Curbing Corporate Crime

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Curbing Corporate Crime: are DPAs the next step for Australia?

Forensic Foresight: February 2017

With the perceived success of Deferred Prosecution Agreements (DPAs) in the United States, and their recent introduction in the UK, Australia may well be the next country to introduce DPAs in a bid to curb corporate crime. In this article we explore the key features of foreign DPA regimes and consider how a similar regime might work in Australia.

First the US, then the UK, now Australia?

DPAs have been extensively used by regulators in the United States to resolve corporate criminal investigations and were introduced by the UK in 2014. DPAs sit behind many headline-grabbing penalties including:

  • Alstom S.A.’s $772 million fine for foreign bribery
  • Deutsche Bank’s $775 million penalty for manipulation of interest rate benchmarks
  • Toyota Motor Corporation’s $1.2 billion penalty arising out of vehicle acceleration issues
  • HSBC’s forfeiture of $1.256 billion for anti-money laundering and sanctions violations.

Earlier this year, the Attorney-General’s Department began a public consultation on a possible DPA scheme in Australia, and is expected to make recommendations to the Government on the matter. Most submissions made to the inquiry favoured the introduction of DPAs.

Enforceable undertakings are used by the Australian Securities and Investments Commission (ASIC) to resolve civil or administrative matters. While there are similarities between enforceable undertakings and DPAs, a clear distinction is that DPAs are used to resolve criminal matters whereas enforceable undertakings are not.

The current DPA scheme in the United States and United Kingdom

In the US, DPAs are agreements between enforcement agencies such as the US Department of Justice (DOJ) and Securities or the Exchange Commission (SEC) and a defendant (often a corporation). In a DPA, the defendant agrees that the enforcement agency will file charges against it, but that those charges will be “deferred” for the term of the agreement. In return for the deferral of charges, the defendant will undertake to meet certain obligations, which typically include:

  • Acknowledgement of facts and/or responsibility
  • Ongoing cooperation with the investigation
  • Implementation of certain compliance measures
  • Imposition of financial penalties and/or other remedies.

If the corporation fulfils its obligations under the DPA, at the end of the agreement’s term the government will withdraw the criminal charges and no conviction would be recorded against the corporation.

In the US, courts have minimal involvement in approving the DPAs; there is no provision for DPAs in US legislation – they are entirely a creature of prosecution policy. In contrast, the UK’s model is characterised by significant court involvement both at the early stages of negotiation of a DPA and in the approval of the DPA itself. To date, only three DPAs have been entered into in the UK, while in the US well over 100 DPAs have been entered into in the last 20 years.

Current Australian considerations

As well as the Attorney-General’s departmental inquiry, DPAs were discussed in the Senate Economic References Committee inquiries into white collar crime penalties and foreign bribery, prior to those Committees lapsing due to the 2016 Federal Election.

It seems the focus of the government is not on the DPAs themselves – interesting enforcement tool that they might be – but rather the role they may play in incentivising companies to self-report and cooperate earlier, and more often. For example, the government appears to want to explore whether the offer of a DPA as a “carrot” will encourage a company to self-report in the very early stages of an internal investigation. Currently, there are limited obligations under Australian law whereby corporations must self-report (one example is the requirement to report to ASIC on suspected breaches of the Corporations Act) and the benefits of any additional voluntary self-reporting are regarded by some in corporate Australia as opaque, at least when compared to other jurisdictions.

Self-reporting of corporate crime, and active cooperation with regulators’ investigations, is seen as a critical priority by law enforcement particularly in the foreign bribery sphere. The nature of foreign bribery – such as the opaque nature of such transactions and the fact that much of the evidence may be located offshore – makes it incredibly time consuming, resource intensive, and slow to investigate. Consequently, there is a keen interest in exploring any policy levers that will go some way to addressing those challenges.

Choosing the appropriate model

If the aim of DPAs is to incentivise self-reporting, careful thought will need to be given to the kind of model that will achieve this aim. While it may be too early to judge the success of the UK scheme, only three DPAs have been entered into since the scheme was introduced in 2014. The low take-up rate is possibly due to a wariness of going down the DPA route (and the extensive cooperation with authorities that this entails), only for the court not to approve the agreement. This added uncertainty of court involvement is not present in the US. Consequently, the success of DPAs as incentivising Australian companies to self-report will be heavily influenced by the model introduced.

Potential effect on corporate Australia

While the timing of the outcome of the Attorney-General’s departmental inquiry into DPAs is unclear, submissions to the inquiry are closed, and we understand the department is actively working on the matter.

If DPAs are introduced in Australia, corporations will need to be alert to certain issues from the moment they suspect they may have a problem that could result in corporate criminal liability.

From this time, a company’s conduct will determine whether it can position itself to negotiate a DPA (if it needs to) many months or possibly years into the future. Based on both the US and UK schemes, we can expect that when determining eligibility for a DPA, an organisation will be asked whether it:

  1. Conducted a robust internal investigation
  2. Self-disclosed to the appropriate authorities prior to the authorities opening an investigation themselves
  3. Cooperated with the appropriate authorities
  4. Provided full and transparent disclosure to authorities
  5. Dealt with culpable employees and if so, how?

Consequently, corporations will need to be on the front foot from the time any potential corporate criminal liability issue arises if they want to keep the DPA option “in play”. The challenge will be doing so prior to a full understanding of the facts, and prior to forming a view on whether there is a strong case for criminal liability.

Deloitte’s team of Forensic experts – investigators, accountants, data analysts, and former law enforcement officers – can help organisations react quickly, efficiently and confidently in:

  • Identifying whether a matter should be considered for self-report
  • Conducting an internal investigation that will withstand scrutiny by the authorities during the course of any future DPA negotiation.
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