CORPORATE CRIME REPORTER
Corporate
Pre-Trial Agreements Down 60 Percent
22 Corporate Crime Reporter 5, January 29, 2009
The Justice Department entered into sixteen corporate pre-trial agreements –
deferred and non prosecution agreements – in 2007.
That’s 60 percent fewer than the 40 corporate pre-trial agreements the Department entered into in 2007.
That’s according to an article – Betting the Corporation: Compliance or Defiance? Compliance Programs in the Context of Deferred and Non-Prosecution Agreements – that was released last week.
The article was written by Lawrence Finder, a partner at Haynes & Boone in Houston, Ryan McConnell, an assistant U.S. Attorney in Houston, and Scott Mitchell, CEO of the Open Compliance and Ethics Group.
The report is an update of an report that Finder and McConnell wrote in 2006. They have found a total of 112 corporate deferred and non-prosecution agreements – most of them over the past six years.
The authors say that most of the terms found in the agreements are fairly uniform.
The company admits to wrongdoing, waives the statute of limitations, agrees that the agreement is admissible in court, agrees that the company will no longer violate the law; agrees the company will help the government prosecute any wrongdoers – make employees available to testify for grand jury or trial and provide documents and other evidence to the Department – and agrees that company employees will not contradict the terms of the agreement.
In return, the Department agrees to dismiss the case (in the case of a deferred prosecution agreement) or not bring one (in the case of an non prosecution agreement).
The agreements “allow the entity to avoid the stigma of criminal conviction and associated collateral consequences, which can vary depending on industry and structure of the organization,” the authors write.
“For some companies this may mean reputational harm – criminal convictions are not a popular marketing tool,” they write. “For others it may mean they can no longer do business with the government (debarment) or continue to exist (Arthur Andersen).”
In 2008, the last iteration of the Holder/Thompson/McNulty/Filip memo for the first time mentioned deferred and non prosecution agreements by name.
“This last memo actually talks about deferred prosecution agreements and non prosecution agreements,” Finder told Corporate Crime Reporter in an interview earlier this week. “I don’t know if that suggests that there will be more or less of them. But it certainly institutionalizes the concept of deferred and non prosecution agreements.”
Also in 2008, the Department issued the so-called Morford memo, governing how the Department will choose monitors when they are called for by the agreements.
The article found that fully 40 percent of the corporate pre-trial agreements in 2007 and 2008 called for a corporate monitor.
The memo notes that not every case is right for a monitor.
“For example, it may be appropriate to use a monitor where a company does not have an effective internal compliance program, or where it needs to establish necessary internal controls,” the authors write. “Conversely, in a situation where a company has ceased operations in the area where the criminal misconduct occurred, a monitor may not be necessary.”
The Morford memo prohibits extraordinary restitution.
According to the memo “plea agreements, deferred prosecution agreements and non-prosecution agreements should not include terms requiring the defendant to pay funds to charitable, educational, community, or other organization or individual that is not a victim of the criminal activity or is not providing services to redress the harm caused by the defendant’s criminal conduct.”
Finder said that corporations increasingly are chafing under the constraints of corporate pre-trial agreements.
“Most of them are public companies. They have to report it. They can’t hide it. And we are talking about some companies that are paying out tens of millions of dollars in penalties,” Finder said. “Plus, 40 percent of them are getting corporate monitors, which means that their compliance programs weren’t where they should have been, or they wouldn’t have needed a monitor. So, those companies have the government as their partner.”
Which would a major American corporation prefer – a guilty plea or a deferred prosecution agreement?
“Some of the companies that have gone through the pre-trial agreement and monitor process consider it to be a fate almost worse than death,” Finder said. “And if you ask – which would you prefer – a corporate plea or a monitor – they will say – you are asking me – would I rather be boiled alive in oil or water?”
[See Interview with Lawrence Finder, 22 Corporate Crime Reporter 5(13), February 2, 2009, print edition only.]
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