Greater judicial involvement could help improve on the US system, say Sullivan & Cromwell's Louise Delahunty and Nicolas Bourtin

The Ministry of Justice is now in the period of consultation for Deferred Prosecution Agreements (DPAs). This initiative is intended to add a further powerful weapon to the Serious Fraud Office's (SFO) armoury, while providing corporates with a practical solution to resolving criminal liability.

The UK has borrowed the DPA model from the USA, where these agreements have been used for more than 20 years. There is much positive commentary in the consultation and press about the benefits of DPAs in providing an incentive for corporates to deal responsibly with criminal liability and for the Government to fight economic crime.

However, in the USA there has been recent criticism about the transparency of DPAs and other negotiated resolutions, and issues have been raised about the lack of performance testing.

If the UK Government is to adopt the US model – incorporating a greater degree of judicial intervention than in the US – it must ensure that such criticisms are addressed. The balancing act goes to the heart of the constitutional separation of powers between the executive and the judiciary.

No guarantees
Although US judges have rarely challenged the terms of a corporate criminal or regulatory settlement, two settlement agreements were recently questioned.

In November 2011, Judge Rakoff of the US District Court in Manhattan demonstrated that judicial approval of settlements is not always guaranteed.

In rejecting a proposed consent settlement between the Securities and Exchange Commission and Citibank, Judge Rakoff cited his inability meaningfully to evaluate the supporting facts.

In contrast to a civil case between private parties, where judicial approval of a settlement is a formality, Judge Rakoff wrote that "when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant… the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance".

In 2010, US District Judge Emmet Sullivan characterised a proposed settlement of a sanctions investigation between the US Department of Justice (DoJ) and Barclays Bank as "a sweetheart deal", and questioned why the government had not sought a more punitive result, before eventually approving the settlement.

Such judicial criticism shows that a corporate, engaged over years in disclosure and negotiation with government, cannot be assured that a settlement will not be derailed by a court unwilling to approve the deal.

A study in 2009 by the US Government Accountability Office (GAO) found that the "DoJ lacks performance measures to answer how DPAs… contribute to its efforts to combat corporate crime", and recommended that such measures be developed to evaluate whether companies subject to DPAs are successfully implementing the terms and not engaging in repeated criminal behaviour.

Judges consulted by the GAO reported that they were generally not involved in the DPA process.

Nor is judicial involvement required by US law. Other than the Speedy Trial Act (which requires judicial approval of any delay in the prosecution of a criminal case), US law "does not otherwise specify judicial involvement in the DPA process" (GAO report).

Indeed, some prosecutors' offices, such as the New York District Attorney's Office, have developed a DPA model that requires no judicial approval at all.

Open and transparent
The UK consultation goes the other way, proposing more, rather than less, judicial involvement. It proposes that a judge first be informed of, and be given an opportunity to express his views on, a prosecutor's provisional decision to enter into a DPA, at a non-public preliminary hearing.

The public "need to have confidence that a prosecutor is not entering into a 'cosy deal' with a commercial organisation 'behind closed doors'", and that the way to create public confidence is to involve the judiciary at an early stage.

Later, and after further consultation, the judge would be invited to approve the DPA in open court, which the Government believes will ensure openness and transparency.

Some judges who questioned the GAO report also queried whether the decision "to enter into a DPA instead of prosecute were functions of the executive rather than the judicial branch".

Greater court involvement might create a problem related to the separation of powers under the Constitution as well as inhibit prosecutors' discretion in their cases.

If, contrary to that sentiment, English judges are to have greater involvement in the proposed DPA process, are we seeing the transformation of their role into more of a European Civil Code model of the juge d'instruction? Are judges going to become examining magistrates?

Under the US model, DPAs are an effective revenue-generating tool for regulators and prosecutors. The limited budgets of UK prosecutors has been questioned by UK courts and has led some to query how serious cash-strapped UK regulators can be about enforcing the Bribery Act.

A UK DPA model could address in part the shortfall. But, although state funding is an important consideration, the Ministry of Justice must ensure that fairness, transparency and the interests of justice are met in adopting a DPA model that will deliver a fair result to responsible corporations and a perception of justice to the public.

Louise Delahunty is European counsel in London and Nicolas Bourtin is a partner in New York at Sullivan & Cromwell.