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20 May 2013

As the UK braces itself for the introduction of DPAs: is the tide turning in the US?

The Crime and Courts Bill received Royal Assent on 25 April 2013, which means that Deferred Prosecution Agreements (‘DPAs’) will now be a part of the law of England and Wales.

DPAs have been a feature of the US legal system since 1999.  Enormous settlements have been agreed under this system, enabling corporate bodies to escape prosecution for serious criminal allegations.  In the US system the court is required to examine the proposed DPA to assess whether it is ‘fair, reasonable, adequate and in the public interest’; however in practice the courts have often swiftly approved the terms of DPAs leading to suggestions that the role of the judge is to ‘rubber-stamp’ the settlement. For example, in 2009 huge settlements were approved regarding Lloyds TSB ($175million), UBS ($780million) and Credit Suisse ($268million) on the same working day on which they were filed.

However, there is an increasing trend amongst the American judiciary whereby they are refusing to act as ciphers and are instead asking penetrating questions of the parties, and in some instances even refusing to approve the settlements. The SEC has now been waiting many weeks for a decision from Judge John Gleeson regarding its DPA with HSBC. The potentially record-setting $1.92billion settlement would enable HSBC to escape prosecution for money laundering for drug cartels, suspected terrorist networks and rogue states. The judge has now required both parties to make detailed representations as to why the DPA is in the public interest.

This judge is not a solitary voice. In April 2013 Judge Marrerro rejected a $600m settlement between the SEC and SAC Capital Management for insider-trading allegations. In January 2013, Judge Kane rejected a $13m settlement between the SEC, a securities firm and two individuals over an alleged Ponzi scheme, stating ‘I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him’. In November 2011 Judge Rakoff rejected a $285m settlement between the SEC and Citicorp. And recently, District Judge Terence Boyle kept the SEC and WakeMed in suspense for weeks before he approved the $8m settlement involving false Medicare billing. Rather than ‘rubber-stamp’ the DPA, Boyle pressed the prosecutor in court, reeling off penetrative questions: why are they not charging the people at the top? Will the patients be repaid? Is this deal in the public interest?

Furthermore, there have been accusations that the prolific use of DPAs by the SEC has created a ‘prosecution free zone’ for large banks. When considering a proposed settlement between the SEC and Barclays after the bank engaged in business in countries facing sanctions by the US, Judge Emmet Sullivan described it as a ‘sweetheart deal’, stating ‘this concerns the court, and it should concern the government too’.   The American Attorney General has defended the use of DPAs in the financial services sector on the grounds that prosecuting large banks has the potential to destabilise the economy, leading to the conclusion that banks as large as HSBC or Lloyds may be ‘too big to prosecute’.

Another effect of the prolific use of DPAs in the US has been that SEC operatives have become involved in the day-to-day management of major American companies. As at 2012, seven Fortune 100 companies were operating under the supervision of federal prosecutors.  Similar powers could be part of the UK regime which has the potential to see the SFO to assert sweeping powers over the daily running of FTSE 100 companies.

We must pay attention to the issues which the American experience has highlighted and heed the warning signs – DPAs should be used as a complimentary tool in the prosecutor’s arsenal, not as a ‘catch-all’ means to avoid pursuing criminal prosecutions in situations where there may be a clear public interest in doing so. The judiciary has an important role to play in examining DPAs thoroughly to ensure they are ‘in the interests of justice’. Whilst we should welcome the potential of DPAs to introduce more flexibility and pragmatism into the law, the prosecutors and courts must be careful to not further the public perception that white collar crime is treated less seriously than other crime.  Although there is clear evidence that the use of DPAs in the USA has enriched the public purse by imposing huge penalties on corporates and avoiding lengthy prosecutions, this – as any lawyer schooled in the rule of law can tell you – is not quite the same thing as ensuring that justice has been done.



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