« Repealing the Magna Carta | Blog Index | How Necessary is That NSA Program? »

Advertisement

recent entries Foley Resigns Over Sexually Explicit Emails (Or, "...sick sick sick sick sick.") Training Extremists While They Are Young U.N. Security Council to Discuss Human Rights Violations in Burma Bludgeoning Iraq's "Burgeoning Free Press" "Enough with the carrots. It's time for the stick." Free Trade Love Rwanda Abolishes Death Penalty to Get Justice Why Did Bush Want the NIE Released When It So Obviously Contradicts His Happy Talk? Going Postal on George Allen Presidential Signing Statements Revisited

The Decline of Corporate Convictions

Corporate Crime Reporter has a long and interesting new report out about "The Rise of Deferred and Nonprosecution Agreements" with respect to corporate crime. The brief summary goes something like this:

Federal and state prosecutors are increasingly offering major corporations – including Adelphia, Computer Associates, KPMG, Merrill Lynch, Monsanto, Sears, Shell, WorldCom/MCI – special deals – known as deferred prosecution or non prosecution agreements.

Under these agreements, prosecutors agree not to criminally prosecute the corporation to conviction in exchange for cooperation against culpable executives, implementation of corporate monitors, and fines.

So, for instance: In August 2005, the accounting firm KPMG admitted to fraud that generated at least $11 billion in phony tax losses. But there was no conviction, and the company was instead given a deferred prosecution deal, which came over the objections of N.Y. Attorney General David Kelley. KPMG appealed directly to Deputy Attorney General James Comey—the man who has received a few plaudits of late for refusing to sign off on the Bush administration's spying program—and the deputy AG ordered Kelley to cut a deal. Comey was reportedly worried that KPMG would go the way of Arthur Andersen, and figured it was a company that was too big to fail. (Arthur Andersen, by the way, received its own deferred prosecution deal in 1996, in a case involving real estate fraud.)

This practice has become much more common since 2002, after prosecutors became skittish about bringing more Enrons down, and the practice picked up legitimacy for major corporate crime cases after then-Deputy Attorney General Larry Thompson issued a memo in 2003 setting new "guidelines" for prosecuting corporations. (Previously, prosecutors defended these deals by saying they didn't want to clog up the courts with minor crimes—but now they're being used for major crimes as well.)

Now there's at least a plausible case for avoiding an indictment and possibly a conviction of a major corporation. Some prosecutors will say that corporations are too big to indict. If there's an indictment, the company's stock could tumble, innocent people could lose their jobs, the economy could suffer. And a conviction could put a company out of business altogether. (This isn't exactly true: Convicted criminals such as Chevron, Exxon, Tyson Foods, Pfizer, and Samsung are all still in business, last I checked.) So it makes much more sense, the prosecutors say, simply to put those individuals responsible (i.e."bad apples") in jail and just let the corporation reform itself. No conviction necessary!

The downside, of course, is that without the threat of conviction hanging over their heads, corporations have less incentive to avoid wrongdoing, especially if they know that if they get caught, at worst, they'll have to pay a fine, serve up the head of an executive or two, and then carry out a few nominal "reforms." After all, Arthur Andersen certainly didn't learn any heartfelt life lessons after cutting a non-prosecution deal in 1996, after engaging in real estate fraud.

Another potential problem is that the leeway that prosecutors get in cutting these deals opens the doors for abuse. In 2005, Bristol Myers Squibb, as part of its deferred prosecution deal over charges of conspiring to commit securities fraud, was ordered to pay a fine, make some reforms, and fund a chair in business ethics at Seton Hall, which just happened to be the New Jersey Attorney General's alma mater. It's hardly the slimiest thing in the world, and perhaps this example was perfectly innocent, but the possibility for corruption is certainly there.

So it's an interesting issue, and not something that has really been fully thrashed out yet. Me, I tend towards the "law and order" side of corporate crime and punishment, and probably wouldn't mind seeing the death penalty hauled out for especially flagrant corporations. But the debate's obviously less cartoonish than that. Russell Mokhiber of CCR suggests that even if you accept the arguments of prosecutors who favor these deals, it still might make more sense for AGs to pursue "corporate probation." That would achieve basically the same thing—force the company to pay a fine, reform itself, hand over executives head's on platters, etc.—but would keep the process within the judicial system, as a judge makes sure that the company has rehabilitated itself before lifting probation.

Posted by Bradford Plumer on 01/06/06 at 1:30 PM | E-mail | Print

---

TrackBacks

Comments

Post a comment

Name:

Email Address:

URL:

Remember personal info?

Comments: