if countries are serious in seeking to address serious financial crime, then aside from the traditional criminal law system that provides very little, if any, real incentive for companies to voluntarily approach authorities and to disclose conduct with any certainty of outcome, then a different dynamic must be introduced in order to encourage the voluntary disclosure of improper conduct so that those who engage in it feel more likely that their conduct will be disclosed rather than hidden.

A DPA (or NPA) scheme, which could apply to Australia, as equally to India, should at least address the following features described below:

1. A national DPA scheme should apply to all serious financial crime offences (ideally, identified in a schedule adopting the United Kingdom model).

2. A national DPA scheme should be available for all companies and other incorporated entities (similar to the United Kingdom model) and a review determined as to whether or not such a scheme or variation of it should apply to individuals.

3. A national DPA scheme should be subject to close, independent judicial oversight and review.

4. If a DPA is proposed between a defendant and a prosecutor, it should be subject to review (for example, whether it is in the interests of justice for such an agreement to be entered into) and its acceptance by a court imposing a sentence (as agreed between the parties).

5. A national DPA should be subject to clear transparency and all court judgments, agreed statements of facts, and the agreement itself should be published except where a court is satisfied that exceptional circumstances exist that warrant non-publication (for a defined period of time and no longer than is reasonably necessary).

6. The negotiations for a DPA should be confidential between a defendant and the prosecutor. However, if the terms are ultimately accepted by a court, those terms and the greement must be published (subject to the exceptional circumstances noted above).

7. In relation to any future use that may be made of information and/or documents provided by a defendant to a prosecutor during the negotiation of a DPA, they should remain confidential, should not be disclosed to any third party, and that if access is sought by any third party, it should only be provided upon an appropriate court order to that effect.

8. A DPA should be able to include a broad range of terms (sanctioned by court order6), including:

  • an acceptance of guilt;
  • pecuniary fines;
  • penalties;
  • the disgorgement of profit;
  • compensation to third parties or victims;
  • the imposition of an independent monitor to oversee the future performance of any enhanced compliance regime by the defendant company; and
  • terms covering consequences of a default and relisting any indictment for hearing and trial.

9. The consequences of breach of DPA should be clearly set out including firstly, notice of breach within a period of time to remedy the breach and secondly, where there has been failure to remedy the breach, relisting the criminal prosecutions for directions for trial.

In the end, it is in the interests of all countries their legal systems and the lawyers within them to target bribery and corruption. Increasingly, governments around the world are taking steps to actively address bribery and corruption, pursuing targets and prosecuting those involved. Social media, including traditional media, regularly publish stories of corporate misdeeds and corruption. The Unaoil saga is a recent case in point where Australian Fairfax Media and the US Huffington Post published an expose on the allegedly corrupt business activities of a Monaco-based business, Unaoil, in the construction industry in the Middle East. Unaoil has denied liability and is fighting the increased investigations in various countries triggered as a result of the media expose. However, the increased role and scrutiny of corporate conduct by all forms of media only serve to highlight the critical importance to business of a pro-active and transparent business model where transparency, accountability and ethical standards are paramount. And, when things do go wrong, what approach is to be adopted – man the barricades and fight or assess the situation and decide to talk to the authorities.

As Lord Justice Leveson noted in the XYZ Limited judgment:

“Individuals who are involved in wholesale corporate corruption and bribery can expect severe punishment and, in exceptional circumstances such as in this case, corporations set up or operated in that way are unlikely to survive.”

It is in the interest of all business, directors, shareholders and the community to take what steps they can to encourage an early and voluntary disclosure of potential criminal conduct. In doing so, there should be a clearly transparent and structured process for a company to go through whereby its level of complicity and/or cooperation can be assessed and determined fairly in the circumstances with independent judicial oversight. The introduction of a DPA scheme in Australia as much as in India would go a long way to help in the process and the fight against commercial corruption.

Footnote:
1 Partner Johnson Winter & Slattery, Sydney and Co-Chair, International Bar Association Anti-Corruption Committee, © October 2016.
2 Schedule 17, Courts and Crime Act 2013.
3 Serious Fraud Office v Standard Bank Plc, Case No U20150854, Crown Court at Southwark dated 30 November 2015 and Serious Fraud Office v XYZ Limited, Case No: U20150856.
4 The Transparency International Corruption Perception Index 2015 ranked 76 out of 176 countries.
5 Sally Q Yates Remarks at the New York City Bar Association White Collar Crime Conference 10 May 2016.
6 The constitutional power of a court to make, agree to or sanction a DPA, or pass sentences consistent with a DPA will need to be explored. In Australia, there are constitutional limits on how a court may or may not “agree” to penalties, or a sentence, in criminal proceedings, see Barbaro v The Queen; Zirilli v The Queen [2014] HCA 2. In substance, a prosecutor in a criminal prosecution in Australia cannot make any submission to a court as to any agreed sentence. That is a matter entirely for a sentencing judge alone exercising judicial power under the Australian Constitution. Any DPA introduced into Australia will need to address this constitutional issue, as it might have to do so under Indian criminal law.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.



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