Breuer Defends Deferred Prosecutions

Coming under increasing assault for not bringing criminal cases against Wall Street for the economic collapse and relying too heavily on deferred and non prosecution agreements to settle corporate crime cases, the Justice Department’s Criminal Division chief Lanny  Breuer went to the belly of the beast yesterday and defended his record.

Speaking to the New York City Bar Association, Breuer said that deferred prosecution agreements have had “a truly transformative effect on particular companies and, more generally, on corporate culture across the globe.”

Breuer starkly claimed that deferred prosecution agreements “have the same punitive, deterrent, and rehabilitative effect as a guilty plea.”

“When a company enters into a deferred prosecution agreement with the government, or an non prosecution agreement for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement.”

“Whether or not a corporation pleads guilty, as Siemens AG did, or enters into a deferred prosecution agreement with the government, the company must virtually always publicly acknowledge its wrongdoing,” Breuer said.

“And it must do so in detail. This often has significant consequences for the corporation, and it prevents companies from explaining away their resolutions by continuing to deny that they did anything wrong.”

In June, the Criminal Division’s Fraud Section resolved allegations of criminal wrongdoing with Barclays Bank over the bank’s role in its manipulation of the London Interbank Offered Rate, or LIBOR.

Breuer said that the statement of facts appended to the non prosecution agreement sets forth the factual basis for the agreement in substantial detail, quoting from specific emails in which Barclays traders asked Barclays rate submitters to manipulate their LIBOR submissions.

As one trader wrote, “My [counterparts in New York] were screaming at me about an unchanged 3m libor. As always, any help [would] be greatly appreciated. What do you think you’ll go for 3m?” To which the rate submitter replied, “I am going 90 altho[ugh] 91 is what I should be posting.”

“As I said at the time, Barclays has paid a significant price for this egregious conduct,” Breuer said. “In fact, in the wake of our announcement, the top management of the bank was replaced. As we also recognized at the time, Barclays’s cooperation with the Fraud Section’s investigation was extraordinary. The bank voluntarily disclosed its misconduct, informed us of facts we did not know, and continues to cooperate in our ongoing criminal investigation. We agreed not to prosecute Barclays in light of this extensive cooperation. Nevertheless, the consequences for the bank have been substantial.”

“Though the U.S. Supreme Court blessed the concept of corporate criminal liability over 100 years ago – in New York Central Railroad Company v. United States – until roughly 20 years ago, we had only the blunt instrument of criminal indictment with which to attack corporate crime,” Breuer said.

“Prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct – either indict, or walk away.”

“In the 1990s, however, the government began doing something new: agreeing to defer prosecution against the corporation in exchange for an admission of wrongdoing, cooperation with the government’s investigation, including against individual employees, payment of monetary penalties, and concrete steps to improve the company’s behavior.”

“And, over the last decade, DPAs have become a mainstay of white collar criminal law enforcement.”

“The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts.”

“Companies now know that avoiding the disaster scenario of an indictment does not mean an escape from accountability. They know that they will be answerable even for conduct that in years past would have resulted in a declination.”

“Companies also realize that if they want to avoid pleading guilty, or to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance.”

“Our prosecutors are sophisticated. They know the difference between a real compliance program and a make-believe one. They know the difference between actual cooperation with a government investigation and make-believe cooperation. And they know the difference between a rogue employee and a rotten corporation.”

“In April of this year, for example, a former managing director of Morgan Stanley, Garth Peterson, pleaded guilty to conspiring to evade the bank’s internal Foreign Corrupt Practices Act controls. He was sentenced to prison last month.”

“Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation, and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct. That is smart, and responsible, enforcement.”

“At the same time, when we discover more systematic wrongdoing within an institution, the corporation itself can face severe consequences,” Breuer said.

“In the Siemens case, for example, in which we uncovered a company rife with corruption from top to bottom, we required Siemens AG and three of its subsidiaries to plead guilty to FCPA-related offenses.”

“Siemens paid $450 million in fines in the United States, in addition to hundreds of millions more in civil penalties and to German enforcement authorities – for a total of $1.6 billion.”

“The company also had to appoint an independent compliance monitor for a four-year period, and virtually the entire leadership of the company was replaced.”

“And late last year, following extensive cooperation by the corporation, we announced indictments against eight former senior Siemens executives and agents, including a former member of Siemens AG’s central executive committee, the former CEO of Siemens Argentina, and that company’s former CFO.”

“You don’t have to look further than the general counsel of Siemens AG to hear someone say that the problem at Siemens was systemic – ‘widespread corruption steered out of Germany,’ as he put it in a recent interview – and that the culture has changed dramatically in the years since the company owned up to its conduct.”

“When the only tool we had to use in cases of corporate misconduct was a criminal indictment, prosecutors sometimes had to use a sledgehammer to crack a nut,” Breuer said. “More often, they just walked away. In the world we live in now, though, prosecutors have much greater ability to hold companies accountable for misconduct than we used to – and the result has been a transformation in the culture of corporate compliance. In appropriate circumstances, large corporations, such as Siemens AG, must plead guilty for their crimes.”

“In other cases, because the company has gone to extraordinary lengths to turn itself around, for example, or provided the government with extensive cooperation, a deferred prosecution agreement or non-prosecution agreement may be the best resolution. No matter what, individual executives and employees must answer for their conduct. And, perhaps most important of all, companies know that they are now much more likely to face punishment than they were when our choice was limited to indicting or walking away. Overall, this state of affairs is better for companies, better for the government, and better for the American people.”

Copyright © Corporate Crime Reporter
In Print 48 Weeks A Year

Built on Notes Blog Core
Powered by WordPress