Criminal Division’s McInerney Defends Deferred Prosecution Agreements
By Douglas Gillison | May 3, 2013 5:38 pm

With controversy refusing to abate, a senior official in the Justice Department’s Criminal Division today defended the government’s use of negotiated resolutions in white-collar criminal cases, saying they expanded the ability of the U.S. to police corporate misconduct.

Denis J. McInerney, a Deputy Assistant Attorney General for the Criminal Division, also said the department remained committed to obtaining traditional prosecutions and convictions in white-collar cases. He spoke at a panel convened at the National Press Club in Washington, D.C., by the newsletter Corporate Crime Reporter.

Mike Koehler and Denis McInerney on today's Corporate Crime Reporter panel. (photo by Douglas Gillison)

McInernery’s contentions were robustly challenged, however, by panelists who said the use of deferred prosecution agreements had helped to cheapen the punishment of corporate misconduct and helped individuals avoid accountability for crimes committed on behalf of their employers.

“The bread and butter of what the DOJ does in the white-collar space remains indictments, guilty pleas, trials, convictions,” said McInerney, adding that in cases brought by the Fraud Section, which he previously headed, almost three dozen individuals had been sentenced to prison terms of ten years or more since 2011. Since the start of 2012, the Fraud Section had 45 cases go to trial, he said.

The Justice Department’s use of deferred prosecution agreements — which offer conditional amnesty to criminal defendants in return for fines, remedial action and enhanced compliance — has been intensely criticized on Capitol Hill in recent months. Particular scrutiny was given to the settlement with HSBC Holdings plc, which admitted to money laundering for drug cartels and sanctions violations, but which under the terms of its DPA is not likely to suffer any criminal conviction.

In discussing the use of DPAs, McInernery’s remarks echoed those of Lanny A. Breuer, the former Criminal Division chief, who addressed the New York City Bar Association in September.

McInerney said the notion of corporate criminal liability was confirmed in 1909 when the Supreme Court recognized in New York Central and Hudson River Railroad Co. v. US that criminal offenses could be imputed to companies. But there were scant prosecutions of companies over the following 75 years, said McInerney.

“I daresay most of the time no thought was really given to pursuing the company at all,” said McInerney.

This began to change in the 1980s and took a noted turn with the decision not to prosecute the former Wall Street investment bank Salomon Brothers Inc., which ensnared itself in an illegal Treasury bond bidding scandal in the early 1990s but avoided criminal prosecution in a non-prosecution agreement.

“They took dramatic action in response to uncovering bid-rigging,” said McInerney, resulting in “cooperation to a degree that no one had ever seen before.”

He added: “That established I believe for the rest of the corporate world the type of cooperation that it would take in a serious case in order to persuade the government that the company understood the seriousness of its conduct.”

Deferred prosecution agreements allow the government to balance punishing misconduct with creating an incentive for compliance with the law, McInerney said. He said their use has become prominent since 2003.

“It is certainly a misimpression that people think this is the default now, that this is what you’re always going to see now. It is not,” said McInerney, adding that DPAs were nevertheless a boon to enforcement.

“It allows the government to shift our limited resources to other culpable actors,” he said. “They allow the government to obtain virtually everything that you might see if you go through and get a conviction.”

“They don’t allow the company to buy the freedom of the individuals who are culpable.”

McInerney’s assertions were largely rejected by David Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section who now teaches law at the University of Michigan. He said the department’s use of DPAs was in most cases confined to the Criminal Division.

“Each and every benefit that Denis has identified is available through plea agreements,” said Uhlmann. “If the Justice Department believes that a criminal prosecution is warranted, it should bring charges.”

Citing statistics he said were compiled by Brandon L. Garrett of the University of Virginia School of Law, Uhlmann said the lion’s share of DPAs had been brought by the Criminal Division.

According to a collection of prosecution agreements maintained by Garrett, between 1992 and 2013, the department’s divisions of Environment and Natural Resources, Tax and Antitrust together entered into fewer than 20 deferred and non-prosecution agreements.

In that time, the Criminal Division entered into about 100, a difference that led Uhlmann to say the use of DPAs was a policy that was “largely unique to the Criminal Division.”

“I am not suggesting that there is no punishment,” said Uhlmann. “What I am saying is that there is less deterrence, less punishment.”

He also said offers of conditional amnesty could rob enforcement of the “expressive value” of a prosecution.

“We send a very strong and important message when we label conduct as criminal,” he said, noting that in a deferred or non-prosecution agreement, “there is no guilty plea, there is no sentence.”

Correction: An earlier version of this story incorrectly reported the time frame given by McInerney for the sentencings of nearly 36 individuals in white-collar cases. He said this was since 2011, not 2012.

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