Deferred Prosecution and Corporate Criminal Prosecution: A Comparative Analysis.
| Author | Loughlin, Walter P. |
Introduction
Traditionally, when a prosecutor is confronted with evidence of a crime, there are three options: decline the prosecution for reasons of evidentiary weakness or legal obstacle, negotiate a guilty plea on acceptable terms, or proceed to trial. However, since the early 1990's in the United States, and since last year in England, prosecutors have been able to deploy a different weapon in their arsenal with respect to corporate criminal liability--the deferred prosecution agreement. ("DPA") The increasing prominence of such agreements in the United States, and their advent in England, presents an appropriate occasion for comparative analysis.
What is a Deferred Prosecution Agreement?
A deferred prosecution agreement is a formal written agreement between a prosecutor's office and a corporation with the following typical features: the prosecutor files an indictment setting out the criminal charges, which are held in abeyance. The prosecution does not proceed as long as the corporation abides by the terms of the agreement, such as the payment of a fine, restitution to victims, and the implementation of corporate governance reforms, such as new and strengthened compliance procedures and controls aimed at reducing the risk of further criminal behavior. The company's adherence to the terms of the agreement is often overseen by an independent monitor who submits periodic reports to the prosecutor's office. The duration of a DPA can be several years. Some have been considerably longer. If the remediation process is regarded as a success, the previously filed criminal charges are dismissed.
From Pretrial Diversion for Individuals to Deferred Prosecution for Corporations: The U.S. Model
The modern deferred prosecution had humble beginnings. Many years ago, prosecutors developed what were called pretrial diversion programs. When it was believed an offender's behavior had its roots in drug or alcohol addiction, mental illness, or the like, an agreement was often reached to divert the defendant from the criminal process to some appropriate social services program. If a defendants issues were addressed effectively, the prosecution would be dismissed, after an agreed period of time, as long as the defendant had not committed any another crime during the period of diversion. (1)
In the same way that the pretrial diversion programs seek to rehabilitate an individual, with the aim of reforming behavior to reduce recidivism, deferred prosecution agreements seek the structural reform of corporate organizations to enhance the prospect that the company will be a law-abiding corporate citizen.
Since 2003, prosecutors in the United States have entered into 255 such agreements. (2) In 2012, the head of the Criminal Division of the Justice Department described deferred prosecution agreements as a "mainstay of white collar criminal enforcement." (3)
The use of DPA's has also drawn the attention of the academy. Professor David Uhlmann of the University of Michigan Law School has described the use of deferred prosecution agreements as having "surged" to the point of being the basis for resolving corporate criminal prosecutions in two-thirds of all federal cases between 2010 and 2012. (4) Professor Garrett of the University of Virginia Law School recently published a book-length treatment of deferred prosecution agreements based on a database he created to compile DPA's and NPA's from disparate sources. (5) Even the Securities and Exchange Commission, which has solely civil enforcement powers, has begun entering into deferred prosecution agreements with securities law violators who provide cooperation leading to enforcement actions against more culpable persons or entities. (6) Deferred Prosecution Comes to England
In May 2012, the Lord Chancellor and Secretary of State for Justice submitted to Parliament a Consultation Paper, entitled "Consultation on a New Enforcement Tool to Deal with Economic Crime Committed by Commercial Organisations: Deferred Prosecution Agreements." The Consultation Paper invoked the use of deferred prosecution agreements in the United States, and argued--over nearly 50 pages--that "deferred prosecution agreements ... can make a valuable contribution to efforts to identify and address corporate economic crime." (7) This was followed by enactment of the Crime and Courts Act of 2013, which became effective in February 2014, and which provides statutory authority for the use of deferred prosecution agreements. (8) Section 6(1) of the Act required the Director of Public Prosecutions and Director of the Serious Fraud Office to issue a code to govern the use by prosecutors of deferred prosecution agreements. A detailed handbook, The Deferred Prosecution Agreements Code of Practice, was subsequently published. (9)
A Preliminary Word on the Legal Standard for Corporate Criminal Liability
An understanding of deferred prosecutions requires at least a brief discussion of the legal standards for corporate criminal liability in the United States and in England. The word corporation comes from the Latin word corpus, meaning body. Although a corporation may in some sense be a body, it is an inanimate one. And though a corporation can commit a crime, it can only do so through one or more of its employees, officers, or directors. As Lord Chancellor Edward Thurlow is reported to have remarked in the 18th century, corporations "have no soul to damn or body to kick," reflecting the reality that a corporation cannot be imprisoned or punished in the same way an individual can. (10) In the United States it has been the rule for over a century that an organization commits a crime if even a single employee, acting within the scope of his or her employment, and at least in part for the benefit of the company, engages in criminal conduct. In other words, corporate criminal liability in the United States is based on a broad concept of respondeat superior "let the master answer," which attributes the crime of an employee to its modern master, the employer. (11)
The breadth of this rule may cause a prosecutor to doubt whether to charge a company with the crimes of its employee, or even crimes committed by senior management, especially when doing so could result in collateral damage to innocent parties, such as employees who did not engage in wrongdoing, shareholders whose investment might be imperiled by a prosecution that causes reputational damage and a drop in share value. Prosecution of a corporation can scare away vendors or sources of finance and cause debarment or loss of licenses which may jeopardize a company's very existence.
Three examples will illustrate the point. One of the earliest deferred prosecution agreements involved Prudential Insurance Company, which in the early 1990's, was found to have defrauded a large number of investors...
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