DPA fines: effective punishment, or the cost of doing business?

Last week Airbus reported to the U.S Department of Justice (DoJ) that it has breached American arms export regulations by making “certain inaccuracies” in its disclosures about payments to middlemen.

The U.S. International Traffic in Arms Regulations requires disclosure about third-party agents who assist with export deals worth $500,000 or more.

On 1 November the Financial Times print edition stated that Airbus reported itself to the American authorities.  If the U.S. decides not to prosecute Airbus it is likely to impose a Deferred Prosecution Agreement (DPA).  Such agreements are relatively new in the UK but were implemented in the U.S. about 400 times between 2002 and 2016.

One of the most dramatic cases concerned HSBC.  In 2012 it was reported that the bank had laundered billions of dollars for Mexican drug cartels.  There were no prosecutions.  Instead, a DPA stipulated a fine of nearly $2 billion.  Sounds like a lot of money.  However, according to a New Yorker article published 31 July, the sum only represents four weeks’ profit for the bank.

Nevertheless, as former U.S. prosecutor Jed S. Rakoff wrote in The New York Review of Books in January 2014, if you are a prosecutor “you are happy because you believe that you have helped prevent future crimes; the company is happy because it has avoided a devastating indictment; and perhaps happiest of all are the executives, or former executives, who actually committed the underlying misconduct, for they are left untouched.”

That touches on one of the distinctive characteristics of the UK regime.  It does not let individual executives off the hook.  On 8 March Ben Morgan, then Joint Head of Bribery and Corruption at the U.K. Serious Fraud Office, gave a talk in which he insisted that “a DPA will not be appropriate in every case; and where it is not we will and do prosecute.”

Since DPAs became part of UK law in 2013 only three have been imposed.  Morgan cited the case of Rolls Royce which agreed a DPA in January this year with a £671 million fine.  The case required 70 SFO staff working over three years with what he described as “unfiltered access” to some 30 million documents—which a judge said demonstrated “truly vast corrupt payments.”  Morgan said he believed the SFO had achieved value for money given that it “yielded more than half a billion pounds to be paid to the Treasury.”

On the one hand, the fines are a recognition of the principle once stated by an 18^th century British jurist that a company has “no soul to be damned and no body to be kicked.”  As The New Yorker writer commented: “You can’t put a corporation in jail.  So you impose a fine.”

However, prosecutions in the UK may prove that the British approach to DPAs is more effective than the American system.  The pharmaceutical company Pfizer has been hit with three successive DPAs by U.S. authorities for illegal marketing, bribing doctors and other crimes.  Each time it paid a substantial fine and promised to reform—to no apparent effect.

Although the British regime does allow for individual prosecutions along with company fines, it remains to be seen whether—as appears to be the case in the U.S.—companies decide that the fines are just the cost of doing business.