Benefits to deferred prosecution agreements, but concerns should be addressed: Experts

SINGAPORE ― They may help avert costly and lengthy investigation and criminal trials, but critics of a legal tool set to be introduced here have argued that it lets errant companies off too lightly and undermines the deterrent effect of the law.

The tool in question is the deferred prosecution agreement (DPA), which Law and Home Affairs Minister K Shanmugam said on Monday (Jan 15) would apply to certain corporate offences and be among changes proposed to the Criminal Procedure Code.

Under such agreements – the terms of which will have to be approved by the High Court – prosecutors agree not to prosecute a corporate entity if it complies with specific conditions.

Law academics and lawyers said the DPA will be an extra tool in the arsenal for prosecutors when dealing with commercial crime.

DPAs could incentivise corporate entities to confront corporate crime and get to the root of the problem by revamping their practices to be compliant with existing laws and regulations.

A DPA may also limit the negative effects of corporate criminal behaviour on innocent people, such as employees, and others reliant on the future of a company, said Assistant Professor Eunice Chua of Singapore Management University (SMU).

If a substantial penalty is part of the agreement’s terms, it could result in revenue for the government. Companies could also be ordered to compensate victims who suffered financial loss as a result of their misdeeds, said SMU Asst Prof Mahdev Mohan.

But critics question if DPAs allow corporations to buy their way out of criminal liability, he said.

Other questions include the lack of accountability for big companies, especially where individuals involved in wrongdoing are not prosecuted, dismissed or otherwise dealt with and where the consequence of the corporate crime is very severe, said Asst Prof Chua.

“The biggest difficulty with DPAs is that they seem to run contrary to upholding and enforcing the rule of law against all – individuals and large companies alike,” she said.

DPAs are a “recent trend” in major common law jurisdictions, said Asst Prof Mohan.

While they have featured in the United States since the early 1990s, they were introduced in the United Kingdom in 2014. The Australian Attorney-General’s Department conducted a public consultation exercise on DPAs in 2016, while Canada recently concluded a round of public consultations on them.

DPAs recently featured prominently in the news, because of the agreement Keppel Offshore & Marine entered into with the United States’ Department of Justice over a corruption probe that involved bribes given to officials in Brazil for business deals.

Another recent case happened in the UK last year. Its Serious Fraud Office sealed a DPA with Tesco Stores to settle issues of false accounting from 2014, that resulted in overstatement of its profits by £263 million, said Asst Prof Chua.

As part of the DPA, Tesco had to pay a financial penalty of £129 million and the costs of the Serious Fraud Office. Under a separate agreement with the Financial Conduct Authority, it paid about £85 million in investors’ compensation.

UK prosecutors separately charged three former Tesco executives with fraud by abuse of position, added Asst Prof Chua.

Judges’ oversight of DPAs could help address the public’s concerns that the interests of justice have been served, said legal experts.

Guidelines on how DPAs can be applied should be published to avoid the perception of any “backdoor agreement” between errant companies and prosecutors, said SMU’s Associate Prof Eugene Tan. While some parties may then try to game the system, publication of guidelines would lead to greater transparency and fairer outcomes for all stakeholders, he said.

Lawyers largely welcomed the prospect of DPAs here. Morgan Lewis Stamford director Daniel Chia said corporate criminal activity can be difficult to detect and investigate, and is at times identified by whistleblowers or those who self-report.

Withers KhattarWong partner Shashi Nathan said DPAs enable conditions for corporate reforms to be made without affecting the prosecution of errant individuals.

Mr Robson Lee, a partner at Gibson, Dunn and Crutcher, noted that minority shareholders could be disadvantaged when a company’s resources are used to pay fines under DPAs. He suggested a clause could be added in the Companies Act to allow them to use a DPA as the basis to sue the company and seek compensation.

HOW DEFERRED PROSECUTION AGREEMENTS CAME ABOUT

Historically, DPAs were first created in the United States to rehabilitate offenders who committed non-violent drug offences and other low-level crimes, said SMU’s Asst Prof Eunice Chua.

In the context of corporate crimes, misconduct may include corruption, product safety and securities violations, environmental crimes, money laundering and fraud.

The practice in the US and United Kingdom is to use DPAs where the company in question is willing to cooperate with investigators and essentially be rehabilitated, so that a potentially costly investigation can be speedily resolved, she said.

DPAs are not widely used internationally, she said.

“Apart from imposing penalties, DPAs may also include terms relating to enhancing compliance procedures or monitoring of the company for a certain period of time, and terms concerning ongoing cooperation, for example in the prosecution of individuals,” added Asst Prof Chua.