Deferred Prosecution Agreements – Justice delayed or Justice denied?

On 19 March 2018, the Singapore Parliament passed the Criminal Justice Reform Bill (the Criminal Justice Bill),¹ which introduced sweeping changes to Singapore’s criminal justice framework. One key change is a formal legislative framework for the Public Prosecutor to enter into deferred prosecution agreements (DPAs) with corporate offenders to resolve misconduct.

The introduction of DPAs as a formal prosecutorial tool represents a significant shift in Singapore’s approach towards corporate wrongdoing – one that aligns Singapore more closely with global trends.

As discussed in more detail below, DPAs are used in various jurisdictions. Although they have unique characteristics, certain features are common among them:

• DPAs are generally used as a means to resolve allegations of corporate wrongdoing in an attempt to avoid collateral consequences resulting from a company pleading guilty to a crime.
• When used in a corporate context, the DPAs do not absolve individuals of liability. Rather, DPAs are often the first step in an enforcement action. Once allegations against the corporate entity have been resolved, the authorities will then prosecute individuals.
• DPAs generally require the defendant corporation to agree to certain terms, often including the creation or enhancement of a corporate compliance program.
• In certain cases, regulators will require the imposition of an independent monitor as part of a DPA. The monitor, who is generally chosen by the regulators and for some defined period of time, will serve as the ears and eyes of the regulators while ensuring that the defendant company is abiding by the DPA terms.

Under the “Speedy Trial Act” (18 U.S.C. §§ 3161-3174), U.S. federal courts are generally required to set a date for trial within 70 days of a criminal indictment or information (i.e., the charging document which sets forth the allegations against the defendant) being filed. However, under § 3161(h)(2), this period can be extended as a result of “[a]ny period of delay during which prosecution is deferred by the attorney for the Government pursuant to written agreement with the defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.” The U.S. Department of Justice (DOJ) began to use DPAs increasingly after the criminal conviction of the public accounting firm of Arthur Anderson arising from its work for Enron which resulted in the firm shutting down. On appeal, the conviction was eventually overturned; however, the damage was already done. The victims included workers left unemployed, affected investors, and markets. DPAs also appeal to defendant corporations because they provide a complete resolution to allegations of wrongdoing without causing the company to suffer the potentially devastating consequences of criminal liability, such as loss of licensing or debarment. Recently, the U.S. Securities and Exchange Commission (SEC) began to use DPAs to resolve civil cases within its jurisdiction.

In the United States, the use of DPAs in a corporate criminal case is completely within the discretion of federal prosecutors. As instructed in the U.S. Attorneys’ Manual, when determining whether to charge a corporation, prosecutors should consider:

• the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime;
• the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management;

• the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it;

• the corporation’s willingness to cooperate in the investigation of its agents;
• the existence and effectiveness of the corporation's pre-existing compliance program;
• the corporation’s timely and voluntary disclosure of wrongdoing;
• the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies;
• collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution;
• the adequacy of remedies such as civil or regulatory enforcement actions; and
• the adequacy of the prosecution of individuals responsible for the corporation's malfeasance.

In the U.S. model, most of the process occurs between the putative defendant and the prosecutors in an extra-judicial way. Although the final agreement requires judicial approval, judges have little leeway to deny such approval. In a recent case, an appeal was filed after a district court judge denied approval of a DPA following his criticism of the lack of individual prosecutions in the case and the leniency shown to the defendant. The D.C. Circuit, however, vacated the lower court’s decision noting that the determination as to whether to enter into a DPA and the terms of such a DPA are squarely within the ambit of the federal prosecutors. United States v. Fokker Services B.V., 818 F.3d 733, 742-45 (D.C. Cir. 2016) (stating that the approval requirement in the Speedy Trial Act does not enable a court to reject a DPA for being too lenient but rather “enables courts to assure that a DPA does not exist merely to allow evasion of speedy trial time limits, but instead serves the bona fide purpose of confirming a defendant’s good conduct and compliance with law”); see also United States v. HSBC Bank USA, N.A., 863 F.3d 125 (2d Cir. 2017) (limiting the court’s ability to supervise and oversee the implementation of a DPA). As a result, some commentators have criticized the use of DPAs in the United States as largely bypassing the formal legal system, raising a number of constitutional and public policy considerations. In particular, there are also fears that prosecutors hold an undue advantage throughout the process because the emphasis on co-operation and negotiation masks disproportionate prosecutorial leverage.

The increased use of DPAs has also led to a limited judicial review and oversight of the prosecution of certain laws, such as the U.S. Foreign Corrupt Practices Act (FCPA). Additionally, the facts set forth in a DPA are negotiated by the parties and do not necessarily provide the full extent of the conduct at issue. As a result, key issues, such as the extent of the law’s extraterritorial jurisdiction, remain open.

In February 2014, the UK introduced a DPA framework in response to perceived deficiencies in the existing prosecution framework involving economic crime, including:²

• investigations and trials for offences of economic crime becoming “forbiddingly long, expensive and complicated”;
• UK regulators suffering from a lack of “flexibility to secure appropriate penalties for wrongdoing, at the same time as achieving better outcomes for victims”;
• difficulties in proving that the “directing mind and will” of an organisation was at fault, thereby founding criminal liability;
• commercial organisations having “little incentive to self-report” making the investigation of matters involving hidden, specialist or technical fields very difficult;
• existing criminal penalties having “unintended detrimental consequences”, such as a disproportionate impact on a company’s share price, or collapse of a business;
• civil proceedings allowing regulators to recover the proceeds of unlawful conduct and avoid the imposition of a criminal penalty, but not compensating victims;
• the absence of a wider and more flexible range of enforcement tools in England and            Wales impacting “negatively upon enabling closer cooperation between foreign jurisdictions and the UK, and achieving resolution across several jurisdictions”;
• investigations and prosecutions being disproportionately expensive and time-consuming; and
• the lack of flexible enforcement tools for UK prosecutors making negotiations between UK and its overseas counterparts, particularly in the United States, and ultimately resolution of the case, difficult.

Under a DPA in the UK, a prosecutor charges a company with a criminal offence but proceedings are automatically suspended if the DPA is approved by the judge. Under UK Serious Fraud Office policy, a company would only be invited to enter DPA negotiations if there was full cooperation with the SFO’s investigations. Under such agreements, penalties could include: (1) a financial penalty; (2) compensation to aggrieved parties; and (3) continuing cooperation with respect to prosecutions of individuals.

To date, the SFO has entered into four DPAs, totaling over £667 million.

In recent years, we have observed an emerging trend of jurisdictions introducing DPAs, drawing upon the largely positive experience the U.S and UK authorities have had thus far with DPAs as a prosecutorial tool.

In December 2016, France introduced conventions judiciaire d’intérêt public (CJIPs), which are similar to DPAs, under Sapin II Law and in November 2017, French prosecutors entered into their first CJIP. CJIPs share similar characteristics but also have some differences compared to the U.S. and UK DPAs:

• under a CJIP, the company does not have to plead guilty, although the company may need to agree to a statement of facts and the legal significance of those facts;
• CJIPs can only be entered into by an entity, not by an individual and can only be used for certain specified offenses (including bribery and corruption); CJIPs will set forth the terms that a company must abide by, including the requirement to pay a financial penalty, implement or enhance a compliance program, and compensate victims;
• CJIPs require judicial approval;
• an entity may withdraw from a CJIP within 10 days of the judge’s approval;
• the CJIPs will be made public; and
• if the company fails to abide by the terms of the CJIP, the prosecution can resume.

In December 2017, Australia announced that it will introduce new laws to establish DPAs as part of a raft of new reforms to Australia’s anti-bribery and corruption regime.³ The Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 aims to:

• Reduce barriers to investigations and prosecutions;
• Beef up offences that can apply to companies that operate overseas;
• Create a DPA regime (the first of its kind for Australia) that will encourage companies to be transparent and self-report; and
• Push responsibility onto companies to strengthen their anti-bribery and corruption risk compliance systems by introducing a new offence of failing to prevent foreign bribery and an adequate procedures defence.

In addition, Argentina recently implemented a DPA scheme and Canada announced on 22 February 2018 that it would be introducing legislation for deferred prosecution agreements to be implemented through judicial remediation orders, following a public consultation on DPAs that took place between September and December 2017.

Until the recent introduction of DPAs as a formal prosecutorial tool, Singapore’s approach towards corporate crime had been to focus on individual conduct and personal criminal liability.

This position was most recently stated in a 2015 opinion-editorial on financial crime authored by then Attorney-General V.K. Rajah, who stated:⁴

In Singapore, both individuals and corporate entities can expect to face prompt enforcement action for financial misconduct. The emphasis, if there is one, is placed on holding accountable the individuals who perpetrated the misconduct. Persons involved in financial misconduct should expect that they would be subject to enforcement action. The threat of personal criminal liability for misconduct in Singapore is real. There is no certainty of escape from liability by hiding corporate structures or the corporate veil.

In this regard, it is unsurprising that Singapore’s emphasis on individual conduct and personal criminal liability is also reflective of its historical approach towards corporate criminal liability for bribery and corruption.

In Singapore, the Prevention of Corruption Act (PCA), Singapore’s primary anti-bribery legislation, criminalises bribery of domestic and public officials, which may be committed by ‘persons’. The term ‘person’ has been defined in the Singapore Interpretation Act to include ‘any company or association of body of persons, corporate or unincorporated’. Hence, the offences under the PCA can theoretically be committed by a corporation. In addition, case law in Singapore indicates that corporate liability can be imposed on companies for crimes committed by their employees or agents.

In this regard, the test for whether a company can be found liable for bribery and corruption depends on whether the individual who committed the crime can be regarded as the ‘embodiment of the company’ or whose acts ‘are within the scope of the function of management properly delegated to him’. This test, known as the ‘identification doctrine’, was derived from English common law.⁵

However, the ‘identification doctrine’ sets a relatively high bar for corporate criminal liability to be established. Only a very select few individuals in a company can be said to be an ‘embodiment of the company’, and with large multinationals comprising complex corporate structures, it would be difficult to identify such persons. It would also be difficult to show that an individual’s acts of bribery or corruption on behalf of or for a company  are ‘acts within the scope of the function of management properly delegated to him’ in light of the complex decision-making structure of large multinationals.

Therefore, under the ‘identification doctrine’, companies, in particular large multinationals, could avoid criminal responsibility for acts of bribery and corruption committed for and on its behalf, even if the company had clearly benefitted from such conduct. This poses further difficulty in the recovery of the illegal revenue generated by corrupt conduct. Consequently, even though in theory there is a concept of corporate criminal liability, prosecutions against corporations for bribery offences are rare in Singapore.

In light of Singapore’s approach to corporate criminal liability for bribery and corruption, the use of the ‘conditional warning’ by the Singapore authorities in a recent global resolution involving the U.S. and Brazil was a novel development.

Under the terms of the global resolution, the Singapore Corrupt Practices Investigation Bureau (CPIB) issued a ‘conditional warning’, including an undertaking by the Singapore corporation to make payment of a stipulated sum, for corruption offences under section 5(1)(b)(i) of the PCA, as part of the total criminal penalties imposed pursuant to the global resolution. 

A ‘conditional warning’ is a variant of a ‘stern warning’, which is an exercise of prosecutorial discretion granted to the Attorney-General as the Public Prosecutor and is not governed by written law. Neither ‘stern warning’ nor ‘conditional warning’ result in a conviction; the accused person will not have any criminal record for the infraction. The difference between a ‘stern warning’ and a ‘conditional warning’ lies in the stipulation that the public prosecutor’s exercise of his discretion not to prosecute is contingent on the recipient’s fulfilment of certain conditions, typically to stay crime-free for a period of between 12-24 months and/or to pay a sum of money as compensation or restitution to the victim. Traditionally, ‘conditional warnings’ were used in minor criminal offences involving youths or in a community/domestic context as a means of diverting such cases from the criminal justice system.

In a recent Singapore High Court decision, PP v Wham Kwok Han Jolovan [2016] 1 SLR 1370, the legal effect of a ‘stern warning’ was considered. In that case, the High Court held that a ‘stern warning’ was not binding on its recipient such that it affected his/her legal rights, interests or liabilities, and that it is ‘no more than an expression of the relevant authority that the recipient has committed an offence… [i]t does not and cannot amount to a legally binding pronouncement of guilt or finding of fact.’

In this regard, the use of the ‘conditional warning’ mechanism by Singapore authorities to resolve the criminal violations as part of the global resolution was a novel development.

First, as ‘conditional warnings’ are not governed by written law, such resolutions are opaque and lack transparency.  It is not common for the terms of a ‘conditional warning’ to be made public; the exact terms of such warnings are typically known only to the offender and the authorities.⁶ While it may be argued that opacity and lack of transparency of a ‘conditional warning’ may not be a cause for major concern in cases involving minor offences because the stakeholders involved are few and the impact of the conduct is likely to be localised, this may not be the case for serious corporate criminal conduct, which has the potential of impacting a greater number of stakeholders, such as shareholders, employees and other third parties across multiple jurisdictions. To this end, it should be noted that in jurisdictions such as the United States and UK, DPA resolutions are often accompanied with statements of facts that detail the misconduct of the corporate entity, which serve to inform the public about the degree of wrongdoing and provide a level of transparency to the process of achieving the resolution.

Second, under the terms of the global resolution, the payment made to the Singapore authorities far exceeded the maximum fine of S$100,000 per charge under the PCA. While being able to extract a penalty far in excess of what is provided for under written law may be desirable from an enforcement perspective, it is nevertheless dissonant and suggests that the current state of the law may require amendment.

Third, as warnings in general are not legally binding pronouncements of guilt or findings of fact, it is likely that in the event the recipient breaches any of the terms of the ‘conditional warning’ and a decision is made to prosecute the company, authorities in Singapore will need to embark on the usual criminal justice process against the company, without the benefit of relying on documents such as a statement by the company setting out the company’s formal admission of the misconduct to aid in the prosecution. In such a case, as prosecution would have possibly been delayed by a few years, the prosecution would find further challenges in collating evidence.

Fourth, this resolution potentially marks a shift in focus for Singapore authorities, who have traditionally focused on personal criminal liability (see above), to one that focuses on ensuring both corporates and individuals remain accountable for criminal misconduct.  

In light of the issues raised, the use of the ‘conditional warning’ to participate in a global resolution is certainly unprecedented. While it allowed Singapore to achieve a robust outcome, the ‘conditional warning’ approach may not necessarily be the most appropriate tool to be employed in future similar cases in light of the concerns raised above. 

Therefore, the introduction of DPAs to Singapore is a positive step and reflects Singapore authorities’ awareness of the value of DPAs and the need to formalise the process by which such corporate resolutions are arrived at, as opposed to the use of ‘conditional warnings’ to achieve such outcomes.

The DPA regime introduced by the Criminal Justice Bill is broadly similar to the UK approach in that:

• DPAs are only available to corporate entities and not to individuals;
• DPAs must contain a statement of facts relating to the alleged offence and may impose various conditions on the subject (e.g., payment of financial penalty, disgorgement of profit, implementation of a compliance programme, imposition of a corporate monitor etc.);
• all DPAs will require court approval;
• in approving a DPA, the court must be satisfied that the DPA is in the interests of justice and that the terms are fair, reasonable and proportionate;
• the terms of the DPA may be varied while the DPA is in force, subject to court approval;
• the prosecution may apply to the court for relief if it believes that the subject has failed to comply with the terms of a DPA, and must prove the alleged breach(es) on a balance of probabilities;
• there is a prescribed framework governing the use of material obtained in the course of negotiating a DPA, including how the statement of facts contained in a DPA will be treated (i.e., as proof of a formal admission); and
• how money received by the prosecution under a DPA is to be dealt with is clearly specified (i.e., payment into the Consolidated Fund).

However, one significant difference between the Singapore and UK approach is that under the UK framework, the Director of Public Prosecutions and the Director of the Serious Fraud Office are required to jointly issue a Code on DPAs to provide guidance on various issues. Such guidance includes the general principles to be applied in determining whether a DPA is likely to be appropriate in a given case (including the benefits of self-disclosure and conditions for leniency), whereas the Singapore approach does not impose such a requirement. This divergence in approach is likely due to the fact that Singapore has taken the position that it is not desirable to publish prosecutorial guidelines.⁷ It is possible, however, that the factors considered by the UK authorities will also be relevant factors in Singapore.

Thus far, reception towards the proposal to introduce DPAs in Singapore has been largely positive in Singapore. In this regard, the approach to DPAs adopted by Singapore addresses many of the concerns with the informal ‘conditional warning’ approach highlighted above. Nevertheless, there have been concerns that DPAs may embolden companies to behave irresponsibly or that prosecutors may, in the future shy away from fearlessly prosecuting companies for egregious corporate misconduct. Such criticism, however, is unfounded and largely represents a misunderstanding of what DPAs stand for.

Contrary to concerns that DPAs may encourage reckless corporate behaviour, DPAs are likely to encourage companies to put in place sound governance procedures and compliance programs. In order to avail itself of a DPA, a company must first show that it is a worthy candidate for the exercise of such prosecutorial discretion. Factors such as self-reporting, the existence of a working compliance program, and a commitment to reform are among the factors to be considered when authorities consider whether to grant a DPA. Duplicitous conduct, such as acting irresponsibly and appearing contrite when caught is unlikely to be seen favourably by the authorities. Furthermore, under DPAs, the benefits of misconduct are often disgorged, providing little incentive for a company to act irresponsibly. As for prosecutors shying away from prosecuting companies, experience has shown that Singapore’s prosecutors do not avoid taking on ‘difficult’ cases. Finally, it must also be noted that DPAs also benefit the public, in that it provides a company genuinely seeking to rehabilitate with an opportunity to do so, and minimizes the potential fallout from the collapse of major public companies caught up in corporate wrongdoing (such as insolvency and lay-offs to innocent rank and file employees). 

The introduction of a DPA regime, however, is only one piece of the puzzle if Singapore wants to make good on its commitment to ensure that Singapore companies comply with the laws of Singapore and the laws of the jurisdictions in which they operate.

In order to achieve such aims, the government will need to ensure that its anti-bribery laws keep pace with international developments and the international business reality. In this regard, we note that a review of Singapore’s PCA has been ongoing since January 2015. Areas of potential reform include:

• Corporate liability – In light of the issues with corporate liability set out above, Singapore may do well to take a leaf out of the pages of Singapore’s own anti-money laundering law – the Corruption, Drug-Trafficking and Serious Crimes (Confiscation of Benefits) Act (CDSA). The CDSA renders money-laundering by a corporation a criminal offence that can be proven through the state of mind as well as the conduct of any “director, employee or agent” who was acting within the scope of his or her actual or apparent authority. In other words, the evidential threshold is significantly lowered and the outdated “directing mind and will” test is done away with.
• Increased penalties – The fact that the global resolution resulted in penalties that were far in excess of what could be imposed on the company under Singapore law is a sign that Singapore’s penalties for corruption are inadequate. The issue perhaps lies in the fact that the PCA makes no distinction in financial penalties that could be imposed on natural persons and companies. Singapore should consider revising corporate penalties so that such penalties are based on a formula that could take into account various aggravating factors, such as the amount of bribes paid and benefit received, rather than a strict monetary limit of S$100,000.
• Compliance defence – If the threshold for proving corporate liability is lowered, some balance can be restored by introducing a compliance defence. Under such a defence, for example, a corporation that is found liable for bribes paid by its “director, employee or agent” could be absolved of legal liability if it could show that it took reasonable steps to prevent such corrupt practices from taking place. Such a compliance defence provides a legal impetus for companies to adopt prudent business practices and foster ethical corporate cultures through the implementation of anti-corruption compliance programs.
• Extraterritorial effect – The PCA, as it currently stands, provides for limited extraterritorial effect in respect of the acts of bribery of Singapore citizens abroad. Such acts will be dealt with as if the bribe had taken place in Singapore. Notwithstanding this provision, non-citizens, such as Singapore permanent residents and corporations, are not subject to the extraterritorial scope of the law. If the non-corruptible image of Singapore is to be maintained, it should be burnished based on conduct both at home and abroad. The PCA should be expanded to address this discrepancy.
• Whistleblowing protection – The PCA currently provides for the right to anonymity and protects informers’ identities by prohibiting the disclosure of information like the informer’s name or address. However, given that there is no overarching whistleblower law in Singapore, there is no statutory protection afforded to employees of companies who may lodge complaints against their supervisors and lose their jobs as a consequence. Anti-retaliation measures ought to be legislatively introduced. 
• Senior personnel liability – While individuals directly involved in corporate misconduct ought to be held legally liable, there should also be scrutiny on the behaviour of senior personnel, such as members of management or board of directors, for neglect or failure to take steps to prevent such misconduct. Senior personnel are responsible for setting the right tone and fostering ethical corporate culture, so they should naturally bear the responsibility for creating toxic cultures that incentivise illegal behaviour.

In summary, while the introduction of DPAs is a step in the right direction, other pieces of the puzzle need to fall into place to create a coherent regime to combat corporate crime. Only then will Singapore’s reputation for incorruptibility align with the state of its anti-bribery laws.

An abridged version of this article was published in The Business Times on 6 February 2018.