Important New Principles Emerge from UK's First-Ever Deferred Prosecution Agreement and US DOJ Declination
The UK's first-ever deferred prosecution agreement ("DPA") was concluded on 30 November 2015. This unprecedented resolution on which Jones Day acted and which also saw the first use of section 7 of the UK Bribery Act—failure to prevent bribery by employees or associated persons—has understandably received widespread media coverage. The reporting to date has focused on the factual background and the novelty of the proceedings, but the matter raises other new and important points which will be relevant to future cases, namely:
- The resolution of multijurisdictional investigations;
- Judicial approval of resolutions;
- How uncharged third parties are referred to in DPA documents; and
- Notification to regulators.
Resolving Multijurisdictional Investigations Through a Coordinated Resolution
The UK's Serious Fraud Office ("SFO") has been rightly keen to trumpet Sir Brian Leveson's approval of the previously untested DPA regime by way of the historic resolution. According to the Director of the SFO, the DPA "will serve as a template for future agreements". The template should extend beyond the UK since, in a highly noteworthy development, the resolution also saw the US Department of Justice ("DOJ"), which had launched its own inquiry, close its own criminal investigation based on the company's self-disclosure of the underlying conduct to the SFO, cooperation in the UK and the US, and its agreement to resolve the case in the UK. An agreed resolution was also announced on the same day with the US Securities and Exchange Commission ("SEC"). This reflects the increased cooperation between law enforcement agencies and regulators on each side of the Atlantic and beyond.
Corporations under investigation for alleged corruption often find themselves the subject of investigations conducted by multiple agencies in numerous jurisdictions. For example, a publicly traded non-US company may be subject to investigation in: (i) its home country; (ii) the country where it is publicly traded; (iii) the country where the alleged bribe was paid; and (iv) any country whose jurisdiction was touched during the scheme to pay the bribe. In certain jurisdictions, this final category is incredibly broad. For example, the US government takes the view that an email in furtherance of an illegal act that passes through the US may be enough to trigger US jurisdiction.
Increased collaboration between sovereign enforcement agencies can have benefits for the client if it results in collaboration in the case resolution process. No company under investigation wants to resolve a case in one country and leave itself subject to additional prosecution or litigation in other jurisdictions. Resolving only one open investigation can lead to additional costs and expose the company to increased litigation risks as admissions made in the resolution can be used by investigators and enforcement agencies in other jurisdictions.
The fact that multiple countries have jurisdiction over an offense does not mean that they all have to prosecute the offense separately. Where there is overlapping jurisdiction, one country often has the clearest and best jurisdiction. In those instances, it may be appropriate for that country to be the only one to resolve the case. In other instances, it may be appropriate to have multiple resolutions, assuming each resolution takes into account the others. In either circumstance, a company's interests are realized only when the relevant sovereigns coordinate in the case resolution process, as happened in this case.
DPAs first became available to UK prosecutors in February 2014, having been introduced by the Crime and Courts Act 2013. Although inspired by the US model, the DPA regime implemented in the UK has significant differences from its US counterpart. The most important of these is the level of judicial oversight and approval required before a DPA can be formalized in the UK. The SFO's guidance states that, prior to offering a DPA, the SFO must determine if the public "would be properly served" by a DPA instead of a traditional criminal prosecution. Any decision to proceed with a DPA rather than a criminal prosecution must be approved by the Court.
Lord Justice Leveson ("Leveson LJ") detailed in his preliminary judgment, dated 30 November 2015, why he believed that a DPA was in the interests of justice, and these statements provide a framework for companies determining whether a DPA would be a credible option for resolving a criminal matter with a connection to the UK. Leveson LJ stressed that prompt self-disclosure to the SFO, cooperation with the UK prosecutor and other authorities and Jones Day's detailed investigation, which was relied upon by the SFO, were critical in his decision to approve the DPA application. He also noted the steps taken to improve compliance procedures and the fact that the organization was now under different ownership and control.
References to Uncharged Third Parties
The DPA resolution provided some assistance on the question of how the courts would approach naming individuals and companies in the Statement of Facts (which forms part of the DPA) that are not alleged to have been involved in wrongdoing. Unlike the US system, where uncharged individuals and entities are not named in DPA resolutions, in the UK it is customary in criminal proceedings for the identities of all parties, be they defendants or witnesses, to be publicly referenced, save in exceptional circumstances. The Statement of Facts in this matter departs from this general policy since a number of individuals and corporates are anonymised.
Leveson LJ was prepared to adopt an approach which balances the public interest in transparency with the competing public interest in protecting the identity and reputation of those who have no part in the wrongdoing alleged. This acknowledges the distinctive nature of DPA proceedings and indicates a willingness to accept that, although DPA proceedings are brought in the criminal courts, they have much in common with regulatory and civil proceedings. Leveson LJ may have taken into account the recent case law on this point arising in the UK regulatory sphere, and it may be that this is an area of law that will develop as further DPAs are agreed.
Notification to Regulators
Finally, the Court was forced to grapple with commercial considerations which have not before troubled the UK criminal court. DPA negotiations are conducted under strict obligations of confidentiality and should enter the public domain only at the public hearing to formalize the agreement. The nature of the DPA process is that agreement is reached between the parties and provisionally confirmed as being likely in the interests of justice by a judge at a private hearing, before the final public hearing is then listed. Under UK law, the court is required to list the public hearing up to 48 hours in advance of the hearing and details of the listing are widely published. The difficulty arises for listed companies entering into a DPA when the market becomes aware that potentially damaging financial news is imminent but has no knowledge of the scale of the penalties that may arise as a consequence of the DPA. This has the potential to create market uncertainty. In this case, the Court was willing to recognise the commercial reality of the process and agreed that the affected parties should be entitled to meet their regulatory obligations in notifying the market of key financial aspects at the same time as the matter appeared on the court list.
The UK's first DPA reaffirms the importance of judicial scrutiny and oversight in resolving cases in the UK through a DPA. In approving the DPA, Leveson LJ commented the Court had a "pivotal role in the assessment of its terms … there is no question of the parties having reached a private compromise without appropriate independent judicial consideration of the public interest".
One of the key factors to be taken into account will be the timing and extent of self-reporting and cooperation. The SFO has stated that the bar has been set high in terms of the level of cooperation which it would expect from corporations going forward and why Leveson LJ viewed this first DPA as the benchmark against which "all future such applications may fall to be assessed".
This DPA also demonstrates that it is now possible for corporates to reach a settlement with authorities in the UK which resolves criminal liability on a global basis. Corporates and their advisors will have to take this into account when considering their initial response to issues of potential criminal liability.
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Adam R. Brown
Hank B. Walther
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