Debate Heats Up Over Use of Deferred Prosecution Agreements Instead of Guilty Pleas to Settle Corporate Crime Cases

The debate is heating up over the Justice Department’s practice of settling major corporate crime cases with deferred and non prosecution agreements instead of corporate guilty pleas.

David Uhlmann

NYU Law Professor Jennifer Arlen and George Mason University’s Cindy Alexander are out with a new paper — Does Conviction Matter? The Reputational and Collateral Effects of Corporate Crime.

“U.S. prosecutors entering into criminal settlements can either seek to require a firm to plead guilty or offer to resolve the matter through a deferred prosecution agreements,” Alexander and Arlen write. “Prosecutors can impose the same formal sanctions through deferred prosecution agreements as through guilty pleas – the same charges, statement of facts, monetary sanctions, and mandates. Nevertheless, a debate has persisted over whether deferred prosecution agreements undermine deterrence by lowering the cost to firms of the reputational damage resulting from a criminal settlement.”

Alexander and Arlen say that some scholars, like University of Michigan Law Professor David Uhlmann and University of Virginia Law Professor Brandon Garrett, “claim that deferred prosecution agreements weaken deterrence because these agreements ‘lack the stigmatizing effect of a corporate conviction — thus their use lowers the cost to firms of reputational damage arising from a criminal settlement.’”

“We undertook an assessment of the view that criminal settlement through a guilty plea instead of a deferred prosecution agreement causes firms to bear higher costs from reputational damage, holding all else constant.”

“To assess this claim, we first identified the types of qualitative information released by corporate criminal settlements that could lead interested outsiders—e.g., customer and suppliers—to anticipate an enhanced (or reduced) risk of harm from future dealings the firm. This includes information about the crime, the corporation’s governance at the time of the crime, and post-crime reforms and mandates. We then showed that settlement through a plea could heighten the cost of  reputational damage if it directly or indirectly leads interested outsiders to obtain information that the firm has a heightened risk of future misconduct that they would not obtain from a deferred prosecution settlement. We conclude that this requirement is not met after examining the three potential channels through which pleas might possibly transmit different qualitative information about the firm’s future risk: direct revelation, prosecutorial selection, and managerial selection.”

In other words, in answering the question they pose – Does Conviction Matter? – Alexander and Arlen answer – No, it does not matter.

Uhlmann respectfully disagrees.

“Jennifer Arlen is a leading scholar on corporate criminal liability, and her most recent empirical effort with Cindy Alexander makes a significant contribution to understanding the reputational damage of corporate guilty pleas and deferred prosecution agreements,” Uhlmann told Corporate Crime Reporter.  “I do not quarrel with her contention that, as a predictor of future harm, there may be no difference between the use of plea agreements and deferred prosecution agreements. Indeed, part of my concern about the current use of deferred prosecution agreements and non-prosecution agreements is that the Justice Department lacks policies to guide prosecutors about when they should insist on corporate guilty pleas and when deferred prosecution agreements are appropriate.  So I would not expect empirical data to show different levels of future risk and, from a specific deterrence standpoint, I have not argued that plea agreements are more effective at reducing future risk by the offending company.”

“Arlen and Alexander do not address the two most significant arguments against the use of deferred prosecution agreements and non prosecution agreements, however, which are that plea agreements are more effective in providing general deterrence and in vindicating the expressive value of corporate criminal prosecution.”

“In my experience, plea agreements are the most effective tool that Justice Department possesses to reduce the risk of wrongdoing by other corporate actors, who I argue fear guilty pleas far more than they worry about deferred prosecution agreements and non prosecution agreements.”

“In addition to the general deterrent benefits of criminal prosecution, guilty pleas better express societal condemnation of corporate wrongdoing than the mixed message that is conveyed by the widespread use of deferred and non prosecution agreements.”

“The reality of most corporate criminal wrongdoing, as Arlen and Alexander demonstrate, is that many companies who break the law stop doing so once they are caught. So, if prevention of future wrongdoing by a corporation were the sole purpose of criminal enforcement, perhaps it would make no difference what enforcement tool the government utilizes, to include deferred prosecution agreements, non prosecution agreements, and even civil enforcement.”

“But criminal prosecution and the insistence that corporations plead guilty for their crime sends a far stronger message to other companies about what conduct will not be tolerated. Criminal prosecution also is far more effective at conveying societal condemnation of criminal wrongdoing and assuring the public that even the largest corporations are not above the law. Not every case requires criminal prosecution, but when corporations commit serious crimes, they should be held accountable, and their punishments should be imposed by the criminal justice system, not through side deals with the Justice Department.”


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