Can Deferred Prosecution Agreements (DPAs) Help Resolve Trade Conflicts? – A Very Preliminary Assessment



Welcoming the deferred prosecution agreement (DPA) between the US Department of Justice (DOJ) and Ms. Meng Wanzhou, her lawyer stated on September 24, 2021: “Under the terms of this agreement, Ms. Meng will not be prosecuted further in the United States and the extradition proceedings in Canada will be terminated. She has not pleaded guilty and we fully expect the indictment will be dismissed with prejudice after fourteen months. Now, she will be free to return home to be with her family.”[1] The statement describes three essential elements of the DPA largely correctly: (a) the (albeit conditional) cessation of the prosecution, (b) the cessation of the extradition proceedings in Canada and, (c) Ms. Meng’s release from her house arrest and ability to return to China, which she immediately did. In addition, the following consequences of the DPA are of very high significance: (d) the opportunity for the DOJ to effectively close the criminal matter, the outcome of which both in Canada and in the US was less than certain, while obtaining certain factual stipulations that may or may not be used in the future.

The Aims and Purposes of Deferred Prosecution in the Global Corporate Context

DPAs are neither restricted to criminal cases against corporations nor are they uniquely used by federal prosecutors in the US: state and local jurisdictions employ them as well. In global context, a recent study found that DPAs or comparable legal mechanisms are used for instance in the UK, Brazil, France, Argentina, and Singapore, and are under consideration in multiple other countries.[2] Mostly such mechanisms are a tool to secure corporate compliance with national laws, but presumably also emerging international legal norms on corporate responsibility, through “private detection and private policing,”[3] for which corporate criminal responsibility in case of employees’ wrongdoing is a strong incentive. The new Canadian ‘remediation agreement’ adds to these goals in that it seeks to “mitigate the risk of future offences and harm to third parties, such as employees, victims and investors”[4] and includes an inquiry into “whether the organization has made reparations or taken other measures to remedy the harm caused by the act or omission and to prevent the commission of similar acts or omissions”[5] as a factor to be considered when approving an agreement.

To give such arrangements proper authority and credibility, “external and internal oversight over the exercise of discretionary powers,”[6] which routinely rest with national prosecutorial authorities including their (political) superiors and are thus embedded in the larger national framework of out-of-court settlements of criminal cases, plea bargaining, and the like, are of the essence. We may recall that the Meng DPA was approved by the US District Court for the Eastern District of New York. The extent and depth of judges’ participation in and oversight over the process, however, varies greatly between jurisdictions.

The Strength of Judicial Involvement

The Canadian Department of Justice’s 2018 approach to remediation agreements[7] and a 2019 study by Chua and Chan on the UK’s and Singapore’s practice regarding judicial involvement in DPAs may serve as a starting point.[8] Borrowing from the British courts’ first step test of whether a DPA is in the ‘interest of justice,’ the authors suggest a similar approach for Singapore (and beyond, we might argue) that considers factors such as the seriousness of the offence(s); the company’s past history of and cooperation in exposing and self-reporting the offence(s); the company’s prior corporate compliance programs and the extent to which the company has changed both in its culture and in relation to relevant personnel, and the impact prosecution or its deferral may have on the company, employees and others innocent of any misconduct.[9] A UK court in Serious Fraud Office v. Rolls-Royce (2017) made clear that the seriousness of the offense itself is not the final determining factor, since it approved a DPA involving conduct that was “devastating and of the very greatest gravity … and reveal[ing] the most serious breaches of the criminal law in the areas of bribery and corruption.”[10] Whether a company (or its subsidiaries or parent) has a history of misconduct or diligent compliance is relevant, one might argue, as is the answer to an inquiry whether the alleged offender has proactively and comprehensively self-reported misconduct, has cooperated actively and completely in the ensuing investigation, and has adjusted its internal compliance programs as the facts evolve(d). The Canadian requirement of making reparations to victims and taking steps towards proactively preventing future similar misconduct mentioned earlier can be added to this list.

Secondly, Canadian, UK, and Singapore law require that the DPA be “fair, reasonable and proportionate,”[11] which includes both mandatory and (im)permissible terms in an agreement related primarily to the future conduct of the company and its financial and other restorative obligations. When considering DPAs that involve foreign or transnational corporations, especially those in which foreign sovereigns are stakeholders, these otherwise standard terms become more problematic when considering future disclosure obligations; waivers of legal professional privilege; future compliance monitoring and reporting, and the enforcement of payments for monetary reparations and/or fines levied, to name a few. All these involve consideration of foreign sovereign immunity, be it immediate (in case of state-owned companies) or indirect (in case of possible conflicting statutory duties in the home states). These questions, however, shall be reserved for future considerations.

How the Meng DPA is Different

“[T]he U.S. used a sprat to catch a mackerel – and has landed a shark,”[12] said Canadian extradition lawyer Gary Botting. Considering the facts, the DPA in the Meng case is easily distinguishable from the common scenarios described above in that it applies to an individual corporate executive, not the corporation, and Huawei, which is not a party to the DPA, makes no promises or stipulations. Only Ms. Meng was obligated to execute a statement of facts attached to the agreement about her particular actions, which were prima facie done on behalf of Huawei. The Guardian considered it to be “highly unusual for the prosecution to be directed at the chief finance officer personally and not at the corporation.”[13] This deserves a closer look.

Analysis: Can Meng-style DPAs be a Tool for Alleviating Trade Conflicts in the Future?

What does that mean for the more general question of whether DPAs can be tools for resolving particular aspects of trade conflicts?  DPAs are domestic legal tools, even if they are proliferated globally at the time of writing and there is potential that we will observe the evolution of an interdependent and interrelated matrix of such agreements (possibly using differing terminology) in the future. They are not commonly embedded in foreign relations law or world trade law considerations – maybe they should? But can they be utilized to remove obstacles – in particular high profile ones – to returning to the negotiating table?

When national prosecutorial authorities go after foreign corporations using criminal law, something is already amiss in the normal conduct of transnational business. We have moved away from negotiations and the normal transactional approach to commerce, in which government agencies operate as both facilitators and protectors of deals across borders. Regulatory methods have failed, at least in part, and an ‘offense’ has (allegedly) occurred that triggers a (perceived) need for punishment and retribution. The present author has argued elsewhere that a better solution to the Meng case would have been internationalized adjudication and stands by that assessment.[14] In the absence of an agreed upon bi- or multilateral independent international tribunal, we still have a preferred institution in place for resolving legal matters in a somewhat non-political manner: courts. Whether a DPA is in the interest of justice as well as fair and balanced is best determined by independent adjudicators. The design trend goes in that direction, as well as in the direction of proper consideration of the interests and claims of victims of corporate conduct that is offensive in the first place. Let us consider two issues where courts are particularly qualified to contribute authority and credibility to DPAs in the global trade context:

  1. An ‘Effects’ Test in Global Trade-Related DPAs?

National courts have considered the impact of prosecution on the offending company as a factor when approving or disapproving DPAs. This relates primarily to potential far-reaching effects of prosecution on companies that are of vital national interest, of course. The court in Rolls-Royce, for instance, considered that prosecution could have “wider effects for the UK defence industry,” but immediately emphasized that this factor was not “determinative.”[15] The court went as far as observing that the “national economic interest is irrelevant.”[16] It is proposed, however, that the test can be of significance, and possibly even more so, when global commercial interests are at stake.

While it generally is not appropriate for judicial bodies to make (foreign) policy decisions, courts are not preempted from including such considerations into their findings, especially if the law provides for and demands that the executive branch of government fully briefs them on the policy implications of DPA determinations, if necessary with adequate safeguards for secrecy of both trade and national security interests. The Meng DPA resolved a criminal matter that was considered by commentators to have been politically motivated. It raised questions what the “predominant purpose”[17] of the extradition request was. The many legal issues that the extradition matter encountered in the Supreme Court of British Columbia bears witness to the fact that, at the very least, even the preliminary questions of jurisdiction and extraditability were not secure from potentially protracted challenges domestically and in international fora.[18]

It is of the essence that the courts in the various jurisdictions using DPAs in the context of global commerce develop a densely interrelated jurisprudence on what is of the essence to curtail the two likely most counterproductive acts of maladministration of DPAs: (a) political motivation and, (b) disregarding the victims of the misconduct and the principles of global trade relations.

  1. World Trade and Fundamental Rights Considerations and DPAs

The World Trade Organization (WTO) states on its web page under the heading ‘What We Stand for:’ “With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition – such as increased choice and lower prices.”[19] In fact, the original 1947 General Agreement on Tariffs and Trade (GATT) in its preamble identified “tariffs and other barriers to trade” as well as “discriminatory treatment in international commerce”[20] as crucial obstacles to mutually beneficial trade relations between its member states. The victims of corporate crimes, but also of random and unforeseeable state action in response to (perceived) crimes, are businesses, employees, consumers, as well as markets in the broader sense. Randomness is the opposite of predictability. The WTO reminds us in its 2020 World Trade Report: “Today’s multilateral trading system also aims to provide a framework of rules within which countries can advance their economic interests without compromising or harming the interests of others.”[21] In other words, world trade law envisions a balancing approach, or what lawyers call a consideration of proportionality.

The judiciary is not an ideal, but the best agent we currently have for securing proportionality. Two agendas should motivate adjudicators – acting in their core role, not as policymakers ultra vires – when looking into the approvability of (transnational) prosecution and alternatives, such as DPAs: (a) the protection of immediate victims, as Canada’s new regulations stipulate, and (b) the protection of a functioning, predictable global trade network. We fortunately have a legal framework for both: (a) international law governing individual and communal rights for victim protection and, (b) global and regional trade law for trade freedoms. Courts are accustomed to applying both. They are maybe less accustomed to applying world trade law in the criminal law context domestically. One might want to consider strategies to enhance their capacities in this field.

Concluding Observations

As indicated above, the considerations in this short essay are of course very preliminary and require further research and discussion. However, one may draw a few tentative conclusions:

  1. While DPAs are not per se designed to contribute to resolving trade disputes, they can contribute to a resolution, if they are crafted carefully and with a broad range of legal and political factors in mind;
  2. DPAs can introduce a strong element of candid truth-finding that translates into obligations for the corporations, individuals, prosecutorial authorities, and governments involved;
  3. Active judicial involvement in the supervision and approval of DPAs will likely enhance the formal validity and appropriateness, situational propriety, and authority of such agreements;
  4. This may lead to corporations becoming more concerned about avoiding future run-ins with national law and, in particular if such laws are based on internationally agreed principles of fairness in trade, they may become driving forces in shifting national policies towards free and fair trade;
  5. Courts may, if properly briefed by the executive branch, include considerations on the effect of DPAs vs. prosecution on global trade and international relations, provided that they do not allow such considerations to supersede standards of fairness and due process;
  6. Law and standards on DPAs should provide guidelines on considering fundamental rights as well as world and regional international trade law that courts can use as a starting point for their assessments. Courts should in particular be briefed on WTO and other standards that may inform their decisions on DPAs.

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