Obama DOJ Continues Practice Of Deferring Corp Prosecutions
July 15 2009 - 6:00PM
Dow Jones News
Much has changed at the Justice Department since the Obama
administration took charge, but one controversial tactic in
corporate-crime cases has not: the use of settlements that allow
corporations to avoid prosecution for wrongdoing.
The department has entered into 10 of these agreements at the
mid-point of 2009, a pace slightly ahead of 2008, when the
department entered into 18 agreements over the whole year,
according to a report by the law firm Gibson, Dunn &
Crutcher.
And the pace could quicken in the coming months if the
department builds criminal cases against firms that are connected
to the economic meltdown. "There could be a lot of deferred
prosecution agreements coming out of that," law-firm partner Joseph
Warin said.
Under the agreements, called deferred prosecution agreements or
non-prosecution agreements, a corporation typically pays a fine and
agrees to take a number of steps to remedy its wrongdoing, in
exchange for a government promise not to prosecute.
Notable agreements this year include settlements in which UBS AG
(UBS) admitted to helping wealthy Americans evade taxes and Beazer
Homes USA Inc. (BZH) admitted to mortgage fraud and securities
fraud violations, the first deferred prosecution agreement tied to
the mortgage meltdown.
These types of agreements were largely unheard of a decade ago,
but their use has grown rapidly in recent years, especially since
accounting firm Arthur Andersen LLP collapsed after its 2002
criminal conviction on obstruction-of-justice charges related to
the Enron scandal. The firm's demise resulted in the loss of tens
of thousands of jobs. The conviction was later overturned by the
Supreme Court, but the damage already had been done.
Justice Department lawyer Gary Grindler, testifying at a U.S.
House hearing last month, said deferred prosecution agreements
ensure that corporations face serious consequences for wrongdoing
while also minimizing the impact to innocent third parties.
Employees, shareholders and customers all can be harmed when a
corporation is prosecuted, he said.
But critics, including some lawmakers, have suggested that the
agreements encourage disrespect for the law and fail to hold
corporations fully accountable for their actions.
Rep. Steve Cohen, D-Tenn., speaking at the same hearing, said
companies "shouldn't necessarily get a sweetheart deal because they
are a corporation and be subjected to a different set of justice
than an individual would."
Other critics have approached the issue from a different angle,
questioning whether the deals give prosecutors too much leverage
over corporations and allow them to extract penalties in
questionable cases where in the past the government would have
chosen not to prosecute.
A preliminary U.S. Government Accountability Office report,
released last month, said federal prosecutors around the country
varied in their willingness to use the agreements, and in the
conditions they included in them.
Warin of Gibson Dunn said there have been several notable
variances in the agreements reached so far this year.
Under the Beazer Homes deal, announced earlier this month, the
home builder cannot make statements that contradict its acceptance
of responsibility for its criminal wrongdoing, but if the company
faces related lawsuits from private parties, it can argue that the
government's allegations should not apply in those cases.
"Many prosecutors won't agree to that provision," Warin
said.
As part of the UBS agreement, prosecutors allowed the bank to
continue to fight a high-stakes IRS summons that seeks the
identities of 52,000 clients who may have used UBS accounts to
evade taxes.
A settlement involving WellCare Health Plans Inc. (WCG) required
the company to post copies of the deferred prosecution agreement
and the Justice Department's charges prominently on its Web site
until the agreement expires.
The deal, announced in May, resolved charges that the company
defrauded Florida's Medicaid and Healthy Kids programs.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222;
brent.kendall@dowjones.com