A guest post today from David Uhlmann (University of Michigan Law School) regarding his article “Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability,” recently published by the Maryland Law Review.
Professor Uhlmann served for 17 years at the DOJ, the last seven as chief of the Environmental Crimes Section, where he was the top environmental crimes prosecutor in the country.
Over the last two years, there has been significant media coverage of Securities and Exchange Commission settlements that contain no admissions of wrongdoing—sometimes referred to as “Neither Admit, Nor Deny” agreements—and the lack of criminal charges for the 2008 financial meltdown. Both are troubling developments given the role that Wall Street played in bringing about the Great Recession.
But there has been far less scrutiny of a disturbing shift in corporate prosecution policy that began in the Bush administration and has accelerated during the Obama administration: the increased use of deferred prosecution and non-prosecution agreements to address corporate wrongdoing. Under these agreements, corporations can avoid criminal charges if they pay large penalties to the government, improve their compliance programs, and cooperate in the investigation of individuals who engaged in wrongdoing. Yet plea agreements—the preferred approach prior to the last decade—offer the same benefits without making it appear that large corporations can buy their way out of criminal prosecution.
The recent announcement that SAC Capital Advisors will plead guilty to insider trading charges and pay a $1.2 billion criminal fine provides a stark contrast with the larger trend. From 2004 to 2012, the Justice Department entered 242 deferred prosecution and non-prosecution agreements with corporations, after entering just 26 in the preceding 12 years combined (half of which occurred from 2001 to 2004). The use of such agreements has become routine in the Justice Department’s Criminal Division, which now resolves most of its corporate criminal cases using what it calls “non-criminal alternatives” to prosecution. From 2010 to 2012, the Criminal Division entered more than twice as many deferred prosecution and non-prosecution agreements with corporations (46) as plea agreements (22).
Nor are these small cases involving technical violations of the law. The Justice Department agreed to a deferred prosecution with HSBC even though the bank was involved in nearly a trillion dollars of money laundering, much of it from drug trafficking. The Justice Department entered a non-prosecution agreement in the Upper Big Branch Mining disaster even though 29 miners died, and the Labor Department found that Massey, the company that owned the mine, committed over 300 violations of federal mine safety laws and kept a double-set of books to hide its misconduct from safety inspectors.
The failure to prosecute corporations like HSBC and Massey sends the wrong message about how our society views corporate misconduct and sows doubts about the Justice Department’s commitment to address corporate crime. The Justice Department would never allow individuals who committed such serious crimes to escape prosecution. So why the double-standard for corporate defendants? Why has the Obama administration continued the questionable corporate crime policies of the Bush administration?
The Justice Department has offered shifting rationales for its embrace of deferred prosecution and non-prosecution agreements, from preventing collateral consequences, such as the demise of Arthur Anderson after the Enron debacle, to rewarding corporations for cooperation, including attorney-client privilege waivers. Those justifications have been debunked. Arthur Anderson was the exceptional case, because it could not survive as an accounting firm after its conviction for accounting fraud. In 2008, after heated protests from the defense bar, the Department beat a hasty retreat from requesting privilege waivers. The Justice Department now argues that it needs a middle ground between criminal prosecution and declination of charges. But the Department already has the middle ground of civil enforcement for the antitrust, environmental, fraud, securities, and tax violations involved in most corporate crime.
With no consistent or compelling justification for the Justice Department’s approach, it is hard to escape the conclusion that the Justice Department is ambivalent about the role of corporate criminal prosecution and therefore too willing to offer non-criminal alternatives to corporate defendants that it would never allow to individual defendants. Perhaps the Department believes, as some of my colleagues in academia assert, that corporate prosecution serves no purpose because companies cannot go to jail. Yet those views ignore the role of the criminal law in making clear what conduct is not acceptable in our society, as well as the stigmatizing effect that rightly accompanies a criminal conviction for a company.
In my recent article, Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability, I argue that the widespread use of deferred prosecution and non-prosecution agreements erodes corporate criminal liability and undermines the rule of law. I assert that such agreements limit the punitive and deterrent value of the government’s law enforcement efforts and extinguish the societal condemnation that should accompany criminal prosecution. I side with those within the Justice Department who have resisted the trend toward deferred prosecution and non-prosecution of corporate crime and agree with critics who claim that the Department may lack sufficient policies to ensure that abuse of power does not occur in negotiating such agreements.
Prosecutors can and should be expected to make principled decisions about whether a particular violation warrants criminal prosecution. If the law and the facts justify prosecution, charges should be brought; they should not be sacrificed to non-criminal alternatives that lack the punitive, deterrent, and expressive value of criminal charges. On the other hand, if prosecution is not justified, the matter should be declined; companies should not be threatened with prosecution to secure a large, financial settlement.
Deferred prosecution and non-prosecution agreements, if they occur at all, should be limited to relatively minor cases where civil or administrative enforcement options are not available or the exceptional case where innocent third parties would suffer significant harm as a result of criminal prosecution. Non-criminal alternatives should never be allowed in egregious cases like HSBC or the Upper Big Branch mining disaster—or countless other major cases where criminal charges were dropped.
The Justice Department should amend its corporate prosecution policies to limit the use of deferred prosecution and non-prosecution agreements. By developing such guidelines, the Justice Department will ensure a principled and consistent approach to the prosecution of corporations, uphold the rule of law, and restore confidence in its efforts to combat the harmful effects of corporate crime.