It’s not just the language that divides us. On June 4 the United States Court of Appeals for the Second Circuit handed down its judgment in SEC v. Citigroup Global Markets, Inc. This was not, as the citation suggests, a titanic battle fought to legal death but rather the parties coming together to challenge a federal judge’s decision not to endorse a settlement between them. The SEC and Citigroup were at one in their submissions to the appellate court.
Judge Jed S. Rakoff, pictured, lost and the real titans, the SEC and the Department of Justice, prevailed and Citigroup got its settlement.
Why? Because, according to the court, Judge Rakoff got his job wrong. He was not there to ask why there were no admissions in a case alleging serious fraud, to call for proof of the SEC’s allegations, to question the rationale of the financial penalties agreed, or to enquire how compliance with injunctive relief was to be guaranteed. Nor was he there to ask questions about why corporate entities were sanctioned, and not the individuals who must have been complicit.
And he certainly was not there to question why criminal proceedings had not been brought.
As the judgment stated, “It was not within [his] purview to demand cold, hard, solid facts, established either by admissions or trials.”
So why was he there?
He was there “to review a proposed consent judgment involving an enforcement agency… to determine whether the proposed consent decree is fair and reasonable” and “that public interest would not be disserved” by him consenting to it.
And in conducting that review he had no right to “infringe on the SEC’s discretionary authority to settle on a particular set of terms.”
Nor would the position have been different if the Department of Justice had been involved because “the district court is not empowered to review the actions or behaviour of the Department of Justice…” and “an agency’s decision not to prosecute or enforce, whether through civil or criminal process, is a decision generally committed to an agency’s absolute discretion.”
After all, the appellate court said, in the U.S. system “consent decrees are primarily about pragmatism.”
When in 2010 the then Director of the Serious Fraud Office took what could be described as a “pragmatic approach” in the Innospec case, the English judiciary were having none of it.
Lord Justice Thomas stated: “[T]he Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.”
Thomas’s view was that:
Principles of transparent and open justice require a court sitting in public itself first to determine by a hearing in open court the extent of the criminal conduct on which the offender has entered the plea and then, on the basis of its determination as to the conduct, the appropriate sentence.
It is in the public interest, particularly in relation to the crime of corruption, that … there may be discussion and agreement as to the basis of plea” and that a court “must rigorously scrutinise in open court in the interests of transparency and good governance the basis of that plea to see whether it reflects the public interest.
The English judiciary were of course consulted during the process which led to the creation of Deferred Prosecution Agreements in England and Wales. Do not, though, be confused by the language. DPAs in England follow English jurisprudence and not U.S. so, while the name may be the same, the process will be very different.
This was made clear by the UK Attorney General, who had this to say in June 2013 when DPAs were implemented:
“Let me finally touch on the role of the court. In the DPA model devised for England and Wales, judicial involvement in the process is considered essential: court approval is needed for a DPA to come into effect. The model was designed very much with this in mind. We wanted effective judicial scrutiny – not “rubber stamping” of proposed DPAs. The judge will ultimately decide whether the DPA is in the interests of justice and whether the terms of the agreement are fair, reasonable and proportionate.”
In fact the law requires that before a DPA can be put before a court as a possible outcome, the SFO must “explain why the agreement is in the interests of justice and fair, reasonable and proportionate.”
Two great nations, one common language, but two very different criminal justice systems.
One driven by pragmatism the other driven by rigorous scrutiny “in open court” where the judiciary are supreme and charged with ensuring “the interests of transparency,” “good governance,” and that “the public interest is met by the course proposed by the prosecution.”
Perhaps then when the SFO is criticized, as it surely will be, for not being as effective in using DPAs as the DOJ, those who criticize may wish to ask whether pragmatism is the right driver for criminal justice — whether Justice Rakoff was right, or whether they wish he had been.
Bill Waite is a contributing editor of the FCPA Blog. He’s one of the founders of The Risk Advisory Group, established in 1997 with the objective of building Europe’s leading independent risk management consultancy. He serves as the group’s CEO and general counsel. He formerly practiced as a criminal barrister before joining the U.K. Serious Fraud Office in 1991 as a prosecutor. He can be contacted here.