News & what's on - Written by on Thursday, November 3, 2011 15:12 - 0 Comments

Lessons from America: UK Deferred Prosecution Agreement consultation – SFO credibility is key

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We continue the debate into Deferred Prosecution Agreements today with this thoughtful piece by Howard Sklar. Howard makes the point that SFO credibilty is key.

We agree.  The SFO embarked on a major PR campaign and has spoken on numerous occasions about its approach.  The outreach and the stated approach are to be applauded and represent, in our view, a practical, pragmatic, fair and reasonable way forward.  It will be critical in coming weeks, months and years that the SFO practices what it preaches.

Howard Sklar is Senior Corporate Counsel at Recommind, Inc. Prior to joining Recommind, Howard was Global Trade and Anti-Corruption Strategist at Hewlett-Packard Co. Before HP, Howard was Vice President, Compliance and Global Anti-Corruption Leader at American Express Co.

Before moving in-house, Howard served 12 years as a prosecutor and regulator, first as an Assistant District Attorney in Bronx County, New York.  After, Howard spent six years at the Securities & Exchange Commission as a senior enforcement attorney in the Branch of Internet Enforcement.  At the SEC, Howard investigated and prosecuted violations of the securities laws, including insider trading, accounting fraud, and market manipulation, specializing in those frauds which were perpetrated using the Internet as means of defrauding investors.

Howard is a member of the US Court of Appeals 7th Circuit eDiscovery Committee and is a participant in the Early Case Assessment and Education subcommittees.  Howard holds a Juris Doctor, cum laude, from the Washington College of Law at The American University and a BA in History from Tufts University.

Howard is a friend of – we’ve shared the stage and broken bread together.

Howard also authors the excellent Open Air blog which covers FCPA and related issues. You should read it.

By Howard Sklar

I’ve read with interest the continuing debate on the proposed use by UK authorities of deferred prosecution agreements.

Admission of ignorance is an essential precursor to my thoughts on this: I don’t know how the UK people view the SFO, as a rule.  I don’t know how ingrained the idea of judges’ absolute power over sentencing is.  I don’t know how hard it will be to have the UK judiciary take a secondary role in the decision on proper punishment.

What I do know is that the argument isn’t wholly necessary.

There are five types of resolutions of enforcement actions—and I mean specifically criminal actions contemplated or brought by the US Department of Justice—here in the US.  The five are:

1.  Declination
2.  A Non-Prosecution Agreement
3.  A deferred prosecution agreement
4.  A plea bargain, and
5.  A sentencing after trial

In the first two, there is no judicial involvement.  In the third, a document is filed with the Court, but there is generally no further action required by the judiciary.  The Alcatel case being a jarring exception to that rule, where a third party has asked the Court to reject the proposed settlement.  The fourth requires judicial approval—and the extent that the judiciary imposes its will at this stage is subject to great variability—and the last is totally within a Judge’s discretion.

It is my understanding—while admitting my ignorance—that the SFO may currently use options one and two at its discretion and without further legislation.  In essence, they are both decisions not to prosecute, the second has the added benefit to the community of being public, and giving guidance to other companies.  Even if NPAs would be objected to by the Courts in the UK, surely the decision whether to prosecute or not is firmly within the discretion of the SFO, yes?  In that case, the SFO can already achieve the benefits my colleagues talk about.  Tom Fox emphasizes certainty; Mike Volkov emphasizes credit being given for self-disclosure.  An NPA gives you both these benefits (even more so according to Volkov).  Even if an NPA rode the line (or crossed it slightly), companies could give the SFO a side letter with “undertakings,” or similar promises to reform in return for a conditional declination.

The difference between an NPA and a DPA, in my opinion, is solely that it gives the Department more bargaining leverage.  There is no benefit to the company receiving it that an NPA doesn’t provide.  I’m sympathetic to another colleague—the Professor, Mike Koehler—that if a company engaged in wrongdoing, it should be prosecuted; if it didn’t, it shouldn’t.  That’s an absolutist position that makes visceral sense, but isn’t always practical. Prosecutions take time and money, and the US government’s prosecution arms are always in short supply of both.  DPAs and NPAs give the government flexibility to bring more cases and address more wrongs than a pure prosecute/don’t prosecute regime would provide.

This all works, however, because on the whole, the Department acts reasonably.  It doesn’t—contrary to the opinion of some—push out-there legal theories or impose unfair monetary fines on companies (Boeing notwithstanding) by holding an indictment over their heads.  It certainly uses the consequences of an indictment as leverage to get companies to settle (and the consequences of an indictment are always the elephant in the room).  But the settlements aren’t just “get the most you can get.”  Settlements represent reasoned, principled calculations that are as often as not underwhelming (see, eg, Alcatel) as they are draconian.  Oftentimes, in fact, settlements are structured specifically for the company’s benefit, purposefully allowing companies to avoid collateral consequences like debarment.  Several settlements have been with subsidiaries rather than the parent company, or have excluded bribery charges, because of the collateral consequences those charges require.

If the SFO wants jail time, or a monetary penalty unavailable to them under current restrictions, they would, in my humble opinion, be better off spending their time in a grassroots effort to educate the judiciary and bring them on board with their enforcement strategy.  Or use other avenues to impose those penalties: POCA and other statutes might convey some monetary penalty authority without Court approval.

In my opinion, it all rides on the perception of the SFO by the legal and business community.  Are they reasonable people?  Do they have credibility when it comes to negotiations?  When the SFO says a particular resolution is fair, can they make that stick?  Will people generally agree?  In the US, we always talk about how the most important thing a lawyer needs is credibility with the regulators.  It turns out, credibility is just as important for the regulators.

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