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.