Over the past weeks there has been a lively debate in Canada’s national newspaper, The Globe and Mail, about the efficacy of so-called deferred prosecution agreements (DPAs) and, more specifically, on whether Canada should adopt a DPA regime as part of its toolkit for responding to corporate wrongdoing. As we outlined in a 2014 post on this topic, under a DPA, criminal charges against a corporate offender are held in abeyance for a set period of time, during which management is expected to comply with probation-like terms; such terms will often include a severe monetary penalty, the implementation of remedial compliance measures, and the appointment of a monitor. In the current debate, John Manley (“Canada needs new tools to fight corporate wrongdoing“) on the one hand has argued in favour of the introduction of DPAs in Canada, writing that they incentivize companies to come forward to authorities where misconduct is discovered and, most importantly, they allow for effective punishment and deterrence for corporate criminal conduct while avoiding the severe collateral damage to innocent employees, shareholders, creditors, and communities that undoubtedly follows a corporate criminal conviction. On the other side of the debate, Stephen Schneider (“Deferred prosecution won’t put a dent in corporate crime“) has argued that DPAs are simply the latest “incarnation of the historical propensity for governments to allow corporations to avoid criminal prosecution.” Mr. Schneider rightly highlights a laundry list of corporate misconduct over the past decade which devastated the global economy and undermined public confidence in the justice system’s ability to properly deal with these issues. In our view, Mr. Schneider undervalues the potential impact of the appointment of monitors as part of DPA’s which both ensures remediation and helps to deter future wrongdoing. Internal corporate compliance assessments and reporting requirements regarding compliance programs are commonly imposed as DPA conditions. These requirements take several different forms, including, most commonly, self-reporting by the company, the appointment of an independent third-party monitor, or required self-assessments through the use of third-party consultants and auditors. Since 2000, 155 of 308 NPAs and DPAs in the United States have involved some form of self-assessment and reporting or monitorship requirement, whether in-house or external. (2014 Year-End Update on Corporate Deferred Prosecution and Non-Prosecution Agreements Posted by Joseph Warin, January 18, 2015 on the Harvard Law School Forum on Corporate Governance and Financial Regulation). Moreover, we should not assume that Canada is soft on crime. On April 17, 2015, Justice Tôth of the Quebec Superior Court imposed a one million dollar fine on a corporation found guilty of price fixing in the case of R. c. Pétroles Global inc . This case is important because it affirms that corporations will be penalized for the actions of middle level territory managers, even where there is no evidence that the head office of the company was aware of the misconduct. In light of the vast power and influence that corporations wield in the 21st century, it is clear that regulators and other government authorities must have a full arsenal of effective tools at their disposal to combat corporate crime. These tools should rightly include the ability of government (and by extension the public) to hold corporations criminally accountable for serious wrongdoing where the corporation has failed to take adequate steps to deter misconduct and to enforce compliance, while also ensuring that discretion is maintained by prosecutors to evaluate and seek to minimize the risk of collateral consequences to innocent third parties.
A middle ground
Under a strictly operated DPA regime, enforcement authorities gain the benefit of internal investigations that are funded by industry and disclosed voluntarily, which saves significant government resources and brings to light misconduct that might likely otherwise never become public (assuming that the matter does not rise to the level of materiality requiring self reporting if the company is listed on a stock exchange). There is no doubt, in light of recent corporate scandals over the past decade that the public must always retain its ability to express moral disapproval in the face of gross malfeasance by corporate wrongdoers. A DPA system ensures that, where appropriate, the burden of criminal sanctions is not laid upon blameless employees or investors but at the same time ensures that the corporate actor suffers the reputational and financial damage that comes with a criminal allegation, along with ensuring that it institutes vigorous compliance controls to ensure such activity does not persist. There is a middle ground to be found in the ongoing debate. We are under no illusions, DPAs should not be an automatic response to all types of corporate misconduct, nor should they replace individual prosecutions. In short, they should not be viewed as a panacea, but rather as an available prosecutorial tool to be employed in the right circumstances – such circumstances would include voluntary disclosure, swift action to remediate wrongdoing, existing compliance training and controls, or misconduct that does not reflect a systemically corrupt corporate culture. In the debate over DPAs we have looked to the U.S. as the comparator, which is so often the case given our geography. But in this case, it is our British cousins who have, in our opinion, struck the right balance when it comes to DPAs. In contrast to the U.S. DPA system, the U.K. has judicialized the approval process, requiring a court to determine whether the proposed DPA is in the interests of justice and whether its terms are fair, reasonable, and proportionate. If approved, the court is required to ultimately give reasons in open court outlining its decision to support the DPA in the particular circumstances. This oversight mechanism eliminates the concern that DPAs are simply a means to give corporate wrongdoers a get out of jail free card. Canada is long overdue for a robust DPA system accompanied by appropriate oversight, which, when employed in the right circumstances, would serve as a much needed tool in Canada’s efforts to combat corporate misconduct and to encourage internal corporate cultures of compliance and good governance.