The DPA regime recommended for Ireland does not allow deals which give immunity to particular individuals

It is often thought the state is the strong party in criminal law and the defendant weaker, but with major corporations the roles can be reversed

As well as recommendations on regulation and how improve the conviction rate against corporate crime, the Law Reform Commission report  says Ireland should introduce a deferred prosecution agreement (DPA) regime

As well as recommendations on regulation and how improve the conviction rate against corporate crime, the Law Reform Commission report says Ireland should introduce a deferred prosecution agreement (DPA) regime

 

Fiat Justitia Ruat Caelum – let justice be done, though the heavens fall – is the Latin phrase incised in stone on Bridewell Garda station in Dublin.

It seems like a straightforward enough proposition but what if prosecuting a major business causes it to fail, affecting a huge number of innocent parties such as employees, shareholders, pensioners, customers and suppliers?

The conundrum is one of the matters considered in an 837-page report published this week by the Law Reform Commission. The report, Regulatory Powers and Corporate Offenders, is in part a response to the banking collapse and the feeling that the major players involved should have been held to account.

But the report is also targeted at sectors outside banking and the question of how to stop major organisations or particular sectors failing in ways that cause widespread injustice and distress.

The regulation of competition, telecommunications, and health products are areas cited by the report alongside banking, as is the more general challenge of how to police the massive corporations and partnerships that play such an important role in our economy and our lives.

The report recommends a range of regulatory and white-collar crime reforms that would provide a greater “toolkit” for the prevention and punishment of corporate dysfunction.

“To some extent,” says Raymond Byrne of the Law Reform Commission, “because of the banking crisis, we were conscious that there are other events that might happen in the future [in other sectors].”

Half of the very lengthy report is devoted to improving our criminal law insofar as it is directed towards, and capable of, convicting white-collar crime. But that won’t save us from new systemic crises, in banking or elsewhere, says Byrne.

‘Terrible mess’

“Loads of bankers were jailed in the US in the 1980s after the savings and loans crisis. Hundreds of senior executives ended up in jail. It stopped those people from committing further offences, but we still had the crash in 2008. It didn’t stop other bankers from doing what they did and leaving the whole world in a terrible mess.”

The use of deterrence against bankers and the banking industry “has not worked out in any country”.

Byrne does not mean that there should not be criminal prosecutions of corporations and their senior executives. What he means is that the deterrent effect of convictions should not be over-emphasised.

“In the end, I suppose, its a question of having available a range of options and then deploying the corrects ones. What you want is real time enforcement of the rules,” says Byrne. “Prevention is better than the cure. Robust regulators have a better chance of preventing the type of catastrophe we’ve had in the past.”

As well as recommendations on regulation and how improve the conviction rate against corporate crime , the report also says Ireland should introduce a deferred prosecution agreement (DPA) regime.

DPAs are considered to be a “third way” for prosecutors, resting between the decision to proceed or not proceed with a prosecution. The idea originated in Chicago in the early parts of the last century, in relation to wayward youths, but it has become popular with public prosecutors in the US since the 1990s when dealing with major corporate crime.

The agreements are particularly popular in cases involving suspected forgery, bribery, fraud, and money laundering. These are offences that are extremely difficult to detect and to prosecute. Gathering evidence can, literally, cost the state millions.

Wrongdoing

With a DPA a corporation publicly admits its wrongdoing in return for a prosecution being deferred. A substantial fine is paid and, if the corporation at the end of a stated period has complied with the agreement, the charges expire.

The question that has arisen internationally, however, is who should be in charge of the DPA process. In Ireland, the Director of Public Prosecutions (DPP) has exclusive responsibility for deciding whether to bring serious criminal prosecutions. The paramount issue guiding its decisions is the public interest.

In the US, as outlined in the Law Reform Commission’s report, prosecutors are asked to consider whether a corporate conviction might have significant “collateral consequences” for innocent third parties such as employees. This is in part because of what happened to Arthur Andersen, once one of the world’s “big five” financial services firms. (There are now four.)

Conviction and “relatively modest” punishments, including a $500,000 fine, had knock-on consequences that led to the collapse of a firm that had 85,000 employees.

The DPA scheme that was introduced in the UK in 2013 has to date seen four agreements signed, including an international corruption case against Rolls Royce that involved a fine of £497 million, and one against Tesco, for false accounting, that involved a fine of £129 million.

One of the reasons the UK introduced a DPA scheme was controversy over the role played by the Serious Fraud Office in a bribery investigation focused on the Saudi royal family and multibillion pound arms sales by the UK defence contractor BAE. A criminal investigation was abandoned in controversial circumstances that included lobbying on behalf of the Saudis by the then prime minister Tony Blair. A settlement was agreed.

Sentencing

In the UK, as in Ireland, the judiciary has sole authority when it comes to sentencing, and the handling of the BAE case was seen as an infringement of this principle. As a result of the controversy the UK introduced a DPA model that involves judicial oversight of any DPA deal, something which controversially does not exist in the US model.

“With the US version it is very much down to the prosecutor’s discretion, and it is all behind closed doors and with no judge,” says Byrne.

The regime suggested for Ireland would be overseen by a High Court judge, who would have to approve any agreement suggested by the DPP. Any approach to the court would happen in camera, but any deal would have to be fully publicised.

The involvement of the judiciary in the UK model “was a direct response to the criticism of the US model where, it was argued, corporations could buy their way out of criminal penalties through an opaque and unsupervised deal with the prosecutor”, according to the Law Reform Commission’s report.

In the US there have been about 450 DPAs, with one of the better known being against the banking giant HSBC. It admitted a number of very serious offences, including the laundering of Mexican drugs money through the US banking system, and agreed to a $1.9 billion fine.

“The department of justice in the US can point to the figures and say ‘look how tough we are’,” says Joe McGrath, who lectures in white-collar crime in UCD school of law. “But there are no criminal convictions.”

In the HSBC case, he says, the agreement included a clause that no individual would be prosecuted. “And, from the point of view of individual directors, they were able to spend shareholders’ money to ensure that they were not individually prosecuted.”

Concerns about powerful executives using DPAs to ensure they personally avoid jail led to a change in policy in the US in 2015, where it has been at least said that more senior executives should be targeted.

Brandon Garrett, professor of law at Duke University, North Carolina, and the author of Too Big To Jail; How Prosecutors Compromise With Corporations, says it is too early to say if the new policy has changed how the US treats senior executives.

In the US there have been about 450 DPAs, with one of the better known being against the banking giant HSBC. It admitted a number of very serious offences, including the laundering of Mexican drugs money through the US banking system, and agreed to a $1.9bn fine
In the US there have been about 450 DPAs, with one of the better known being against the banking giant HSBC. It admitted a number of very serious offences, including the laundering of Mexican drugs money through the US banking system, and agreed to a $1.9bn fine

Corporate cases

The change didn’t apply to pending cases “and the Trump administration is not bringing very many major corporate cases. We’re not seeing the large billion dollar penalties that we saw under the Obama administration.”

The US legal system, he says, is “ground zero” when it comes to plea bargaining, but with DPAs this can lead to backroom deals in cases of real public importance.

It is often thought, says McGrath, that in the area of criminal law the state is the strong party and the putative defendant the weak party, but with major corporations or partnerships, the roles can be reversed.

HSBC had enormous bargaining power when it was being investigated in the US, and it was for this reason that it could successfully argue that no individuals be prosecuted.

Byrne says that, under the US system, senior executives anxious to avoid criminal prosecution can even offer up some lower level employees as part of their negotiations with the authorities.

“They can write a cheque and pass the cost onto their customers and say as long as you don’t come after us, here are a few people we can give up to you.”

It is for this reason that the commission is recommending a DPA regime that does not allow agreements which include immunity for particular individuals.

“You have to make a clear decision in relation to prosecuting a senior executive. Either you prosecute or not. The primary driver for our view is the US experience, where the driving force has been getting immunity for senior people.”

There is a “very bad moral whiff” about what has been happening in the US, he says.

Published in full

As part of an Irish DPA regime, the commission says, any agreement approved by the High Court should be published in full and should set out the “full extent, nature and circumstances of the corporate body’s offending”.

If the business concerned breaches the agreement, by continuing to offend or by not reforming in the way agreed, the DPP can return to the court.

If the breach is deemed to be a serious one, or fresh criminal proceedings are initiated, then the statement of facts agreed as part of the DPA can be relied on by the prosecution as admitted facts in criminal proceedings.

Also, in any civil proceedings brought against the corporate body by any party the statement of facts agreed may be relied upon as an express admission by the corporate entity.

One of the arguments in favour of DPAs is that they may bring an increased amount of corporate wrongdoing to public attention.

By reporting wrongdoing, corporations that might otherwise find themselves facing possible criminal conviction, and “a corporate death sentence”, can instead come forward and seek a DPA.

In doing so, the commission points out, the wrongdoing of others may also be disclosed as full disclosure is usually required for those availing of DPAs.

International

An interesting aspect of DPAs is how they can address cross-border wrongdoing. Globalised business means corporate wrongdoing is also more likely to be international in nature, but this can make it very difficult to prosecute.

The Rolls Royce settlement involved crimes in a number of countries, including China, Nigeria, India, and Indonesia. While it paid a fine of £497 million in the UK, it also paid fines in the US ($169m) and Brazil ($25m).

Given the existence of the Irish Financial Services Centre, and the role Ireland plays in the affairs of so many huge multinational corporations, it is not fanciful to envisage us getting involved in cross-border investigations into wrongdoing that lead to DPA-type settlements.

DPAs are useful in cases involving a number of prosecuting authorities, says Garrett. Engagement and co-operation between the prosecutors is important, as is flexibility in crafting a fine that is fair to the companies concerned across the various jurisdictions.

However, he cautions that even with judicial oversight the judge and the prosector may not have all the relevant information held by a major corporation, especially if the resources put into an investigation are limited.

“You are really just trusting the company. There is still a fundamental resources problem. There are no easy answers.”

The main recommendations of the Law Reform Commission in relation to regulatory powers and corporate offences

– Establish a Corporate Crime Agency that has a multidisciplinary staff and is adequately resourced;

– Establish a dedicated unit within the office of the Director of Public Prosecutions that would focus on corporate crime and work closely with the new agency;

– Give other regulators, such as communications, health products and competition regulators, the powers that the Central Bank has to impose significant fines and make regulatory enforcement agreements, including consumer redress schemes;

– Change the law so that it becomes easier to find corporate entities guilty of criminal offences on the basis of the actions of its executives and agents;

– Change the fraud law so that conscious recklessness is criminalised under certain categories of offence, such as the offence of false accounting. However, a new law of reckless trading should not be introduced least it have a chilling impact on legitimate business risk-taking;

– Introduce a deferred prosecution regime (DPA) under which companies and partnerships could avoid prosecution if they admit wrongdoing, pay a fine, and comply with certain strict conditions. The agreements would be overseen by the High Court and the admission of wrongdoing would be published.