Does Deferring Prosecution Foster Risky Corporate Behavior?
The Justice Department has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years, sparing those companies the cost and stigma of going to trial.
This is a major policy shift and spotlights a favorite tool of the Bush administration, deferred prosecutions, the New York Times reports.
The DOJ crafted 35 deals last year, which allowed companies such as Merrill Lynch, Bank of New York and KPMG, to pay fines while the government appoints outside counsel to evaluate and impose internal reforms. Key details, including the name of the monitor and agreement terms, are often kept secret.
But the Times reports that legal experts are now questioning the policy, wondering if it has allowed financial institutions involved in the subprime mortgage mess to push the limits of corporate anti-fraud laws.
Vikramaditya S. Khanna, a law professor at the University of Michigan who has studied deferred prosecutions, tells the Times that companies may engage in more risky behavior because their chances of a deferred prosecution are good. “Some companies may bear the risk,” Khanna says.
Defenders of the so-called DPAs, however, say that it’s a mistake to think that the agreement’s are a break for the company.
Former Deputy Attorney General Paul J. McNulty, who implemented the Justice Department’s current corporate investigations policy in 2006, says “the reality is that for the government, it gets pretty much everything without the difficulty of going forward with an indictment.”
Indeed, McNulty tells the Times, “I think companies are beginning to wonder whether they ought to fight more, because they are pretty burdensome.”
Another defender is former Attorney General John Ashcroft, whose private consulting company drew additional controversy and a congressional probe when a medical supply company agreed to pay Ashcroft’s consulting company $52 million to be its outside monitor.
Ashcroft says DPAs avoid destroying a company by avoiding a criminal indictment. “Prosecutors understand that a corporate indictment can be a corporate death sentence,” he tells the Times. “A deferred prosecution can avoid the catastrophic collateral consequences and costs that are associated with corporate conviction.”
