Convictions: Slate's blog on legal issues

Reply to Bob Litt

So the question raised by the Times article is just whether the increasing use of DPAs, in lieu of plea agreements (not, as I was trying to explain, in lieu of trials, as the Times said), represents good policy.  Everything depends on the terms of the deals, and whether the monitors effectively ensure that they are carried out.  If the strictness of the deal is reasonable in light of the seriousness of the criminal activity, then they will clearly be an improvement over criminal prosecution or plea agreements, for the reasons given by Bob Litt.  Also as he notes, they could be too strict, the result of corporations agreeing to anything in order to avoid the destructive effects of a conviction.  Unfortunately, the Times article sheds no light on these questions.

Corporate Culpability?

Bob Litt, a former federal prosecutor and Justice Department official who now practices with Arnold & Porter LLP in Washington, sent me this note in response to Eric's post today on corporate prosecutions:

While trying to clear up confusion engendered by the New York Times article, Eric actually creates more confusion.  By suggesting that a deferred prosecution is a "plea agreement plus," he misses the essential point of a deferred prosecution agreement, which is that it precisely is NOT a plea agreement.  In a plea agreement, a corporation enters a guilty plea and is convicted of a crime.  In a deferred prosecution agreement, criminal charges are filed but the corporation does NOT enter a plea.  Instead, it agrees to undertake certain reforms and to be on probation for a period of time, and if it successfully completes that period, the charges are dismissed and the corporation is never convicted.

The real policy change is not a shift from "trial" of corporations to DPAs.  It has always been very rare for a corporation, particularly a public corporation or a corporation in a regulated industry, to go to trial. (How many can you think of?) When criminal charges are actually filed against a corporation the result is almost always a guilty plea.  The right question to ask is not the one Eric asks - whether cases resolved by a DPA would previously have ended in "plea bargains or in trials."  The right question is whether the Department of Justice is using DPAs in cases that it would otherwise have prosecuted, or whether it is using its substantial leverage to coerce a corporation to accept a DPA in cases that it would previously have declined to prosecute at all.

Many people believe that Department of Justice policy has softened -- that instead of insisting upon agreements that require guilty pleas and convictions it will accept agreements that do not. This shift is extremely beneficial to corporations because of the collateral consequences that can result from a criminal conviction -- ranging from debarment from federal contracts, to exclusion from participation in health care programs, to civil liability in private lawsuits.  A DPA carries none of these consequences.  So there is a reason why corporations prefer DPAs to plea agreements.

But that's not to say that the change is bad as a matter of policy.  There are substantial arguments in favor of a policy that forgoes prosecution of corporation, at least so long as the government pursues vigorous prosecution of responsible individuals.  A corporation, of course, is an artificial entity.  You can't "deter" or "punish" a corporation effectively.  Particularly in the case of a public corporation, it is almost invariably the case that the effects of corporate prosecution fall most heavily on innocent individuals who had no ability to control the criminal behavior, namely shareholders and employees.  Witness the case of Arthur Andersen (actually a partnership but the same principles apply), where the company went out of business, and thousands lost their jobs, when the government insisted on prosecuting the company as well as the responsible individuals.  If we had more vibrant corporate governance in this country there might be greater justification for prosecution of corporations.  But since shareholders have almost no power over the actions of a corporation or its management, it seems peculiarly unfair to punish them for the malfeasance of management.

A Justice Shift?

A front-page article in the New York Times today discusses what it calls a "shift" in Justice Department policy: "corporate deals" are replacing "trials," as the headline puts it.  The tenor of the article is that corporations are getting away with murder, thanks to the lax prosecutorial policies of the Justice Department.  The article, however, rests on a simple confusion about what is going on.

The article confuses two overlapping but conceptually distinct phenomena: a plea agreement, where the defendant avoids a trial and the risk of a conviction by paying a fine (sometimes, pleading guilty to a lesser charge, sometimes not); and a deferred prosecution agreement, where a similar deal is made (including payment of a fine) but, in addition, the corporate defendant agrees to undertake internal reform that will be monitored by an outsider appointed by the government.  If the monitor declares that the firm has failed to make the necessary reforms, then the agreement is off, prosecution and trial will proceed.  A DPA is just a tough version of the plain-vanilla plea agreement.

The article (read the headline) implies that the Justice Department prefers to coddle corporate defendants with DPAs, rather than subject them to trial, conviction, stigmatization, and destruction.  So trials are being abandoned in favor of DPAs.  But, in fact, the article provides no evidence that this is what is happening, nor does it quote anyone who says this is what is happening.  (The article quotes a law professor, Vikramaditya Khanna, who quite reasonably says that corporations prefer DPAs to trials (after all, if they didn't, they wouldn't agree to DPAs).  But Khanna's work does not establish that DPAs are replacing trials; he's interested in how DPAs should be structured.  Others quoted in the article worry about whether DPAs may be too lax but none says that they have replaced trials.)

In fact, what appears to be happening is that the Justice Department has decided that DPAs are often more appropriate than ordinary plea agreements.  That's the policy "shift"; not a decision to stop trying corporations.  And it's a policy shift that should make corporations cry rather than cheer.  As far as I can tell from looking at DOJ and Sentencing Commission statistics, the likelihood that a corporate defendant will go to trial rather than enter a plea has remained about the same (10-15 percent of cases) since the early 1990s.  It's possible that trials of corporate defendants have become less common, but, if so, it's not because DPAs have become more common.  DPAs seem to be replacing ordinary plea agreements, not trials.  And, as far as I can tell from the scholarship, the main concern now is not corporate coddling, but prosecutorial overreaching.  See this article by Brandon Garrett, for example.

In other words, when the article says that the Justice Department, "once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years," we need to know the counterfactual.  In an earlier time, would these prosecutions have ended in plea bargains or in trials?  And would any convictions secured after a trial be worth the time and expense that could have been used to pursue other cases?

The headline should be: "In Justice Shift, Corporate Monitoring Supplements Plea Deals."  It may be that this shift is a bad idea, or that Justice Department policy toward corporations is in other ways objectionable (maybe the deals are not strict enough), but the article sheds no light on these issues.