McInerney on Declinations and the Corporate Compliance Defense

At the Corporate Crime Reporter conference last week at the National Press Club, Denis McInerney,  the Criminal Division’s Deputy Assistant Attorney General, quickly shot down a suggestion by Southern Illinois University Law Professor Michael Koehler.

Koehler suggested we go back to a time where the Justice Department either criminally charged a company, or declined to prosecute.

Koehler proposed we do this by getting rid of deferred and non prosecution agreements and allow corporations to claim a corporate compliance defense.

Koehler has long been a proponent of a corporate compliance defense, which would apply when a non-executive employee or agent acts contrary to a company’s compliance program in violation of the law.

“Deferred and non prosecution agreements would be abolished and the Department would return to the historical choice of two options: charge or do not charge,” Koehler argued.

“Going to the corporate compliance defense I agree would take us back in time,” McInerney said. “It would take us back to the dark ages. You would eliminate eight of the nine principles in terms of consideration. You are now only looking at whether there was a good compliance program at the time. You are not considering the nature and seriousness of the offense, how pervasive it was, or the criminal history of the organization. You have wiped out the incentive for a company to disclose, to cooperate, to do all the things that lead to the discovery of the conduct and the ability to prosecute individuals.”

“You are right,” McInerney said to Koehler. “It would take us back in time.”

On declinations, Koehler asked McInerney:

“Declination has become a buzzword. Has the Department ever offered a definition of what a declination is?”

“Declination is a decision not to go forward with a prosecution,” McInerney said.

“Is that because you could not meet your ultimate burden of proof, because an element is missing, because the facts are not sufficient?” Koehler asked.

“It’s typically where you have gotten to the point where you believe there was criminality but based on the company’s conduct in response to it, you decided that you are not going to go forward with prosecuting the company,” McInerney said. “That’s my typical definition.”

“We have investigations all the time. You wind up looking at the matter. You say — I don’t think there was criminality here. You close the case. I don’t call that a declination. Many people would. It’s a fair thing to say. I’ve declined to go forward with it. I don’t think there is a crime there. Other times you conclude — I think there was a crime but I can’t prove it. I don’t have the ability to prove it beyond a reasonable doubt, so I’m going to decline. That’s a declination.”

McInerney said “there is a fundamental misunderstanding as to how frequently the Department declines.”

“Just in the last couple of years, in the FCPA context, we have had several dozen declinations,” McInerney said. “There should not be the misimpression that the Department defaults to DPAs and NPAs, that it is easy, that it’s low hanging fruit of some sort, and that is what you are going to end up getting if you discover misconduct and you come in and you report it.”

“If you discover misconduct, and you come in and report it, and you have a pretty decent compliance program to begin with and the conduct wasn’t so bad that it rose to the level of –

we have to hold you accountable to some degree — you have a good shot at a declination. We have had some public declinations recently which have been helpful to some degree. But it is a  challenge to the Department. As everyone can appreciate, companies don’t want the fact, that they were investigated and what the details were relating to it when it ultimately results in a declination — they just assume not have a public discussion about that. And that’s how the system should work. You do an investigation, it should be confidential. If you conclude that you are not going to pursue it for some reason or another, that should be the end of it.”

“But it’s a big misimpression to think that we just default to these two middle ground vehicles (deferred and non prosecution agreements),” he said.

Anthony Barkow, a partner at Jenner & Block in New York, agreed that “the meaningful category of declination is that prosecutors can bring a charge but they exercise their discretion not to.”

“Denis has said a few times that there is a misimpression that the first resort is a deferred or non prosecution agreement,” Barkow said. “And that may be a misimpression. And he clearly would have more information on that than anybody else in the room because he’s the one making those decisions and has more empirical information on it. But in fact, it is an impression that people have in the private sector.”

“It’s not that clear what you get when you self report, and it’s not that clear how the discretion not to charge will be exercised,” Barkow said. “It can only be so clear. I get that. But that is what happens when you operate in a realm without any judicial oversight, without any charges being filed, without any external oversight or impartial adjudicator or neutral adjudicator. And when you operate in that sphere, it’s incumbent on the Department of Justice to be as transparent as possible about exactly how they go through their decision making process. They have been more transparent. They have issued guidance. But they can be yet more transparent.”

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