The Decline of Corporate Convictions

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


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.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate