DoJ using "Deferred Prosecution Agreements" rather than indicting corporate offenders

[BrainGlutton]

The New York Times reports:

In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.

Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.

Deferred prosecutions have become a favorite tool of the Bush administration. But some legal experts now wonder if the policy shift has led companies, in particular financial institutions now under investigation for their roles in the subprime mortgage debacle, to test the limits of corporate anti-fraud laws.

Firms have readily agreed to the deferred prosecutions, said Vikramaditya S. Khanna, a law professor at the University of Michigan who has studied their use, because “clearly it avoids a bigger headache for them.”

Some lawyers suggest that companies may be willing to take more risks because they know that, if they are caught, the chances of getting a deferred prosecution are good. “Some companies may bear the risk” of legally questionable business practices if they believe they can cut a deal to defer their prosecution indefinitely, Mr. Khanna said.

Legal experts say the tactic may have sent the wrong signal to corporations — the promise, in effect, of a get-out-of-jail-free card. The growing use of deferred prosecutions also suggests one road map the Justice Department might follow in the subprime mortgage investigations.

Deferred prosecution agreements, or D.P.A.’s, have become controversial because of a medical supply company’s agreement to pay up to $52 million to the consulting firm of John Ashcroft, the former attorney general, as an outside monitor to avoid criminal prosecution. That agreement has prompted Congressional inquiries and calls for stricter guidelines.

Defenders of deferred prosecutions say that they have been too harshly criticized lately and that they play a crucial role in allowing the government to secure the cooperation of a company while avoiding the time, expense and uncertainty of a trial. The agreements, government officials say, also avoid the type of companywide havoc seen most acutely in the case of Arthur Andersen, the accounting firm that was shuttered in 2002 after being indicted in the Enron scandal. The firm’s collapse threw 28,000 employees out of work.

At a Congressional hearing last month, Mr. Ashcroft defended the agreements, saying that they avoided “destroying entire corporations” through criminal indictments. “Prosecutors understand that a corporate indictment can be a corporate death sentence,” he said. “A deferred prosecution can avoid the catastrophic collateral consequences and costs that are associated with corporate conviction.”

Generally I would incline to the nail-the-bastards position, but I can’t lightly dismiss the argument that prosecution could shut down the company in question and throw a lot of innocent people out of work. Nor can I dismiss, OTOH, the argument that the D.P.A. approach encourages corporations to do whatever they think they might get away with. What’s the best approach, for justice, for the effective enforcement of the law and regulations, and for the health of the economy?

[Acid_Lamp]

@BrainGlutton

What’s the best approach, for justice, for the effective enforcement of the law and regulations, and for the health of the economy?

Basically it boils down to : Do you want to be screwed now all at once, or in increments over time. When the government does things like this it only encourages further corruption. Either situation sucks, but since the people in charge aren’t going to be affected either way, I say nail 'em to the wall and make an example out of them. Until we do something about golden parachutes, and back room deals, we won’t be able to properly regulate the economy anyway. Yeah some people might lose their jobs if the company folds, but can you really say that it is ethically superior to allow a fraudulent company to continue to operate because it employs people?

[Huerta88]

One of the things that is going on here is essentially outsourcing. As a condition of these arrangements, the companies generally spend a few million dollars hiring lawyers and accountants to detect and document the irregularities, write up a report, and say mea culpa, we’ll put some new safeguards in place. Multiply the resources this takes over fifty cases (or, consider the cost of preparing for and running fifty criminal trials), and you’ll understand why government is attracted to a situation in which the company is effectively shouldering a big part of the investigative costs. There are very obvious problems with allowing this form of self-regulation. There are wider problems in the criminal justice system as far as resource allocation and prosecutorial discretion, which has to be kept in check lest it become an excuse for de facto decriminalizing statutorily inappropriate conduct.

[Voyager]

@BrainGlutton

Generally I would incline to the nail-the-bastards position, but I can’t lightly dismiss the argument that prosecution could shut down the company in question and throw a lot of innocent people out of work. Nor can I dismiss, OTOH, the argument that the D.P.A. approach encourages corporations to do whatever they think they might get away with. What’s the best approach, for justice, for the effective enforcement of the law and regulations, and for the health of the economy?

The only positive thing I can see for this is that it avoids the expense of a risky trial. Besides that, it is not clear from what I read of the article that there is any punishment at all for the company, besides being monitored.

I think the argument about the company closing its doors is bogus. That did happen to Arthur Andersen, but they were in an environment where trust was paramount, and by abusing the trust others had of them they committed corporate suicide. That is not going to happen in most cases. There are plenty of companies where the top execs get charged and convicted that survive.

Sarbannes-Oxley was supposed to make execs more accountable. I’m not surprised a way was found around it. . For the long term health of the economy this is terrible. For the short term benefit of CEOs, this is great.

Think of this as applied to criminal law. If someone commits a murder, should they be monitored to make sure they won’t do it again, and then not prosecuted?

[Maeglin]

@Voyager

The only positive thing I can see for this is that it avoids the expense of a risky trial. Besides that, it is not clear from what I read of the article that there is any punishment at all for the company, besides being monitored.
be monitored to make sure they won’t do it again, and then not prosecuted?

I can only speak for one case, unfelicitously mentioned in the NYT. American Express Bank is an international private bank for high net work individuals. It was (as it has been recently spun off) a very small part of the overall AXP business. It had failed to establish sufficient internal controls to prevent money laundering. As per its DPA, it was fined $55M and had a limited time to establish these controls lest it be prosecuted. The fine was collected and the internal controls were established.

[BrainGlutton]

@Huerta88

As a condition of these arrangements, the companies generally spend a few million dollars hiring lawyers . . .

But what’s the down side?
– BrainGlutton, Esq.

[Voyager]

@Maeglin

I can only speak for one case, unfelicitously mentioned in the NYT. American Express Bank is an international private bank for high net work individuals. It was (as it has been recently spun off) a very small part of the overall AXP business. It had failed to establish sufficient internal controls to prevent money laundering. As per its DPA, it was fined $55M and had a limited time to establish these controls lest it be prosecuted. The fine was collected and the internal controls were established.

Chicken feed - but what kind of fine would they have gotten if they had basically plea bargained? If the offense was not having controls, not actually doing anything that the controls would have caught, would the result been very different?

The article wasn’t saying that DPAs were always wrong, just that they were being seriously overused.