Corporate criminal liability – a rising law enforcement priority

Singapore's prosecution of Vermont Bunkering for fraud

On 13 July 2023, the High Court of Singapore released its judgment¹  in respect of the first in a series of prosecutions against oil trading and ship bunkering company Vermont UM Bunkering Pte Ltd (Vermont), two of its directors, and other employees of Vermont. The High Court judgment concerned the sentencing of one of the Vermont employees, Loh Cheok San (LCS), who had pleaded guilty to, inter alia, abetment by conspiracy with Vermont and other employees to cheat Vermont’s customers into making excess payments for marine fuel oil. The cases against Vermont and its other employees are ongoing.

Brief overview of facts and charges

The charges of fraud allege that Vermont had conspired with its employees to deceive its customers into believing that a higher quantity of marine fuel had been delivered than was actually the case. The customers were thereby dishonestly induced to make excess payments totalling over US$8 million to Vermont.

According to the statement of facts admitted by LCS in his guilty plea, Vermont had, for several years, engaged in a fraudulent scheme involving “buyback” transactions. The gist of the scheme was as follows: where a vessel that Vermont was supplying marine fuel oil to had excess or remaining marine fuel oil in its tanks, Vermont and the chief engineer or captain of a vessel would agree for Vermont to supply less marine fuel oil than that ordered by the vessel owner. Vermont would then “buy back” the excess fuel oil from the chief engineer or captain at a rate lower than the market rate, before reselling the oil at a higher rate to other parties – with Vermont profiting from the difference. The independent surveyor of the vessel would be paid by the chief engineer or captain to certify falsely that the contracted amount of marine fuel oil had been delivered.

Vermont has also been charged under Singapore’s anti-money laundering legislation, the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) (read with the Penal Code) with abetment by conspiracy to disguise property representing benefits from criminal conduct, through the use of invoices falsely purporting that various quantities of marine fuel oil had been sold to Vermont. This marks the first prosecution of a company for offences under the CDSA².

Concept and scope of corporate criminal liability in Singapore

Subject to certain exceptions, the establishment of corporate criminal liability in Singapore at common law generally requires the application of legal rules of attribution. The High Court has held that the actions of an employee or agent of a company can only be attributed to the company “where that person is considered to be the “living embodiment of the company”, or if that person’s acts were performed as part of a delegated function of management” (the Tom-Reck test)³. This is arguably a challenging bar to meet, particularly where a company has multiple layers of management and decentralised decision-making.

It is not clear how the Prosecution will be proving its case against Vermont, and whether there is sufficient evidence to attribute the fraudulent acts and money laundering offences in question to Vermont. The Prosecution would need to show that the Tom-Reck test has been met.

Given the current challenges of corporate prosecutions in other jurisdictions, it is possible that Singapore may in due course follow in the footsteps of the UK, which has proposed substantial reforms intended to make it easier to hold companies accountable for a range of white-collar crime offences committed by their employees.

Corporate criminal liability in legislative focus in the UK

The UK has, in recent months, announced key legislative reforms of significance to companies.

The most recent is the proposed amendment to replace the common law identification doctrine (which attributes to a company only the actions of its “directing mind and will”) with a “senior manager” test, whereby an organisation will be criminally liable when a specified economic crime is committed by a senior manager of the organisation who was acting within the actual or apparent scope of their authority.

The other is the proposed new strict liability offence of failure to prevent fraud, which supplements existing offences of failing to prevent bribery and the facilitation of tax evasion. A company will be held liable for the new offence if it fails to prevent a specified fraud offence committed by an employee or agent for the benefit of the organisation (or a person to whom services are provided on behalf of the organisation), unless the company has in place reasonable procedures to prevent fraud.

These developments (which our London team has covered in more detail here and here) will greatly expand the scope of corporate criminal liability and are likely to result in increased corporate prosecutions. It is worth noting that such developments will not necessarily impact only UK companies – the failure to prevent fraud offence, for example, will likely also apply to organisations based overseas where an employee or agent commits fraud under UK law or targets UK victims.

Key takeaways

It is imperative that companies have sufficient internal controls, policies and procedures to prevent the commission of white-collar offences such as fraud and bribery by its employees.

In the Singapore context, even if “failure to prevent” offences are not introduced, robust policies and procedures would be the first step in seeking to demonstrate that the company had no part to play in any misconduct by its employees. In the event that the company is nevertheless charged with an offence, such measures may help demonstrate the company’s efforts in compliance and potentially lead to more lenient sentences or alternative outcomes such as warnings or a deferred prosecution agreement. Companies should therefore ensure that their compliance policies and processes are fit for purpose and up-to-date.

Corporate criminal liability also continues to be front of mind for governments worldwide – aside from the UK, see, for example, our Australia team’s article on a new “failure to prevent bribery” offence in Australia and our U.S. team’s alert on revisions to the Department of Justice’s Corporate Enforcement Policy. Organisations should therefore closely monitor all relevant legislative and enforcement updates in the jurisdictions in which they operate or have exposure to, so as to stay apprised of all material developments.

Special thanks to Charlotte Lee, Intern for her contributions to this article.

A version of this article has been published on the Society of Corporate Compliance and Ethics (SCCE)’s Compliance and Ethics Blog here.