|
he New York Times
April 9, 2008
In Justice Shift, Corporate Deals Replace Trials
By ERIC LICHTBLAU
WASHINGTON In 2005, federal authorities concluded that a Monsanto
consultant had visited the home of an Indonesian official and, with the
approval of a senior company executive, handed over an envelope stuffed with
hundred-dollar bills. The money was meant as a bribe to win looser
environmental regulations for Monsantos cotton crops, according to a court
document. Monsanto was also caught concealing the bribe with fake invoices.
A few years earlier, in the age of Enron, these kinds of charges would
probably have resulted in a criminal indictment. Instead, Monsanto was
allowed to pay $1 million and avoid criminal prosecution by entering into a
monitoring agreement with the Justice Department.
In a major shift of policy, 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.
Instead, many companies, from boutique outfits to immense corporations like
American Express, have avoided the cost and stigma of defending themselves
against criminal charges with a so-called deferred prosecution agreement,
which allows the government to collect fines and appoint an outside monitor
to impose internal reforms without going through a trial. In many cases, the
name of the monitor and the details of the agreement are kept secret.
Deferred prosecutions have become a favorite tool of the Bush
administration. But some legal experts now wonder if the policy shift has
led companies, in particular financial institutions now under investigation
for their roles in the subprime mortgage debacle, to test the limits of
corporate anti-fraud laws.
Firms have readily agreed to the deferred prosecutions, said Vikramaditya S.
Khanna, a law professor at the University of Michigan who has studied their
use, because clearly it avoids a bigger headache for them.
Some lawyers suggest that companies may be willing to take more risks
because they know that, if they are caught, the chances of getting a
deferred prosecution are good. Some companies may bear the risk of legally
questionable business practices if they believe they can cut a deal to defer
their prosecution indefinitely, Mr. Khanna said.
Legal experts say the tactic may have sent the wrong signal to corporations
the promise, in effect, of a get-out-of-jail-free card. The growing use of
deferred prosecutions also suggests one road map the Justice Department
might follow in the subprime mortgage investigations.
Deferred prosecution agreements, or D.P.A.s, have become controversial
because of a medical supply companys agreement to pay up to $52 million to
the consulting firm of John Ashcroft, the former attorney general, as an
outside monitor to avoid criminal prosecution. That agreement has prompted
Congressional inquiries and calls for stricter guidelines.
Defenders of deferred prosecutions say that they have been too harshly
criticized lately and that they play a crucial role in allowing the
government to secure the cooperation of a company while avoiding the time,
expense and uncertainty of a trial. The agreements, government officials
say, also avoid the type of companywide havoc seen most acutely in the case
of Arthur Andersen, the accounting firm that was shuttered in 2002 after
being indicted in the Enron scandal. The firms collapse threw 28,000
employees out of work.
At a Congressional hearing last month, Mr. Ashcroft defended the agreements,
saying that they avoided destroying entire corporations through criminal
indictments. Prosecutors understand that a corporate indictment can be a
corporate death sentence, he said. A deferred prosecution can avoid the
catastrophic collateral consequences and costs that are associated with
corporate conviction.
Paul J. McNulty, a former deputy attorney general who put new guidelines in
place in 2006 for corporate investigations at the Justice Department, said
in an interview, Theres a fundamental misapprehension with D.P.A.s to
think that theyre a break for the company.
With the imposition of fines and an outside monitor, the reality is that
for the government, it gets pretty much everything without the difficulty of
going forward with an indictment, said Mr. McNulty, who is now in private
practice. I think companies are beginning to wonder whether they ought to
fight more, because they are pretty burdensome.
But critics of the agreements question that assertion. Charles Intriago, a
former federal prosecutor in Miami who specializes in money-laundering
issues, said that huge penalties, like the $65 million fine for American
Express Bank International in 2007, were peanuts compared with the damage
posed by a criminal conviction. The company was accused of failing to enact
internal controls to guard against laundering of drug money and other
reporting problems.
The agreements were once rare, but their use has skyrocketed in the current
administration, with 35 deals last year alone by the Justice Department,
lawyers who follow the trend said. Banks, financial service companies and
auditors have frequently entered into such agreements, including recent ones
involving Merrill Lynch, the Bank of New York, AmSouth Bank, KPMG and
others. Beyond financial crimes, deferred agreements have been used in lieu
of prosecuting companies though not individuals for export control
violations, obscenity violations, Medicare and Medicaid fraud, kickbacks and
environmental violations.
In general, such agreements result in companies acknowledging wrongdoing by
not contesting criminal charges, but without formally admitting guilt. Most
agreements end after two or three years with the charges permanently
dismissed.
Monsanto, for example, while not admitting guilt, agreed to abstain from
further violations of bribery laws. In an e-mail message, Lori Fisher, a
spokeswoman, said that Monsanto had cooperated with the Justice Department
and fully complied with the agreement, leading to deferred charges being
permanently dismissed in early March.
The trend has led to increased speculation about how the Justice Department
might use the agreements in investigations against financial companies in
the mortgage lending scandal, which has become a top law enforcement
priority for the department as the economy has withered.
The Federal Bureau of Investigation has 17 open inquiries into accusations
of corporate fraud in connection with the subprime scandal, and Neil Power,
who leads the bureaus economics crime unit, said in an interview that the
number was certain to grow. The F.B.I. has publicly identified only one
target the Doral Financial Corporation, a mortgage company based in Puerto
Rico whose former treasurer has already been indicted but major companies
like Countrywide Financial, once the nations biggest mortgage lender, have
also been reported to be under criminal investigation.
Mr. Power said the investigations were a reflection of the environment of
greed that allowed companies to package mortgages into securities they sold
to investors without sufficient documentation of the borrowers ability to
repay. One line of criminal inquiry focuses on whether bond companies gave
accu
|
| |
| |
|
