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James Copland: Justice Department may be in the next cubicle

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It has been 10 years since Arthur Andersen LLP, former "Big Five" accounting firm, was indicted for its actions related to the audit of Enron. The firm gave up its CPA licenses and shed nearly 85,000 employees after being found guilty of numerous crimes by a district court and was never able to recover as a firm despite a ruling by the U.S. Supreme Court in Arthur Andersen LLP v. United States which overturned the conviction.

Jim Copland, director of the Center for Legal Policy at the Manhattan Institute, brings to light new tactics employed by the Department of Justice to enforce criminal laws against corporations. In an op-ed published by Bloomberg.com, Copland explains this new approach and why even in the DOJ's efforts to avoid collateral consequences that flow from large-scale prosecutions of corporations such an approach can be problematic:

...in the place of actual prosecutions, the Justice Department has aggressively pursued what are blandly called "deferred prosecution" or "non-prosecution" agreements -- DPAs and NPAs, for short -- through which prosecutors and companies negotiate terms to avoid a criminal trial. This approach may be avoiding the sort of corporate death sentence visited upon Andersen for what proved to be non-crimes, but nonetheless does something just as worrisome: It insinuates Justice Department career bureaucrats into the day-to-day management of major American businesses...

In each of the past three years, fines and penalties levied under federal deferred-prosecution and non-prosecution agreements have exceeded $3 billion. While such fines are not insignificant, of far greater concern are the sometimes sweeping powers that prosecutors have asserted over business practices. In recent DPAs and NPAs, federal prosecutors have variously pressured companies to change long-standing sales and compensation practices; to restrict or modify contracting and merger decisions; to carry out onerous compliance and reporting programs; to appoint corporate monitors with broad discretion over management decisions; and even to oust executives or directors.

Businesses accept the agreements with such aggressive terms because they can ill afford to fight a criminal investigation.

Copland's piece is only an overview of his deeper analysis of DPAs and NPAs undertaken in a Manhattan Institute Civil Justice Report titled The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements. In this report, Copland zeros in on companies currently operating under these agreements and explores the agreed-to terms. He uncovers that "seven Fortune 100 companies are currently operating under the supervision of federal prosecutors: CVS Caremark (CVS) Corp., Google (GOOG) Inc., Johnson & Johnson, JPMorgan Chase & Co., Merck & Co., MetLife Inc. and Tyson Foods Inc."

Manhattan Institute's Center for Legal Policy also brought Copland together with Senator Rand Paul (R-KY) for a web conference to discuss the broader issue of overcriminalization, the rapid expansion over the last forty years of a host of criminal laws, many of which are vague, many of which overlap and those which decrease or eliminate the intent requirements that traditionally were the foundational principle of criminal law.

It will be important to track the developments of DPAs and NPAs especially as more corporations are subject to these agreements. As Copland explains, "others, such as Wal-Mart Stores Inc., currently facing scrutiny for alleged Mexican bribes prohibited under the Foreign Corrupt Practices Act, are sure to follow."

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.