Tag Archives: deferred prosecution agreements

Chinese NPAs Target the Wrong Firms

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Settlement agreements, such as non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs), have come to play a central role in resolving corporate criminal cases, including bribery cases. These settlement mechanisms are thought to improve overall enforcement by encouraging companies to voluntarily disclose wrongdoing and cooperate with investigators, in order to avoid the reputational and economic harm that would come with a criminal prosecution. The United States pioneered the use of NPAs and DPAs, but variants on these mechanisms have been adopted by many other countries as well (see here, here, and here).

The People’s Republic of China has also begun to explore a version of this mechanism. After some initial pilot programs at the local level, in June 2021 the Supreme People’s Procuratorate Office, together with eight other top authorities, promulgated Guiding Opinions on Establishing a Mechanism for Third-party Monitoring and Evaluation of Corporate Compliance Programs for Trial Implementation (or, more succinctly, the “Non-Prosecution for Compliance” mechanism). This mechanism, which can be used to resolve bribery cases as well as cases involving other types of corporate crime, resembles the NPA mechanism used in the United States: If a company accused of criminal violations admits wrongdoing, cooperates with the government’s investigation, agrees to pay certain fines, implements a compliance program that satisfies the requirements of the procuratorate office, and is overseen by a third-party monitor for up to one year, then prosecutors will agree not to prosecute the company, thus sparing the company not only the risk of criminal conviction but also the costs associated with defending against a criminal prosecution.

But there’s a big difference between the U.S. NPA system and the Chinese version: The U.S. (and other countries, like the U.K.) have used NPAs and DPAs to settle major cases against giant firms. In China so far, prosecutors (in the ten provinces and municipalities that piloted the NPA system) have only concluded NPAs with small and medium enterprises (SMEs), and have done so only when the offenses involved were minor crimes (those for which the responsible persons may be sentenced to less than three years in prison, the lowest permissible punishment for most crimes). This enforcement approach gets things exactly backwards: While the availability of NPAs can be very helpful in combating corruption and other crime in large companies—by giving those companies stronger incentives to disclose and cooperate, and by inducing them to enhance their compliance systems—offering NPAs to SMEs adds little value and is costly to the government. Rather than offering NPAs only to SMEs, as seems to have been the approach of Chinese prosecutors thus far, it would be better if SMEs were deemed ineligible for NPAs.

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Guest Post: France Continues to Modernize its Procedures for Fighting Global Corruption—and Has Some Interesting New Ideas

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Frederick Davis, a member of the New York and Paris Bars and a Lecturer in Law at Columbia Law School, contributes today’s guest post:

As recently as a few years ago, posts in this space by me and others bemoaned the striking inability of French authorities to prosecute French companies involved in global corruption. In the first fifteen years after France criminalized overseas bribery (thereby meeting its obligations under the OECD Convention on Combatting Bribery for Foreign Officials that France had signed in 1997), not a single French company had been convicted of this crime. This was attributed to the difficulty of pinning corporate criminal responsibility on corporations, as well as to limits in French criminal procedures that rendered its prosecutors unable to move as quickly, efficiently, and effectively as their U.S. counterparts. French deficiencies included the lack of both “sticks” (the credible threat of significant sanctions) and “carrots” (the ability to offer a deferred prosecution agreement (DPA) in exchange for self-disclosure and cooperation). The result: a number of iconic French companies reached negotiated outcomes with the U.S. Department of Justice (DOJ), and paid well over US$2 billion in fines and other payments to the U.S. government.

Resisting populist demands for retaliation, France instead changed its criminal procedures and enforcement institutions to address the challenge. The most notable changes include the creation of a National Financial Prosecutor’s Office with nationwide responsibility for many economic crimes, the creation of the French Anti-Corruption Agency to enforce compliance regimes, and the passage of the so-called Loi Sapin II, which increased penalties for financial crimes and introduced a French-style DPA called a Judicial Convention in the Public Interest. In addition to these reforms, France’s highest court has clarified the laws on corporate criminal responsibility, and in an unprecedented decision ruled that a parent or successor corporation remains criminally responsible for acts of an acquired entity even the acts took place prior to the acquisition.

The results of these reforms have been nothing short of remarkable: Continue reading →

Guest Post: How France Is Modernizing Its Criminal Procedure and Streamlining Its Resolution of Corporate Crime Cases

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GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris and New York offices of Debevoise & Plimpton and a Lecturer at Columbia Law School, who contributes the following guest post:

For approximately two decades, at least since 2000, France—a signatory to the 1997 OECD Anti-Bribery Convention — has had laws on the books that emulate the U.S. Foreign Corruption Practices Act (FCPA) by criminalizing bribes to foreign public officials. For most of that time, these laws were not effectively enforced: During the first 15 years after France prohibited foreign bribery, not a single corporation was convicted in France. The reasons for this—previously discussed on this blog by me and others—included the low maximum penalties applicable to corporations, imprecision in French laws relating to corporate criminal responsibility, lengthy investigations (often lasting over a decade) run by investigating magistrates, and the virtual absence of any possibility of a negotiated outcome. In the absence of French enforcement of its laws against foreign bribery, the U.S. Department of Justice (DOJ) took it upon itself to investigate and prosecute a number of French corporations for FCPA and other violations. These enforcement actions, which were typically resolved by guilty pleas or deferred prosecution agreements (DPAs), netted aggregate fines and other penalties of over $2 billion, not a penny of which was paid to France.

This situation provoked widespread discussion and debate in France, and eventually led to a number of changes in its criminal procedures. Among the most important were the creation, in 2013, of a National Financial Prosecutor’s office (PNF) with nationwide authority to prosecute a variety of financial crimes, and the adoption, in December 2016, of the so-called Loi Sapin II, which overhauled many of the criminal laws relating to corporate and financial crime, increasing corporate penalties, adopting a new settlement procedure called the Convention Judiciaire d’Intérêt Public (CJIP) closely modeled on the US DPA, and creating a French Anticorruption Agency (AFA) to supervise newly-mandatory corporate compliance programs and issue guidelines for corporate behavior. These reforms have already produced some impressive results, including major settlements (sometimes in cooperation with other countries like the US and UK) with large French and multinational companies (see, for example, here, here, and here).

An interview published this past April with Jean-François Bohnert, who has served since October 2019 as the National Financial Prosecutor, sheds some light on how France’s recent legal and institutional reforms are transforming its enforcement of its laws against foreign bribery and other complex corporate crime. In that interview, M. Bohnert understandably focused on his office’s successes; he was particularly proud of the number of cases his office had handled with a relatively small staff. But to my mind, by far the most interesting and important thing that came out of this interview was the fact that, of the 592 cases handled by the PNF in 2019, 81% were so-called “preliminary investigations” managed exclusively by the PNF, while only 19% were led by investigating magistrates. To someone unfamiliar with the French legal system, the significance of this statistic may not be readily apparent, but in fact it suggests an important change in the French approach to corporate misbehavior. Continue reading →

The Shortcomings of the Leniency Agreement Provisions of Brazil’s Clean Company Act

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If the CEO of a corporation operating in Brazil learns that her company has committed an unlawful act of corruption, should she order the corporation to self-report and negotiate a leniency agreement with the Brazilian authorities under Brazil’s 2013 Clean Company Act, which authorizes such settlements? In most of the cases, the corporate legal department would probably advise against it. Indeed, the number of leniency agreements based specifically on Brazil’s Clean Company Act has been much smaller than expected.

Several factors drive companies away from cooperating with Brazilian public authorities under the Clean Company Act:

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Canada’s SNC-Lavalin Scandal: Why Prime Minister Trudeau Was Wrong To Interfere, Even Though He Was Right on the Merits

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This past year, Canadian Prime Minister Justin Trudeau has been embroiled in allegations that he improperly intervened in one of Canada’s biggest-ever foreign bribery prosecutions. That prosecution, of the Canadian construction firm SNC-Lavalin, began back in 2015, when the Royal Canadian Mounted Police (RCMP) and the Public Prosecution Service of Canada (PPSC) announced they would be bringing charges against the firm for paying approximately CA$48 million in bribes to Libyan government officials to win contracts, and for related misconduct including the defrauding of Libyan companies. This past February, the Globe and Mail reported that Prime Minister Trudeau and his closest advisors had inappropriately attempted to influence the SNC-Lavalin prosecution, and a subsequent inquiry by the Ethics Commissioner found that Trudeau had indeed acted unethically in attempting to influence key prosecutorial decisions that are supposed to be made by the Attorney General. The scandal had political consequences: although Prime Minister Trudeau and his Liberal Party managed to hang on to a minority government in October’s elections, the Liberal Party lost 27 seats and the popular vote.

The specific prosecutorial decision that Prime Minister Trudeau attempted to influence concerned whether the government should negotiate a deferred prosecution agreement (DPA) with SNC-Lavalin. A DPA is a settlement in which the defendant agrees to penalties or other remedial measures, and in return the government agrees to suspend the prosecution, and eventually drop the charges if after an agreed period of time the defendant has complied with the terms of the agreement. A DPA is similar to a plea bargain, but it does not require the defendant to plead guilty, and so avoids imposing on the defendant the stigma and collateral consequences of a criminal conviction. The prosecutor who brought the charges denied SNC-Lavalin’s request for a DPA in late 2018, and the acting Attorney General, Jody Wilson-Raybould, declined to overrule that decision. The Attorney General’s decision is supposed to be final on such matters. Nonetheless, Ms. Wilson-Raybould claims she fielded ten phone calls from the Prime Minister’s office, and was invited in for ten in-person meetings with the Prime Minister and his advisors, regarding this decision—and that the Prime Minister was pushing her to pursue a DPA with SNC-Lavalin. Ms. Wilson-Raybould refused to reconsider her stance on the matter, and shortly afterwards she was removed from her position as Attorney General and named instead Head of Veteran Affairs. In the end, the interference was exposed, the pressure failed, and, unless there’s some other unexpected turn of events, SNC-Lavalin will be going to trial.

This affair raises two questions: First, was Prime Minister Trudeau correct that the prosecutors should negotiate a DPA in this case? Second, if the answer to the first question is yes, was it appropriate for the Prime Minister to press his Attorney General to pursue that approach? My answer is yes to the first question, but no to the second. On the one hand, Prime Minister Trudeau was correct, and Acting Attorney General Wilson-Raybould was incorrect, about the appropriateness of a DPA in this case. However, the principle of prosecutorial independence from political influence—especially in corruption cases—is far more important, and the Prime Minister should never have compromised this core value even if he was right on the merits of this individual decision. Continue reading →

Defining Declinations: A New Enforcement Action

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In recent years, the US Department of Justice (DOJ) has, with increasing frequency, been resolving alleged violations of the Foreign Corrupt Practices Act (FCPA) with formal declinations (that is, a statement that the DOJ will not prosecute the corporation). Indeed, the possibility of resolution through declination is a centerpiece of the DOJ’s new Corporate Enforcement Policy (CEP). Under the new policy, the DOJ will presumptively grant a declination to a corporation implicated in potential FCPA violations, so long as the corporation voluntarily reports the possible FCPA violations to the government, agrees to implement internal remediation measures, and disgorges any ill-gotten gains. (When that last condition applies, the resolution is a “declination with disgorgement.”)

But what exactly is a “declination”? One would think that the answer would be straightforward, but it turns out to not to be so easy. Typically, declinations have been thought of in the negative, meaning what they are not: prosecutions. Generally, U.S. prosecutors have the discretion to decide whether to bring an enforcement action against a party that may have violated the law. If the DOJ decides that it is not in the interest of justice or otherwise worthwhile to pursue a given case, then the DOJ has “declined” to prosecute. However, in the FCPA context (and possibly other contexts as well), a formal “declination” should be thought of as something more than simply a decision not to prosecute. And that distinction turns out to have practical consequences for the types of penalties a formal “declination” can legally support.

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Brazil: A Model for International Cooperation in Foreign Bribery Prosecutions

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Much ink has been spilled celebrating the extraordinary crackdown on corruption in Brazil over the past few years (including on this blog). Headlined by the massive Operation Car Wash (Portuguese: Lava Jato)—in which officials received nearly $3 billion in bribes to overcharge Petrobras, Brazil’s state-controlled oil company, for construction and service work—high-profile corruption investigations have swept through Brazil, threatening to upend its reputation as a bastion for unchecked graft. Although corruption in Brazil remains a serious problem, the extensive investigations have worked to elevate the nation as an inspiration for countries looking to address their own corrupt political systems and hoping to become “the next Brazil.”

In addition to the headline-grabbing investigations targeting the upper echelons of the Brazilian government, Brazilian authorities have also worked closely with U.S. authorities investigating bribery activity in Brazil, leading to significant penalties both under Brazilian law and under the U.S. Foreign Corrupt Practices Act (FCPA). This is a significant development, because it demonstrates the possibility for close collaboration on cross-border bribery cases between a developed country (usually on the “supply side” of transnational bribery cases) and a developing country (on the “demand side”). Commentators have complained that too often supply-side enforcers like the United States take an outsized role in transnational bribery cases, with the countries where the bribery takes place doing too little. Other commentators have cautioned that an increase in prosecutions by other countries, in the absence of some sort of global coordination mechanism, may lead to races to prosecution or to over-enforcement. China’s nearly $500 million fine of British pharmaceutical giant GlaxoSmithKline in 2014 for bribing Chinese doctors and hospitals was emblematic of these fears, providing an example of an aggressive, unilateral approach to demand-side enforcement – while putting DOJ in the unfamiliar position of pursuing FCPA violations as a cop late to the scene.

Through its recent enforcement actions, Brazil has provided a different model. While there have been successful joint enforcement actions in the past—such as the Siemens case—the recent series of coordinated U.S.-Brazil actions exhibit how developed and developing countries can work together in anti-bribery enforcement, sharing in the investigative responsibilities, negotiations with companies, and even the financial returns.

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What Chinese Cuisine and Deferred Prosecution Agreements Have in Common

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As Kees noted Monday, the use of American-style deferred prosecution agreements (DPAs) to resolve corporate corruption cases short of trial is on the rise.  The United Kingdom, France, Argentina, and most recently Singapore now permit prosecutors to suspend or even drop altogether the prosecution of a firm for a corruption offense in return for the accused firm paying a fine, adopting measures to prevent future offenses, and cooperating with ongoing investigations.  Australia and Canada are on the verge of approving DPAs, and influential voices in India and Indonesia are urging their adoption too.

Apostles say DPAs allow governments to realize the benefits of a criminal conviction without the need for a lengthy, expensive, arduous trial against a well-funded corporate defendant where defeat is always a risk.  Former U.K. Attorney General Lord Peter Goldsmith told a New Delhi audience last October that once India begins using DPAS, companies would start coming forward and admit wrongdoing.  During the recent debate in Singapore one commentator observed that DPAs “provide an incentive to corporate entities to confront criminal conduct within their ranks,” and a group of Indonesian professors claim DPAs will be particularly valuable in their country.   In Indonesia, conviction of a corporation provides no assurance the defendant will not commit the same offense again while, they write, a DPA does.

DPA evangelists are about to learn what DPAs have in common with Chinese cuisine.  The first-time visitor to China soon discovers that Chinese food in China is unlike Chinese food at home.  Beef broccoli tastes much different outside China than in. Connoisseurs of DPAs will shortly find that what American prosecutors are able to cook up looks much different when prepared abroad.     Continue reading →

The Role of Judicial Oversight in DPA Regimes: Rejecting a One-Size-Fits-All Approach

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In late March 2018, the Canadian government released a backgrounder entitled Remediation Agreements and Orders to Address Corporate Crime that outlines the contours of a proposed Canadian deferred prosecution agreement (DPA) regime. DPAs—also appearing in slightly different forms such as non-prosecution agreements (NPAs) or leniency agreements—are pre-indictment diversionary settlements in which offenders (almost exclusively corporations) agree to make certain factual admissions, pay fines or other penalties, and in some cases assume other obligations (such as reforming internal compliance systems or retaining an external corporate monitor), and in return the government assures the corporation that it will drop the case after a period of time (ordinarily a few years) if the conditions specified in the agreement are met. Such agreements inhabit a middle ground between declinations (where the government declines to file any charges, but where companies still might forfeit money) and plea agreements (which require guilty pleas to criminal charges filed in court).

While Canada has been flirting with the idea of introducing DPAs for over ten years, several other countries have recently adopted, or are actively considering, deferred prosecution programs. France formally added DPAs (known in France as “public interest judicial agreements”) in December 2016, and entered into its first agreement, with HSBC Private Bank Suisse SA, in November 2017. In March 2018, Singapore’s Parliament installed a DPA framework by amending its Criminal Procedure Code. And debate is underway in the Australian parliament on a bill that would introduce a DPA regime for offenses committed by corporations.

The effect of DPAs in the fight against corruption, pro and con, has been previously debated on this blog. One critical design component of any DPA regime is the degree of judicial involvement. On one end of the spectrum is the United States, where courts merely serve as repositories for agreements at the end of negotiations and have no role in weighing the terms of any deal. On the other end of the spectrum is the United Kingdom, where a judge must agree that negotiations are “in the interests of justice” while they are underway, and a judge must declare that the final terms of any DPA are “fair, reasonable, and proportionate.” British courts also play an ongoing supervisory role post-approval, with the ability to approve amendments to settlement terms, terminate agreements upon a determined breach, and close the prosecution once the term of the DPA expires.

Under Canada’s proposed system of Remediation Agreements, each agreement would require final approval from a judge, who would certify that 1) the agreement is “in the public interest” and 2) the “terms of the agreement are fair, reasonable and proportionate.” While the test used by Canadian judges appears to parallel the U.K. model—including using some identical language—the up-or-down judicial approval would occur only once negotiations have been concluded. This stands in contrast to the U.K. model mandating direct judicial involvement over the course of the negotiation process.

The decision by the Canadian government to chart a middle course on judicial oversight is all the more notable given that an initial report released by the Canadian government following a several-month public consultation regarding the introduction of DPAs appeared to endorse the U.K. approach, noting that the majority of commenters who submitted views “favoured the U.K. model, which provides for strong judicial oversight throughout the DPA process.” Moreover, commentators have generally praised the U.K. model’s greater role for judicial oversight of settlements, especially judicial scrutiny of the parties charged (or not) in any given case, the evidence (or lack thereof), and the “fairness” (or not) of any proposed deal.

Despite these positions, one should not reflexively view the judicial oversight regime outlined in Canada’s latest report as a half-measure. Perhaps the U.K. model would be better for Canada, or for many of the other countries considering the adoption or reform of the DPA mechanism. But the superiority of the U.K. approach can’t be assumed, as more judicial involvement is not categorically better. Rather than a one-size-fits-all approach favoring heightened judicial oversight, there are several factors that countries might consider when deciding on the appropriate form and degree of judicial involvement in DPA regimes: Continue reading →

The Curious Absence of FCPA Trials

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As is well known, enforcement actions brought under the Foreign Corrupt Practices Act (FCPA) have expanded dramatically over the past decade and a half. With all this enforcement activity, someone unfamiliar with this field might suppose that the most important questions regarding the FCPA’s meaning and scope are now settled. But as FCPA experts well know, that is not the case; the realm of FCPA enforcement is a legal desert, with guidance often drawn not from binding case law but from a whirl of enforcement patterns, settlements, and dicta. As a result, many of the ambiguities inherent in the statutory language remain unresolved—even core concepts, such as what constitutes a transfer of “anything of value to a foreign official,” lack concrete legal decisions that offer guidance. While some claim that this ambiguity fades when the FCPA is applied to the facts at hand, past analysis shows that this may not always be the case.

The dearth of binding legal precedent in FCPA enforcement stems directly from the lack of FCPA cases that are actually brought to trial. Of course, most white collar and corporate criminal cases—like most cases of all types—result in settlements rather than trials. But a look at the major cases white collar cases going to trial in 2017, and the pattern of FCPA settlements, shows that FCPA trials are uniquely rare. In fact, FCPA cases are resolved through settlements more often than any other type of enforcement actions brought by the DOJ or SEC.

Why is this? Why are FCPA enforcement cases so rarely brought to trial, even compared to other white collar cases? The answer can help explain why FCPA case law is so sparse, and reveal whether this trend may change in the future.

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