Justice Department Criminal Division chief Lanny Breuer on Thursday praised the use of deferred prosecution agreements to resolve corporate criminal allegations as having led to a “sea change” in corporate compliance culture.
His speech before the New York City Bar Association seemed aimed in part at addressing media critics who say DPAs, as the tools are known, let companies off too easily and don’t provide a deterrent effect. But in defending DPAs, Breuer highlighted another rising issue for the business world: the evolution of the prosecutor as a kind of über-regulator, who uses the threat of criminal prosecution to force operational changes at companies.
“DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe,” Breuer said according to his prepared remarks. “The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts.”
Indeed, according to a recent analysis, the DPA has become increasingly popular. In 2000, the government granted two DPAs or non-prosecution agreements. In 2010, the number was at 40.
Corporations like DPAs because they provide a level of certainty in resolving criminal allegations. Their use grew after the collapse of accounting firm Arthur Andersen following the firm’s 2002 indictment on an obstruction of justice charge related to the Enron accounting scandal. Since then, prosecutors have been mindful of the collateral consequences of a corporate indictment.
“Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement,” Breuer said.
At the same time, businesses are increasingly attuned to another kind of collateral consequence – the increasing regulatory muscle of the Department of Justice through the use of DPAs. DPAs and related tools like corporate integrity agreements to resolve health care industry allegations were the subject of a 2011 collection of essays called “Prosecutors in the Boardroom,” edited by Anthony S. Barkow, then at New York University and now a partner at Jenner & Block LLP in New York.
“We’re talking about a completely unregulated, unreviewed, unchecked exercise of power by prosecutors, which is a new development and is potentially subject to abuse,” Barkow told Main Justice. “The bottom line is that DOJ can threaten charges and corporations face very few viable choices… And there is tremendous pressure to agree to these DPAs and NPAs and there is no outside oversight of the process.”
DPAs, corporate integrity agreements, and other devices for resolving corporate criminal allegations often impose a laundry list of conditions under which companies much henceforth operate, from how they conduct due diligence and corporate compliance to what kind of data they keep. Sometimes, companies are required to hire at their own expense independent consultants, known as “monitors,” to review their operations and enforce new standards.
Observers say the requirements developed after law enforcement saw evidence that regulators were too close to the companies they regulated, and thus lacking at times in toughness.
Barkow did agree with Breuer about the positives flowing from the increased use of DPAs. Breuer said in his speech that in the past prosecutors, with a dearth of tools at their disposal, would “use a sledgehammer to crack a nut,” or more often “just walked away.”
Barkow said the DPA option gives more flexibility to prosecutors to find appropriate resolutions and a middle ground. ”But none of that changes the fact that this is completely unregulated by an outside entity,” he said.
Breuer also said compliance programs have become more robust as a result of the use of DPAs in corporate cases.
“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.”
He continued: “Overall, this state of affairs is better for companies, better for the government, and better for the American people.”