As of February 24, 2014, prosecutors in the United Kingdom will have a new tool in their arsenal to combat corporate criminal wrongdoing. After a lengthy consultation process, and with the benefit of observing a longstanding U.S. practice, the British Parliament amended its Crime and Courts Act to allow for Deferred Prosecution Agreements (“DPAs”). Canadian lawmakers should carefully review this new legislation, as well as the U.S. DPA program, as either system would be a step in the right direction for Canada.
To date, federal officials in Canada have not shown an interest in introducing a DPA system for use by Canadian prosecutors tasked with combatting commercial crime. A DPA system, however, has many advantages for both the regulator and the regulated that Canada should consider. For the regulator, it provides the benefit of internal investigations that are funded by industry and disclosed voluntarily, which saves massive government resources. For the regulated, they avoid a conviction and admission of liability, which minimizes legal and reputational damage. The newly adopted U.K. regime provides a new model for Canada to consider alongside the American regime.
In a recent press release, David Green Q.C., Director of the U.K.’s Serious Fraud Office, stated, “[a]t present, when a company is convicted of a criminal offence, a court can impose a significant fine or put it out of business by winding it up. Both these outcomes can cause collateral damage to employees and shareholders who may be blameless. [DPAs] avoid that collateral damage and provide a welcome addition to the prosecutor’s tool kit for use in appropriate circumstances.”
Under a DPA, criminal charges against a corporation are held in abeyance for a set period of time during which a corporate accused is expected to comply with probation-like terms; such terms will include a monetary penalty, the implementation of remedial compliance measures, and, in some circumstances, the appointment of a monitor. If the corporation complies with the terms of the DPA, upon expiry the charges are withdrawn.
The DPA system, it is argued, incentivizes cooperation from organizations alleged to have committed financial crimes by providing a negotiated resolution, which avoids the potentially significant consequences of a criminal conviction.
The U.S. experience shows that a DPA program need not be accomplished through legislation, but instead can be set up as a government policy. For example, the Securities and Exchange Commission has issued a policy statement announcing the analytical framework it uses to evaluate cooperation by individuals. This framework serves two important purposes: it promotes the fair and effective exercise of discretion, and it enhances confidence on the part of the public and cooperating individuals that decisions regarding cooperation in the Commission’s investigations and related enforcement actions will be made in an appropriate and consistent manner.
In contrast to the U.S. DPA system, the U.K. has judicialized the approval process, requiring a court to determine whether the proposed DPA is in the interests of justice and whether its terms are fair, reasonable, and proportionate. If approved, the court is required to ultimately give reasons in open court outlining its decision to support the DPA in the particular circumstances.
In the run up to the introduction of U.K. DPAs, the Serious Fraud Office published a draft Code of Practice governing DPAs which sets out a straightforward 8-step process. It begins with an invitation by the authorities to the corporate accused to enter into resolution negotiations, and culminates in a final hearing in open court. In between, in camera hearings are held between the parties and the court to (a) determine whether the proposed DPA meets the test of being in the interests of justice, fair, reasonable, and proportionate; and (b) whether the court will support the DPA, as proposed.
Ultimately, after careful review, British lawmakers have taken what they view as the best aspects of the U.S. DPA regime and put a distinctly British spin on it by providing for a judicial approval process that helps protect the public, while still providing prosecutors with a tool to bring corporate offenders to the table. Canadian officials should take note.