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In December 2015 the High Court of Australia held that Courts are not precluded from adopting penalties agreed by parties in civil penalty proceedings. The Court revived an essential avenue for the negotiated resolution of regulatory prosecutions that had been foreclosed by the Full Federal Court on appeal.
However, there are effectively no options for settling corporate criminal proceedings under Australia’s current legal framework. This is of particular concern given the likelihood of an increase in the use of corporate prosecution powers. In October 2012, the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery recommended that Australia take steps to enhance the use of corporate liability provisions where appropriate, including those that relate to corporate culture. ASIC Chairman, Greg Medcraft, has also advocated for the use of corporate criminal prosecutions to improve culture within financial institutions.
Australia currently lacks a bespoke corporate prosecution framework. We consider that a tailored framework is necessary to reflect the reality that corporate prosecutions are inherently different to the prosecution of individuals.
The reform of corporate criminal prosecutions has found support in BHP Billiton, which recently advocated for consideration being given to the introduction of Deferred Prosecution Agreements (DPAs), Non-prosecution Agreements (NPAs), or other forms of settlements (such as enforceable undertakings) in its submission to the Senate Economics References Committee’s inquiry into foreign bribery.
Why is a tailored framework needed?
The availability of corporate prosecutions and the potential for criminal consequences is a powerful tool for regulators to secure compliance amongst the regulated population, if used appropriately.
Corporate prosecutions play an important role in shaping corporate conduct. Corporate crime often occurs because the offender was operating in an environment with inadequate supervisory and compliance frameworks. Corporate prosecution not only acts as a powerful deterrent but it also (very publicly) ‘calls out’ organisations with inadequate compliance frameworks. Corporate prosecution therefore serves to engender structural reform by promoting future compliance efforts both within an organisation and across the industry in which it operates.
However, regulatory expectations need to be clear and enforcement processes need to be transparent and predictable to have a real impact. There must be a framework for the use of corporate prosecutions to prevent inconsistent deployment by regulators which could undermine its value.
Tailoring the CDPP Prosecution Policy
The decision whether to prosecute a Commonwealth offence is made by the Office of the Commonwealth Director of Public Prosecutions (CDPP) by reference to the Prosecution Policy of the Commonwealth (CDPP Policy). Incorporating specific guidance for the prosecution of corporations into the CDPP Policy would benefit both prosecutors and corporations alike. Clarity could be provided on the factors governing the decision to prosecute which are relevant to corporates, including the extent of the corporate’s co-operation with the investigation and the effectiveness of the corporate’s compliance programs. Greater transparency as to the relevant factors that would be taken into account by the CDPP would operate to educate corporations on ways to minimise their risk of prosecution.
Further, favourable prosecution treatment for corporations with effective corporate compliance programs would incentivise corporations to safeguard against the risk of criminal conduct within their organisation. This approach is particularly desirable in respect of foreign bribery and corruption; misconduct by agents and employees offshore is presently one of the highest risk areas for Australian corporations operating overseas. However, Australian corporations are governed by other foreign corruption laws in addition to Australian law, and there is presently a risk that factors that will benefit an Australian corporation in a foreign bribery investigation by foreign agencies will not be taken into account in the same way under Australian law.
Facilitating negotiated outcomes
The principal penalty for a corporation convicted of a criminal offence is the blunt instrument of a fine. The potential for large fines may act as a deterrent, but does not in itself ensure cultural change in an organisation that has been prosecuted.
Pre-trial diversion schemes in the form of DPAs would provide a more effective tool to ensure future compliance.
Pre-trial diversion agreements have their origins in a scheme to provide lenient treatment to first-time drug offenders in Brooklyn in the 1930s. The idea was that prosecutors would file a case, and then defer it to give the defendant a chance to stay clean. If the defendant did stay clean for a specified period, the case would be dismissed.
DPAs apply to corporations in a similar way. DPAs are now available to corporates in the US and the UK. Under a DPA, the defendant must comply with specified conditions, which may include a financial penalty, reparation to victims, repayment of profits, and measures to prevent future offending, such as improvements to compliance frameworks and monitoring arrangements. In exchange for compliance with these conditions, the prosecutor agrees that a criminal action will not be prosecuted.
A key advantage of DPAs is their potential to act as a middle ground between the 'all' option of prosecuting a corporation through to verdict and the 'nothing' option of declining to prosecute at all.
DPAs present efficiencies from both a time and a financial perspective, given the potential to avoid drawn out legal proceedings, along with the significant uncertainty accompanying such proceedings. From the corporation’s perspective, the availability of DPAs provides a structure for those wanting to resolve the prospect of criminal liability for its wrongdoing to do so quickly and with a degree of certainty and control largely absent from traditional criminal enforcement mechanisms.
Responding to criticisms of DPAs
The effectiveness of DPAs, both as an enforcement tool and as a deterrent to other corporate wrongdoers, is an ongoing source of debate. They have been criticised for creating an environment in which big institutions never have to face trial. The terms of specific DPAs have also frequently been criticised as too lenient, often attributed in part to a lack of judicial oversight over the process. There have also been suggestions that the use of DPAs has facilitated the avoidance of individual accountability.
Much of such criticism is levelled at the implementation of DPAs rather than the concept itself. There are ways to address those implementation concerns, including by:
- implementing transparent standards to ensure that eligibility depends on the nature and degree of criminality of the conduct, not on the type of company or its financial resources. That may serve to address the criticism that DPAs favour large, powerful companies with deep pockets,
- limiting DPAs to circumstances where civil or administrative penalties are not adequate but where there are mitigating circumstances, first-time offender or the criminal activity is at the lower end of the scale,
- subjecting DPAs to independent oversight, through judicial scrutiny and the collation and publication of summary data on their usage, to ensure there is no bias in their availability.
This note is a condensed version of the authors’ article in the Company & Securities Law Journal at (2015) 33 C&SLJ 435, which explores the underlying rationale for corporate prosecutions and how the framework in Australia could be better developed to serve that rationale.