Monday, January 23, 2006

Deferred and Non Prosecution Agreement Report

A Report called "Crime Without Conviction: The Rise of Deferred and Non Prosecution Agreements," was released in late December by Corporate Crime Reporter. (see here)  It provides fascinating data on the government's use of deferred and non-prosecution agreements, with detailed accounts of the many agreements formed between companies and the government. The report states that the government has entered into twice as many such agreements in the last four years than in the prior ten years, and that these agreements "have become the settlements of choice for prosecutors and corporate defense attorneys."

So is this a negative? Some may believe that failing to have a full prosecution, followed by a conviction, is less favorable to our justice system.  It might be argued that these agreements diminish the deterrent effect of corporate criminality by failing to proceed to a formal conviction against the company.

Two Responses: 

1) First, there is another component that may also play a factor in the increase in the use of these agreements. This is the institution and progression of the corporate criminal sentencing guidelines.  The carrot-and-stick approach to these guidelines may in fact be producing favorable responses that allow the government to avoid proceeding criminally and move instead to reprimanding the corporation for its failure to have full compliance with the corporation's compliance program.  After all, corporations are basically mandated to have an "effective program" as corporate directors can be civilly obligated to institute these measures (see In re Caremark International Inc. Derivative Litigation) Yet, we all know that if the compliance program was really "effective," there would be no criminality.  But the very institution and existence of such a program demonstrates an attempt at avoiding criminal activity. Thus, the corporate sentencing guidelines may have the net effect of reducing criminal charges and likewise reducing criminal conduct in a corporation. 

Obviously, this does not preclude individuals within a corporation from committing crimes. Thus, we see the DOJ move to prosecute more individuals and less corporations. The Corporate Crime Report's conclusion that we have moved from a criminal justice system that "save[s] the individuals and plead[s] the corporation" to a system where "the individual executives are sacrificed to save the corporation," may thus be, in part, an outgrowth of the institution of the federal sentencing guidelines. But that said, it is clear that the Thompson Memo encourages corporations to give up individuals and inappropriately demands the waiver of the attorney-client privilege, actions that also play a part in the increased individual prosecution and reduction in corporate criminal convictions.

2) Second, these agreements should not be considered a negative in the fight against corporate criminality. Many of these agreements produce substantial income to the federal government and provide for victims to receive funds (e.g., Aetna Life Insurance paid 5.2 million in fines and restitution; AOL paid a 60 million dollar fine and 150 million into a victims settlement account; Bristol-Myers Squibb is paying 300 million, etc.).  Are these fines any different than what would have been achieved if the company were prosecuted?  This is especially true since a corporation cannot be incarcerated.

Punishment comes in many forms, and corporations are certainly not skating from punishment by entering into these agreements.

Now mind you, there are clearly some negatives to many of the existing deferred prosecution agreements.  But perhaps the negatives go to the internal provisions within these agreements, provisions that are fundamentally unfair.


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