The pros and cons of deferred prosecution agreements: Is it a case of justice deferred is justice denied?
Daily Maverick| Tabitha Paine and Ra’eesa Pather | 6 January 2022
The first of three reports by the Zondo Commission has proposed using deferred prosecution agreements as a tool to hold companies accountable for wrongdoing in State Capture. There has been some endorsement of the idea from the NPA, but there are a number of pitfalls that need to be understood, and safeguards need to be built into any prosecution policy that includes deferred prosecution agreements.
Four years after it was established, and after more than 400 days of hearings, the Zondo Commission has submitted the first of three reports to the president containing its final findings and recommendations. While the public digests the detailed findings, many are asking: what next? Will politicians and corporations finally be held accountable for State Capture, or will justice continue to be deferred?
The commission’s first report includes a recommendation to use deferred prosecution agreements (DPAs) for companies implicated in State Capture. DPAs are agreements entered into by a company or person and the state where there is evidence that the entity or person committed a crime. They allow the company to avoid criminal prosecution – in a process usually neither public nor transparent – in exchange for paying back the money, a fine and sometimes the provision of information.
DPAs and plea agreements are different: plea agreements are agreements entered into with an admission of guilt. Whereas with DPAs, the prosecution of the individual or company is deferred subject to conditions being met.
In a country where grave social harm has been wrought by the corrupt relationships between politicians and corporate elites, are DPAs really the answer to disrupting State Capture?
South Africa is the most unequal society globally. We see this all around us. We feel burgeoning hopelessness when we see big business get richer than even the politicians in their sports cars, while people in South Africa are throttled by a pandemic and government structures are unable to provide basic services like water, housing, transport, education, electricity and food.
The cost of State Capture
Almost three decades into democracy, we should be seeing greater progress in correcting the violent inequality that apartheid created, and undoing the corrupt networks it entrenched. This is the social harm of State Capture. Things feel desperate. We feel angry. We want to see justice.
The National Prosecuting Authority (NPA) is the institution tasked with pursuing justice for crimes related to State Capture, including prosecuting corporations for their role. But the NPA has expressed support for DPAs, with the NDPP’s advocate Shamila Batohi telling Parliament’s Justice and Correctional Services committee, “We hope that this will also be able to assist us in bringing back more effectively some of the stolen assets and some of the money that the country has lost through corruption.”
Batohi indicated that they are already in the process of drafting policy to give effect to a formal DPA process.
The NPA was not left unscathed by State Capture. As the institution responsible for implementing laws without fear or favour, it was a necessary target in the State Capture project.
In the course of the intentional weakening of the NPA during the Zuma years, skilled and competent employees left, leaving a gap in talent and resources. With the appointment of Batohi as new NDPP, and the establishment of a unit specifically capacitated to deal with State Capture crimes – the Investigative Directorate (ID) – there was renewed hope that prosecutions would take place.
However, advocate Hermione Cronje, the head of the ID, recently resigned, reportedly as a result of frustrations related to getting State Capture cases prosecuted. Cronje has commented that the NPA lacks the resources and skills needed to take on serious corporate crimes, which are complex crimes, stating that “the real issue is the capacity of the criminal justice system to do the basics”.
These problems have been exacerbated by recent budget cuts to the NPA of more than R422-million. The SIU and SARS also had their budgets cut, effectively hamstringing an already struggling justice system. The woes of the NPA are real. They have what seems like an impossible task.
It is in this context that the NPA has supported DPAs. The criminal justice system is under-capacitated, underfunded and overburdened. Proponents say that DPAs can help expedite cases. Open Secrets believes that this proposition is factually incorrect and dangerous for systemic corruption like State Capture.
Case studies around the world indicate DPAs lead to recidivism in corporate crime, meaning that they allow corporations to repeat crimes and fail to act as a deterrent.
Learning from DPAs around the world
DPAs have been used in many jurisdictions, most notably the United States, which is known for its comparatively high success rate in holding corporations accountable for fraud, corruption and other economic crimes. Given this, it is telling that the US has recently moved away from DPAs, just as other jurisdictions, like the United Kingdom, have been introducing DPAs into their legal systems.
The US decision to move away from DPAs stems primarily from an acknowledgment that they are not a deterrent and result in high levels of recidivism. Other jurisdictions, including the UK, argue that they still provide a measure of accountability, despite evidence showing that companies seem to be incorporating any economic sanctions imposed in terms of DPAs as a cost of doing business.
DPAs rarely, if ever, result in all profits being paid back, and even if the company is compelled to, the likelihood of being caught is so slim that the chance of just giving back unlawfully gained profits is not a deterrent.
DPAs do not result in conviction or a criminal record. This results in impunity for the corporation that often continues the exact conduct that the DPA was entered into to sanction it for.
A good example is global banking giant HSBC. HSBC entered into a five-year DPA with the US Department of Justice in 2012, over money laundering and sanctions violations that allowed the Sinaloa cartel and Notre Del Valle cartel, and countries on the US sanctions list, to move money through HSBC. Under the DPA, HSBC committed to undertake enhanced Anti-Money Laundering (AML) compliance obligations and structural changes within its entire global operations “to prevent a repeat of the conduct that led to this prosecution”. However, HSBC went on to repeat this conduct and was fined several more times during 2012-2017.
HSBC’s movement of money for the Gupta’s shell companies, laundering the proceeds of State Capture, occurred during the period of their DPA.
Despite this international experience, the NPA and other DPA cheerleaders in South Africa argue that they will at least provide some justice. DPAs would certainly assist with the NPA’s backlog and capacity issues, in the sense that cases of corruption are removed from the justice system.
However, we think this would be at the expense of justice and the aims and objectives of a justice system. Here’s why:
1. A just remedy must include the social cost of State Capture
Saving time and money does not outweigh the public interest in seeing those that looted public institutions held accountable, and for these institutions to recover the public’s money. The “public’s money” is the total cost of the company’s corruption to our society, which is a lot more than the profits made by a company.
The social cost of State Capture includes the collapse of public institutions like SARS and Prasa. In the case of SARS, this is a lot more than the R217-million Bain & Company paid back to SARS. It includes recovering the experts who left SARS, as well as the budget deficit created by the looting of state coffers, which saw debt service costs as the biggest increasing national budget item, with R202.2-billion in debt repayments in 2019 (pre-Covid-19).
State Capture at Prasa led to the collapse of South Africa’s rail system, with lower income earners now having to use private transport to get to and from work. This has shifted the cost of State Capture away from those responsible for it and onto the public.
DPAs are quicker and recover some money, but if companies are merely required to pay back the profits made, they essentially just go back to the position they were in before committing the crimes. Reputational damage also seems to be something that big business can absorb, with companies like Deloitte implicated in State Capture while simultaneously scoring large contracts with other state institutions.
2. Justice needs to be seen to be done, and this can’t happen in negotiated settlements behind closed doors
The public’s faith in the justice system needs to be restored and this cannot happen if there are two justice systems: one for the wealthy and one for the poor. Justice needs to be done and be seen to be done.
When the criminal justice system imprisons those without money and resources but allows for a DPA for those with money, this undermines the legitimacy of the justice system itself. Justice is not seen to be done if it is behind closed doors and subject to confidentiality (even if confidentiality clauses are discretionary).
3. Recidivism, deterrence, transjurisdictional crimes, criminal records and state contracts
As discussed above, DPAs do not have a sufficient deterrent effect. DPAs do not result in a criminal record, and they do not result in debarment (where a company or individual can no longer contract with the state). This makes it hard for public officials to track which companies are risks when it comes to procurement or public-private partnerships.
An example from the US is the BAE case. BAE’s $400-million fine in 2010, from the Department of Justice, was touted as one of the largest criminal fines in US history at the time. Yet within a year of BAE admitting making false statements about its Foreign Corrupt Practices Act compliance programme, the company had received 13,000 contracts or subcontracts from US government bodies worth more than $6-billion, including a $40-million contract with the FBI itself, which had helped investigate BAE’s wrongdoing.
The US is not alone. The OECD Foreign Bribery Report found that of 427 foreign bribery enforcement actions between 1999 and 2014, only two had resulted in debarment.
In contrast to DPAs, plea agreements serve the interests of justice because they do not avoid the criminal justice system and can result in a conviction. They are also subject to judicial oversight. Where plea agreements are entered into, the full facts of the case are made public. This ensures an open and transparent justice process.
In the case of multinational corporations, this disclosure may be of critical importance in other jurisdictions seeking a remedy for corruption or State Capture in their own countries.
The mitigation in sentence or offence is also in exchange for information or confession, with the information obtained for the investigation or prosecution of others. The criminal process is allowed to proceed in accordance with the rule of law and in an open court as provided for by the Constitution, and the court must apply its mind to the justness of the sentence and charge.
Plea agreements are far more useful for dealing with State Capture cases. They provide for accountability, oversight and satisfy the principles of justice and the rule of law.
Another helpful remedy is debarment of companies involved in fraud, corruption, State Capture and other economic crimes. Debarment means that a debarred company cannot contract within the public sector for the term of the debarment. It has been included as a recommendation in the Zondo Commission’s first report, which we are happy to see. This is a remedy proportional to the crime and provides the public with a sense that justice is being done. It also acts as a deterrent, having real financial consequences and preventing repetition of the same crimes.
4. Lack of regulation and oversight – who monitors the implementation of DPAs?
DPAs lack regulation and oversight. Even when conditions are imposed, the current practice globally does not provide for monitoring and additional sanctions for defaulting companies.
It has also been argued, correctly in our view, that the lack of oversight and the discretion that DPAs allow prosecutors, violates the rule of law. The state cannot opt out of its constitutional and statutory duties because it is overburdened. While innovative and creative means of achieving justice with few resources is welcome, DPAs are neither innovative nor do they achieve the objects of justice.
In terms of relying on companies making voluntary disclosures, global experience is that voluntary disclosures do not work. This seems to be the South African experience as well.
While companies in South Africa say they are cooperating with the authorities, this is at a point when the malfeasance is already public. There are no shortcuts in terms of investigations or prosecutions, and a justice system cannot be reliant on criminals coming forward any more than it can rely on criminal corporations to do so.
For these reasons, Open Secrets, therefore, proposes that DPAs should be kept at bay.
But if the NPA persists in introducing a policy that would allow for DPAs in South Africa, in line with the recommendations of the Zondo Commission, the following should be included in that policy to counter the negative impact of DPAs:
- Transparency and openness: DPAs should be concluded in full view of the public, including all terms and conditions, and including the information surrounding the offence. Decisions to enter into DPAs should be reviewable (by application to court) if they are not in the public interest or are irrational or arbitrary.
- DPAs should be submitted to courts of law: All such applications should be published on the NPA’s website with the names and particulars of the parties, including the company or individual in respect of which the DPA would apply. Courts must apply their minds to the application and not merely rubber-stamp it, taking into account the public interest.
- Debarment: An immediate consequence of entering into a DPA should be the debarment of a company or individual.
- Repayment of profits in addition to a proportional fine that acts as a real deterrent: All profits must be paid back, including interest, in addition to a fine that is proportional to the profits made. DPA policy should stipulate a percentage of the profit and this should be large enough to be able to repair the damage done – the social harm. None of this should be tax-deductible.
- Full disclosure and handing over of all information of the misdeed: This includes information and evidence that implicates others. Any withholding of information or distortion of fact should have the effect of nullifying the DPA, and prosecution should follow. DM
Tabitha Paine is an attorney at Open Secrets. Ra’eesa Pather is an investigator at Open Secrets.
Check out the article in the Daily Maverick here