Global alternatives to prosecution when a corporate is facing a criminal investigation
Businesses are increasingly becoming global, and so are enforcement actions in response to alleged corporate wrongdoing around the world. The harsh reality is that wherever there is potential corporate criminal wrongdoing, companies and their employees may well find themselves the focus of not just one law enforcement body, but of many across the world. The potential fallout from just one enforcement authority opening a criminal investigation can be devastating, with its potential to inflict crippling fines, debarment and reputational damage. But when a company finds itself in the crosshairs of more than one prosecutor, further complications undoubtedly arise. Given the frequent involvement of more than one country's enforcement authorities in the investigation and prosecution of the same transactions, companies need to assess the potential consequences of strategies and tactics in multiple jurisdictions and coordinate accordingly.
Corporations generally seek to behave consistently (deliberately so, in order to build brands), but the enforcement powers, processes and tools for resolution of corporate wrongdoing differ across the globe. Anti-corruption remains high on the agenda for enforcement bodies worldwide. As well as the US and the UK, France's recent Sapin II law has shone the spotlight on corporate prosecution. Belgium, Switzerland and the Czech Republic all have the ability to pursue companies criminally for corruption. It is therefore vital that companies understand the alternatives to prosecution across jurisdictions so that a consistent and effective global strategy can be adopted.
One of the best things a company can do to avoid prosecution is to implement a robust compliance program, which is regularly reviewed to ensure its continued effectiveness. Such a plan may not stop a determined employee from engaging in wrongdoing, but it may protect the company, and may even help the company avoid a criminal investigation being opened against it.
But what if law enforcement does come knocking on the corporate door, and an investigation ensues and identifies wrongdoing attributable to the company itself, what global alternatives are there to resolve the matter short of short of a full-blown prosecution?
The least intrusive of all the possible alternatives to prosecution is the civil settlement. This alternative avoids much of the reputational damage of a company or individual being publicly sanctioned for 'criminality', even if the underlying conduct amounts to criminal behavior. Unfortunately, whilst popular historically, civil settlements are now less likely to be used in cases of serious economic crime.
Civil settlements in the US are often used in cases where the fundamental underlying behavior is less serious. The consequences of a civil settlement can still be onerous: Corporations, and other business entities, for example, can face a penalty of up to US$16,000 for each anti-bribery violation and be subject to disgorgement of ill-gotten gains, which often dwarfs statutory penalties. Further conditions can be attached to a civil settlement, such as suspending or debarring the company from engaging in specific business activities for a set period.
Between 2008 and 2012, the UK's Serious Fraud Office (SFO) made use of nine Civil Recovery Orders (CROs) against corporates in white collar cases. A CRO enables an enforcement authority to recover property obtained through unlawful conduct. There is no requirement to establish that a specific criminal offence was committed, but only that the property is or represents the proceeds of crime. Civil Recovery powers may be appropriate where the evidence does not support a realistic prospect of conviction, or where the public interest is better served by a civil, rather than criminal disposal.
However, the introduction of Deferred Prosecution Agreements in 2014, combined with the arrival of SFO Director David Green QC in 2012, has meant that CROs have now fallen out of favor as a tool to address and resolve white collar criminal conduct. CROs additionally attracted judicial criticism in the past for lacking transparency, despite the fact that CROs are a flexible and straightforward means of achieving resolution between repentant and reformed companies and the SFO. Unless there is a sea change in approach from the next SFO Director (David Green QC's tenure ends in early 2018), civil recovery orders for cases of serious economic crime are likely, in most cases, to be a thing of the past.
An option only available in the US, the Non‑Prosecution Agreement (NPA) can be used where a company or individual agrees to cooperate with the law enforcement agency, pays a monetary penalty and is subject to some remedial conditions for a time period. Under an NPA, criminal charges are not filed, enabling the company to demonstrate its good conduct, and no court review is required. In some cases (but not all) the enforcement authority does not require an admission of wrongdoing. NPAs can be used in a variety of circumstances, including to resolve allegations of criminal corporate wrongdoing entailing more severe misconduct than civil wrongdoing. Civil enforcement authorities, such as the SEC, can also use NPAs.
The penalties for breaching an NPA can be onerous: The law enforcement agency can file criminal charges and use any admissions made as part of the NPA process in the proceedings.
DEFERRED PROSECUTION AGREEMENTS
The US has been using Deferred Prosecution Agreements (DPAs) for a number of years as a means to resolve matters involving corporate wrongdoing. Under the terms of a DPA, a company or individual admits to violating the law, and must assist the enforcement agency in its investigation of the underlying wrongful conduct. In addition to levying a monetary penalty, DPAs can often require the company to implement an enhanced compliance program and agree to corporate monitorship. In exchange, the enforcement authority agrees to defer the prosecution of the company for a specific, usually a three-year term. If the company complies with the terms of the agreement for the allotted period, the charges will be dropped. If not, the agency has the option to prosecute the company. DPAs are reached after a formal criminal case has been initiated against a company and official charging documents have been filed in court. Notwithstanding any such resolution with the company, individual representatives of the company may still be prosecuted. Civil enforcement authorities such as the SEC can also avail themselves of DPAs where appropriate.
In the UK, DPAs were first introduced in 2014, and they remain a relatively new alternative to prosecution. Unlike their counterparts in the US, UK DPAs are available only in respect of corporates, although their use does not restrict the enforcement agency from prosecuting the individuals deemed responsible for the relevant acts.UK DPAs are typically considered appropriate when a company self-reports any wrongdoing and offers full and extensive cooperation in an investigation, although a self-report is not always the determinative factor—see the recent case of Rolls-Royce. Under the terms of the DPA, the agency agrees not to commence criminal proceedings, provided that the company agrees to a series of terms. As in the US, these terms usually include a combination of financial sanctions, enhanced compliance procedures (possibly including monitoring) and ongoing cooperation. UK DPAs do require court approval.
France's recent Sapin II law introduced the concept "Judicial Agreement in the Public Interest" as an alternative to criminal prosecution. This means of disposition is available to any company suspected of having committed bribery, influence peddling ("trafic d'influence") or laundering the proceeds of tax fraud. The agreement may be initiated before the start of criminal proceedings or after the company is indicted, but must be started before the company is called to appear before the French criminal courts. Where an agreement is reached, the fine imposed on the company may be up to 30 percent of the company's average annual turnover. The agreement must be validated by the President of the relevant French court. In addition, the company can be required to implement a compliance program under the control of the French Anti-Corruption Agency for a period of three years, and indemnify all identified victims.
Another jurisdiction where agreements similar to DPAs may be used is the Czech Republic. In 2012, Czech criminal legislation was introduced to create a form of settlement known as the "agreement on guilt and punishment." Such agreements are reached between the public prosecutor and an accused company, and—as is the case in the US, the UK and France— must subsequently be approved by the competent court. A further prerequisite for entering into such an agreement is a declaration by the accused company that it committed the offence.
Amongst the European countries, Switzerland and Belgium have no direct equivalent to the DPA regime but do have a range of settlement options for companies facing allegations of economic crime. In Belgium, the public prosecutor may, in certain circumstances, agree to a financial settlement with a company where the ongoing proceedings are set aside and any identified victims are indemnified. Such a settlement may be entered into at any stage of the proceedings, but must be started before a final judgment has been issued. This type of settlement is currently under scrutiny in Belgium and may face significant changes in the near future. In Switzerland, the authorities have the power to refrain from prosecuting a company when it has made both reparations and every reasonable effort to right the relevant wrong, and where the public interest warrants it. The Swiss also have the power to impose a Summary Punishment Order.
In Germany there is no concept of corporate criminal liability. However, German companies may be subject to administrative fines if their directors, officers or managerial staff commit a criminal or administrative offence and either violate that company's duties or enrich, or even attempt to enrich, the company. A company may also be fined, again administratively, if any of its directors or officers fails to take the organizational and supervisory measures required to prevent the company's staff from committing business-related offences. Generally, such fines are intended to at least nullify any economic benefits the company has gained from the offence. Independently of this, in certain circumstances German criminal law permits an order to be granted confiscating the proceeds obtained by a company from a crime. On the other hand, Poland's legislation allows Polish authorities to prosecute companies for economic crimes, but provides no settlement regime as an alternative to prosecution.
A GLOBAL STRATEGY
So where does this leave a company that finds itself under the spotlight of different enforcement authorities? The company's aim must be to avoid resolving a matter in one jurisdiction that increases the exposure of the company to prosecution in another.
To achieve this objective, the company must determine its global strategy before it decides to approach any particular authority. There could be catastrophic consequences if it cooperates with one enforcer and then finds that any admissions it has made are subsequently used to prosecute it in another country. Multi-jurisdictional cases invariably have numerous strands, and one agency might choose to settle in respect of only some of the allegations, leaving another jurisdiction to pursue a completely different part of the case. Since there is no general protection internationally in respect of double jeopardy (although the principle applies in most countries), whether a corporate can avoid being punished by multiple national authorities for the same conduct comes down to negotiation and prosecutorial discretion.
To protect themselves, companies should focus on information gathering, to determine the likely scope of the alleged wrongdoing, the areas of the business potentially exposed, the jurisdictions that may be affected and the law enforcement agencies that could ultimately have an interest in the case. Once these facts have been established, the company then needs to consider where its relevant data is located The location of data is important for two reasons: first, there will be a need to formulate a document preservation order, so that the company can retain any relevant material which will need to be handed over to the particular law enforcement agencies in due course. Second, there can be jurisdictional challenges, for example, if a multinational company hosts its data in Switzerland but is likely to want to cooperate with law enforcement in countries such as the US and the UK, certain local laws may prohibit the voluntary disclosure of that data. This has the potential to jeopardize any cooperative relationship if the company has not attempted to think about, and engage meaningfully with, this issue and with other problems that may arise.
Consideration should also be given at an early stage to suspending any business activity that might continue to expose the company, regardless of jurisdiction. For example, if the allegations included that a company had made suspicious payments to intermediaries, the company might be sensible to impose a moratorium on such payments pending resolution of the matter.
Law enforcement agencies will expect companies to have considered all of these steps before making any meaningful attempt to engage with them. This process is compounded when more than one jurisdiction is involved. Companies are well advised to think strategically and to take independent legal advice from an experienced law firm as early as possible, so that any steps that are taken are made with a global resolution firmly in mind.