Non-prosecution Agreements Research Articles

The Changing Face of Corporate Liability – New Hard Law and the Increasing Influence of Soft Law

The first frameworks defining standards of human rights protection specifically for business enterprises were non-binding “soft law” like the UN Guiding Principles on Business and Human Rights. In recent times, a “hardening” of corporate human rights law has taken place. Several acts of “hard law” have been implemented at a national and EU level. This article provides an overview of the most important ones. The “hard law” provisions differ in their scope: some obligate companies to report on human rights, others stipulate concrete obligations to conduct human rights due diligence. Another way of tackling the issue of human rights compliance has been demonstrated by the prosecution of companies in the United States. While procedural guidelines abstractly stipulate an effective compliance system to be a mitigating factor, the US Department of Justice regularly defines concrete compliance obligations in deferred or non-prosecution agreements. This development could lead to comprehensive liability for negligence due to organisational and monitoring deficiencies. But who defines the standards? This article examines how the changing practice of human rights compliance may have “feedback effects” on hard law, particularly by changing the scale of negligence. Regarding the lack of effectiveness of some due diligence measures, especially in the “certification industry”, it is then asked how legislation may proactively exert influence by defining effective CSR instruments necessary to prevent civil and criminal liability. Using the example of German law, a proposal is made to implement an obligation of human rights due diligence in “hard law” and, simultaneously, set up an independent expert commission that drafts guidelines specifying the necessary measures for different kinds of companies.

A Public Choice Analysis of the Department of Justicees Use of Deferred- and Non-prosecution Agreements: A Policy to Promote Public Interest or an Opportunity to Extract and Seek Rents?

A Public Choice Analysis of the Department of Justicees Use of Deferred- and Non-prosecution Agreements: A Policy to Promote Public Interest or an Opportunity to Extract and Seek Rents?

Optimal Non-Prosecution Agreements and the Reputational Effects of Convictions

Many claim that non-prosecution agreements (NPAs) reduce deterrence by mitigating the reputational sanctions that would otherwise be imposed on corporations through plea-bargains. They suggest, based on this claim, that NPAs ought to be used infrequently. This article presents a signaling model wherein reputational sanctions emerge as a result of noisy signals produced through a firm's prosecution. It is shown that, if, as claimed, NPAs provide third parties with less information regarding a firm's wrongdoings, then firms would be willing to pay an NPA premium to avoid convictions. Thus, the NPA premium can be chosen to induce only those firms which would otherwise be over-deterred to accept NPAs. Therefore, offering NPAs with high premia is superior to the option of not using NPAs. The article also characterizes optimal NPAs, and identifies relationships between deterrence; frequency of NPA use; firms' characteristics; and NPA terms. It explains how these relationships can be exploited to form and test hypotheses on whether convictions obtained through plea-bargains cause greater reputational harm to firms than NPAs.

Do Heads Roll? An Empirical Analysis of CEO Turnover and Pay When the Corporation is Federally Prosecuted

Does the criminal prosecution of a corporation affect the CEO? Or do criminal actions directed at the organization itself pose few consequences for the individuals at the top, and the CEO in particular? While CEOs are rarely themselves prosecuted, organizations could discipline CEOs through paycuts or outright replacing the CEO in response to a criminal prosecution. We sought to examine whether and how that occurs. We focus our analysis on a dataset of public companies that settled criminal cases brought by federal prosecutors from 2000-2014. We compared those companies to the larger set of companies in the Execucomp database of S&P 1500 firms, focusing on CEO compensation and turnover during the same time period. We examined the time period before and after prosecution, and the year that the company resolved the criminal charges against the company. We found that in the year that the company settled its prosecution, through a guilty plea or a deferred or non-prosecution agreement, there was a significantly higher level of CEO turnover. However, we do not find evidence of CEO pay cut. Second, for the prosecuted firms that did not have CEO turnover after prosecution, there is no evidence of a reduction in compensation. Indeed, we observed a spike in CEO bonuses in the year of prosecution—confirming concerns expressed by judges, prosecutors, lawmakers, and academics that corporate prosecutions do not sufficiently impact high-level decision-makers like CEOs. For the prosecuted firms that did have CEO turnover after prosecution, there is some evidence of a pay cut, both to salary and bonus, prior to the replacement of the CEO. These results raise larger questions whether federal prosecutors targeting the most serious corporate crimes sufficiently incentivize accountability at the top.

Corporate Criminal Enforcement in the United States: Using Negotiated Settlements to Turn Potential Corporate Criminals into Corporate Cops

Corporate criminal enforcement in the United States differs from other countries in three ways. First, the United States can impose criminal liability on corporations in a broader range of cases than other countries. Second, almost all corporate criminal resolutions involving large firms take the form of negotiated settlements. Third, the United States grants prosecutors both more choices and more discretion when resolving criminal cases: prosecutors can enter into guilty pleas or pre-trial diversion agreements (deferred and non-prosecution agreements). This chapter shows how granting prosecutors discretion to negotiate criminal settlements and use these alternative forms of criminal resolution can help governments deter corporate crime by inducing corporations to self-report and cooperate. It also identifies what features are needed in order for such a regime to promote deterrence. Finally, it identifies problems with the current U.S. approach that other countries considering employing such measures would do well to avoid.

Settlement agreement types of federal corporate prosecution in the U.S. and their impact on shareholder wealth

This paper analyzes the shareholder wealth effects of corporate prosecution settlements in the U.S. from 2001 to 2014. We focus on the relative monetary size of the settlement and on deferred prosecution and non-prosecution agreements in contrast to traditional plea agreements. The results show that the settlement of criminal prosecution leads to positive shareholder wealth effects, which may be due to the resolution of any remaining uncertainty with respect to the total settlement amount and lower than expected settlement costs. Stockholders generally view the announcement of plea agreements more positively than the announcement of deferred prosecution and non-prosecution agreements. The likelihood of a certain agreement type is strongly dependent on the crime committed. Moreover, larger firms with better board-related governance structures that have not been criminally prosecuted prior to the settlement are more likely to avoid a criminal conviction.

The Public Interest in Corporate Settlements

Corporate settlements are proliferating in form and function. They include consent decrees, corporate integrity agreements, deferred prosecution agreements, non-prosecution agreements, leniency agreements, and plea bargains. Enforcers at the federal and state level now enter an array of administrative, civil, and criminal resolutions of enforcement actions against companies. They may be entered and negotiated in parallel and settled jointly. The reach of these settlements is global. Corporates fines have reached new records, with penalties in the hundreds of billions of dollars affecting entire industries and economies. These settlements have not been studied together as a subject, perhaps because they span very different fields, from antitrust to environmental law, from health law to securities regulation to banking. Private settlements, regulatory settlements, and prosecutions each bring with them varying standards of judicial review and different statutory and court-made procedures for their approval in and out of court. It is understood that judicial review is needed to ensure that the public interest is met. When government actors themselves settle with corporations, often the public interest is too readily presumed. In this Article, I explore how standards in disparate areas have converged raising a common question: what protects the public interest when corporations settle with government? A common field of law, and perhaps more important, equity, governing judicial review of these complex corporate settlements deserves study. In this Article, I will argue that common equitable principles govern in the courts but should be clarified and developed further in judicial rulings, regulations, and in statutes, taking as their lodestar the concept of the public interest.

Humanizing the Corporation While Dehumanizing the Individual: The Misuse of Deferred-Prosecution Agreements in the United States

American prosecutors routinely offer deferred-prosecution and nonprosecution agreements to corporate defendants, but not to noncorporate defendants. The drafters of the Speedy Trial Act expressly contemplated such agreements, as originally developed for use in cases involving low-level, nonviolent, noncorporate defendants. This Note posits that the almost exclusive use of deferrals in corporate cases is inconsistent with the goal that these agreements initially sought to serve. The Note further argues that this exclusivity can be attributed to prosecutors’ tendency to only consider collateral consequences in corporate cases and not in noncorporate cases. Ultimately, this Note recommends that prosecutors evaluate collateral fallout when deciding whether to prosecute noncorporate, as well as corporate, defendants and that the Department of Justice adopt departmental guidelines to ensure compliance with this goal.

Le délinquant d’entreprise comme bouc émissaire

Le Département de la Justice prétend que l’entreprise n’est pas un bouc émissaire, car la priorité est de poursuivre les individus coupables et non les entités artificielles. Mais, comme nous le démontrerons dans cette étude empirique, quand les plus grandes entreprises règlent une affaire pénale fédérale, aucun individu n’est accusé la plupart du temps. L’entreprise apparaît comme une sorte de bouc émissaire qu’il est impossible de placer physiquement en détention, mais susceptible de recevoir un blâme ou une sanction tandis que les individus coupables demeurent libres. Dans cet article, nous développerons des données empiriques originales détaillant le parcours des poursuites individuelles accompagnant les accords de poursuites fédérales des entreprises. Les résultats illustrent les défis posés par la complexité organisationnelle des entreprises qui contribue à obscurcir les fautes. Contrairement à ce que d’illustres critiques appellent de leurs vœux, nous démontrerons que poursuivre davantage les individus ne peut pas se substituer aux poursuites des entreprises.

Prosecuting Beyond the Rule of Law: Corporate Mandates Imposed through Deferred Prosecution Agreements

U.S. corporate criminal enforcement policy allows prosecutors to enter into deferred and nonprosecution agreements (D/NPAs) that impose corporate reformmandates on firms with detected misconduct. This article concludes that the process governing prosecutors’ use of D/NPAmandates is inconsistent with the rule of law. The rule of law requires that individual executive branch actors not be given sufficient authority to restrict the rights of others to achieve personal aims, including idiosyncratic conceptions of the public interest. To satisfy the rule of law, modern governments granting discretion to executive branch actors constrain this authority by limiting the scope of authority granted and requiring external oversight of decisions. Formal enforcement through pleas and formal agency rule-making employ both mechanisms to constrain discretionary authority. By contrast, prosecutors who use D/NPAs to create and impose newduties face few limitations on the scope of their ex ante authority to intervene. They also face little oversight through judicial review. This broad grant of discretion to individual prosecutors’ offices is inconsistent with the rule of law.

The Pendulum Swings: Reconsidering Corporate Criminal Prosecution

Corporate crime continues to occur at an alarming rate, yet disagreement persists among scholars and practitioners about the role of corporate criminal prosecution. Some argue that corporations should face criminal prosecution for their misconduct, while others would reserve criminal prosecution for individual corporate officials. Perhaps as a result of this conflict, there has been a dramatic increase over the last decade in the use of deferred prosecution and non-prosecution agreements for some corporate crimes, even as the government continues to bring criminal charges for other corporate crimes. To move beyond our erratic approach to corporate crime, we need a better understanding of what is accomplished by the criminal prosecution of corporations, a construct that considers retributive and utilitarian theories but also takes into account the expressive function of criminal law and the societal need for condemnation, accountability, and justice when crime occurs.In this article, I provide a justification for corporate criminal prosecution that identifies the moral content of corporate crime, considers the deterrent value of corporate prosecution, and explains why the expressive value of the criminal law is indispensable in the corporate context. Corporate wrongdoing has pernicious effects on our communities, the economy, and the environment, which warrant the condemnation the criminal law provides. Criminal prosecution of corporations upholds the rule of law, validates the choices of law-abiding companies, and promotes accountability. Together those values contribute to our sense that justice has been done when crime occurs, which enhances trust in the legal system, provides the opportunity for societal catharsis, and allows us to move forward in the aftermath of criminal activity. When corporations face no consequences for their criminal behavior, we minimize their lawlessness, and increase cynicism about the outsized influence of corporations.

The Corporate Criminal as Scapegoat

A corporation is no scapegoat, assures the Department of Justice, because the first priority is to prosecute culpable individuals and not artificial entities. Yet, as I document in this empirical study, far more often than not, when the largest corporations settle federal criminal cases, no individuals are charged. High profile failures to prosecute executives in the wake of the Global Financial Crisis have only made the problem more urgent. The corporation appears to be a kind of a scapegoat: impossible to physically jail, but capable of receiving blame and punishment while individual culprits go free. In this Article, I develop original empirical data detailing the path of individual prosecutions accompanying federal corporate prosecution agreements. Only 34 percent of federal corporate deferred and non-prosecution agreements from 2001-2014 were accompanied by charges against individuals. Those prosecutions produced uneven results. Only 42 percent of those charged received any jail time. There were large numbers of outright losses: 15 percent terminated in acquittals or dismissals. Only a handful of the cases involved high-level executives. These findings illustrate the challenges posed by organizational complexity and the manner in which it can obscure fault. Contrary to the calls of prominent critics, I argue that bringing more individual criminal cases cannot adequately substitute for prosecuting companies. Instead, corporate prosecutions should be leveraged to enhance individual accountability. In conclusion, I propose statutory, sentencing, and policy changes to tighten the connection between individual and corporate accountability for crimes.

The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance: Evidence from 1993-2013

Non- and Deferred Prosecution Agreements (N/DPAs) are controversial because prosecutors, not judges or the legislature, are changing the governance of leading public corporations and entire industries. To analyze N/DPAs’ corporate governance implications and provide policy makers with guidance, the authors code all publicly available N/DPAs (N=271) from 1993 to 2013, identifying 215 governance categories and subcategories. The authors find evidence that the execution of N/DPAs is associated with significant corporate governance changes. The study categorizes mandated corporate governance changes for entities that executed an N/DPA as follows: (1) Business Changes, (2) Board Changes, (3) Senior Management, (4) Monitoring, (5) Cooperation, (6) Compliance Program, and (7) Waiver of Rights. The authors supplement the analysis of governance changes in these categories with a more in depth evaluation of the respective subcategories of governance changes. The authors also code and analyze preemptive remedial measures, designed by corporations to preempt the execution of an N/DPA or corporate criminal indictment. The paper evaluates the implications of the empirical evidence for boards, management, and legal practitioners.

Justifications and Purposes of Negotiated Justice for Corporate Offenders: Deferred and Non-Prosecution Agreements in the UK and US Systems of Criminal Justice

This article offers an overview of the UK regime of deferred prosecution agreements in the Crime and Courts Act 2013, in light of the practice of pre-trial diversion in the USA and the lessons learnt to date. The effectiveness of this new prosecutorial tool is discussed on the basis of judicial statistics and other available data. The transformation in the American system of corporate criminal liability, through guidelines disseminated by the Department of Justice and by the Securities and Exchange Commission, shows an increasing emphasis on two main topics: (1) corporate cooperation with authorities in the prosecution of individuals and (2) corporate governance. In this regard, the article argues for a new concept of corporate blameworthiness, which it seeks to affirm based on the theory of ‘reactive fault’. The article furthermore reflects on problems with regard to the framework of corporate rehabilitation, while outlining possible remedies against prosecutorial abuses.

The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance - Evidence from 1993-2013

The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance - Evidence from 1993-2013

Uncharted boundaries of the US Foreign Corrupt Practices Act

Purpose – This paper, presented at the 2012 International Symposium on Economic Crime, Jesus College, Cambridge, identifies four serious problems that affect enforcement of the US Foreign Corrupt Practices Act (FCPA) the awkwardness of using the prosecutorial system as a de facto regulatory agency; the uncertainties imposed on corporate capital budgeting systems in determining how much to spend on compliance; the paucity of judicial interpretation of the law, and thus the interpretations of prosecutors as de facto law that may not be law; and the ambiguous benefits of compliance with the law that leads to inadequate compliance. The paper aims to discuss these issues. Design/methodology/approach – The paper employs traditional legal research methodology, analysing case law, statutory interpretation, legal literature, and textual analysis of aggregated deferred prosecution agreements and non-prosecution agreements between the US Department of Justice (DOJ) and national and multinational corporations between...

Las Vegas Sands Corp. Non-Prosecution Agreement, August 26, 2013

Las Vegas Sands Corp. Non-Prosecution Agreement, August 26, 2013

What Is In It For Me: How Recent Developments in FCPA Enforcement Affect the Voluntary Disclosure Calculus

With increasing enforcement of the US Foreign Corrupt Practice Act companies must give consideration to the 'pros' and 'cons' of voluntary disclosure. The benefits of voluntarily disclosing corrupt activity are difficult to discern through comparison with settlement involving non-disclosed activities. Despite the lack of a clear effect on penalty amounts, there are discernible advantages to voluntary disclosure, including preserving the opportunity for the government to formally decline prosecution or agreeing to a non-prosecution agreement ('NPA'). Disclosure also increases the likelihood that the government may forgo requiring an external monitor in favour of far less intrusive self-monitoring and reporting requirements. This article addresses some of the most important considerations with regard to voluntary disclosure of a Foreign Corrupt Practice Act (FCPA) violation to support each company making a decision based its own facts and circumstances and in consultation with qualified FCPA counsel.

Corporate Investigations - Challenges in Corporate Governance

One of the effects of this historic financial crisis and its spotlight on corporate conduct is likely to be an increased pressure to allocate blame. That pressure is bound to be directed toward identifying culpable employees within a firm, given the desire to spare corporations from indictment and prosecution. Thus corporate directors will have to consider the potential implications to the firm of the process required to identify such culpable employees- corporate investigations. Additionally, should the firm succeed in being spared an indictment it will likely be subject to ongoing oversight through a Deferred or Non-prosecution agreement (“DPA” and “NPA,” respectively). This paper will trace the tortured trail of the Department of Justice (“DOJ”) in creating various iterations of Principles of Federal Prosecutions of Corporations. Notwithstanding nearly a decade of memoranda addressing these issues the DOJ has left the corporation vulnerable to undermining important legal protections and ethical principles. Furthermore, should a corporation succeed in avoiding indictment and entering into a deferred or non-prosecution agreement its directors need to be aware of the unchartered waters in which they may be operating. This paper will also address the specific governance issues surrounding such agreements.

Negotiating Enforcement and Sanctioning in Regulatory Capitalism: The Need for Problem-Solving Courts

In both Australia and North America regulators and businesses have attempted to develop collaborative, problem-solving processes for settling enforcement proceedings without a full trial via ‘enforceable undertakings’ (Australia) or ‘deferred’ and ‘non-prosecution agreements’ (North America). This paper shows that the considerable challenge of effective and legitimate sanctioning of corporations in regulatory capitalism has driven the development of negotiated settlement of regulatory enforcement action. I argue that criticisms that negotiated settlements are both too harsh and too soft point to an important gap in the institutional design of regulatory capitalism. Is it possible, and if so how, to radically reconceive the role of the court in regulatory enforcement so that problem-solving courts catalyze and coordinate effective and legitimate collaborate settlements of corporate enforcement action?