Nearly there? Deferred Prosecution Agreements

litigation dpa

In March 2016, the Commonwealth Government released a public consultation paper raising for consideration whether a Deferred Prosecution Agreement (DPA) regime should be implemented in Australia for serious corporate crimes.[1] The likely answer is ‘yes’, with the release on 31 March 2017 of a detailed proposal as to what that model could look like in Australia. The model is drawn from the DPA schemes in place in the UK and the USA, but amended to deal with the constitutional framework which governs the separation of powers between courts and government bodies in Australia.

We recently published an article on the DPA entered into in the UK and USA by Rolls-Royce. That case is an excellent example of the way in which DPAs can work, the benefits they bring and what is expected of a party that enters into one. 

The DPA regime will be of particular importance in bribery, fraud and Corporations Act contraventions.

Let’s now look at some of the key attributes of the proposal.

How would it work?

A DPA will be a voluntary negotiated settlement between the Commonwealth Director of Public Prosecutions (CDPP) and a defendant corporation – DPAs will not be available to individuals. They will be made on certain conditions, usually requiring an obligation for a corporation to cooperate with any investigation, admit to agreed facts, pay a penalty and implement a programme of improvement. Often those terms might also include commitments to reform the corporation’s culture to avoid reoffending and a regime for independent monitors to oversee the corporation’s implementation of the DPA and its compliance with its obligations.[2]

The CDPP would be the only authority with the capacity to officially invite a company to enter into a DPA negotiation. However, this would not prevent a company indicating to the CDPP or a relevant regulator that it would like to self-report misconduct and initiate discussions. The DPA would be negotiated in confidence between the CDPP and the corporation.

The CDPP will publish detailed guidance on what to include in a DPA and will give guidance as to when the CDPP is likely to offer DPA negotiations. This will be necessary to give advisers and corporations certainty about the process, as well as an understanding of the merits of making an approach and whether a particular matter is appropriate for a DPA to be negotiated.

The DPA should contain, at a minimum, certain mandatory elements:

  • an agreed end date for the agreement and satisfaction of all obligations imposed by it;

  • an agreed statement of facts, detailing each offence and any financial loss or gain that has occurred;

  • the corporation’s formal admission of any criminal liability;

  • the corporation’s agreement to cooperate with any investigation; and

  • an agreement to make the DPA publicly accessible after it has been approved (more details on that below).

The CDPP may also require the DPA to cover matters such as the payment of penalties or the payment of compensation to third parties who have suffered loss or injury as a result of the conduct. These are financial consequences which courts would normally be able to impose arising for contraventions of legislation such as the ASIC Act and the Corporations Act.

What types of conduct will it cover?

Put simply, DPAs will cover serious economic crimes. For example:

  • fraud;

  • false accounting;

  • foreign bribery;

  • money-laundering;

  • dealing with proceeds of crime;

  • forgery;

  • exportation and importation of prohibited goods;

  • specific offences under the Corporations Act.

The public consultation paper also raises for comment whether the DPA should be available for other types of conduct – for example cartel conduct, environmental crime and tax offences.

Approval and Oversight Process

The proposal for DPAs also contemplates an independent review of a DPA, once negotiated, by someone who is not involved in the investigation – being a former judge.  This will ensure that someone with a fresh view of things can determine whether the DPA is in the interests of justice and whether its terms are fair, reasonable and proportionate. Once the independent reviewer has approved a DPA, it would come into effect and the corporation would be required to comply with its terms.

Due to features of the Australian Constitution, a court would not be in a position to undertake this review process. Instead, the proposal is for retired judges to undertake these independent reviews of DPAs.

What are the benefits?

DPAs would provide benefits to corporations, the courts and regulators. They will provide certainty of outcome and significant savings in both time and money, when compared with the usual process for enforcement through litigation.

For corporations, a DPA will give certainty that an investigation has come to an end, that their exposure to the regulator is known, and, by nature of the regulator’s approval, that their commitments to reform their culture and operations should be satisfactory.

One downside for the corporation is that they would be required to make admissions of contravention, which could potentially expose a corporation to the commencement of follow-on private litigation. However, this outcome is just as likely for a corporation following a fully-contested case brought by a regulator.  As we regularly see, class actions are often commenced before the regulatory action is competed.

There is another important benefit for corporations: if a DPA is complied with, then there will be no judicial finding that the corporation has engaged in any contravention of the law. This is important because such findings can often “debar” a corporation from taking part in foreign government tenders or in business operations and tenders with other organisations which may have very strict corporate governance standards. This was recognised in the Rolls-Royce case (paragraph [53]ff), where the Court, in approving the DPA, expressly considered the benefit to the company being able to continue conducting business.

What if negotiations don’t work?

In entering into the DPA negotiation process, a corporation must be prepared to provide considerable amounts of information to the CDPP relating to the conduct under investigation. Much of that information will be incriminating for the corporation and may also be the result of legally privileged investigations – such as reports and statements.  The government’s proposal is that if DPA negotiations are unsuccessful, or the DPA not approved, then those types of materials would be available to the regulator or the CDPP to use in any further prosecution.[3]

In our view, this is something that needs to be considered further – particularly given that it appears almost certain that a DPA regime will be deployed in Australia. To us, it seems more appropriate that if the parties enter into good-faith attempts to reach a DPA, which are ultimately unsuccessful, the prospective defendant should not lose the ability to put the prosecution to the burden of proving its case against the defendant. That said, there is no privilege against self-incrimination available to a corporation under Australian law.

Guidelines

The quality of the guidance prepared by the CDPP explaining its procedures and how it will approach DPA negotiations will be of particular importance. Corporations and advisers need to have some certainty as to how an approach for DPA negotiations will be considered, what process will be followed and what the likely outcome will be – in terms of the quantum of both the penalty and any discounts to be applied for cooperation, assistance and self-reporting.

Under the Australian legal system, it is the Courts which determine the quantum of penalties, as distinct from an administrative fine imposed by a regulator. The legislature sets the maximum penalties that can be awarded for particular conduct. In this framework, we believe parties and advisers will be greatly assisted by clear guidance. For example dealing withthe likely percentage reductions in penalty which the CDPP would agree are appropriate, according to different types of cooperation that are provided.

Looking again at the Rolls-Royce case, the court accepted the Serious Fraud Office’s recommendation of a 50% reduction in penalty (to US$900 million) as a result of the exceptional assistance which Rolls-Royce provided and the changes in management that they had implemented. This greater transparency could be a key hallmark of the regime here in Australia.



[1] The model is open for consultation until 1 May.

[2] That is a process which is commonly deployed when negotiated agreements – such as enforceable undertakings – are agreed between corporations and regulators such as ASIC or the ACCC.

[3] Although it is not proposed that the CDPP, in any further prosecution, be permitted to use documents or materials that were created solely for the purpose of facilitating, supporting or recording the DPA negotiations – such as documents disclosing minutes taken during DPA negotiations.




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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