Notes

Dead on Deferral?: Whether to Prosecute Companies That Fail to Comply with DPAs

By Brit­tney Nagle1

Enor­mous fines have become one of the most rec­og­niz­able ways that the Unit­ed States pun­ish­es bad actors on the glob­al stage. When bad actors, in par­tic­u­lar large inter­na­tion­al banks and oth­er finan­cial insti­tu­tions, vio­late U.S. eco­nom­ic sanc­tions and fail to fol­low Anti-Mon­ey Laun­der­ing (AML) require­ments, law enforce­ment agen­cies on fed­er­al, state, and local lev­els have launched large scale crim­i­nal and civ­il inves­ti­ga­tions.2 These inves­ti­ga­tions do not always result in crim­i­nal pros­e­cu­tion; instead, the par­ties involved will often reach a res­o­lu­tion.

One such res­o­lu­tion mech­a­nism that has gained increas­ing pop­u­lar­i­ty in recent years is a Deferred Pros­e­cu­tion Agree­ment (DPA). Under a DPA, a defen­dant, in this con­text usu­al­ly the cor­po­ra­tion itself, agrees to waive indict­ment and be charged crim­i­nal­ly, and in exchange the pros­e­cu­tor agrees to defer crim­i­nal charges under the con­di­tion that the defen­dant ful­fills cer­tain con­di­tions with­in a spec­i­fied time.3 A com­mon con­di­tion of DPAs requires the bank or finan­cial insti­tu­tion work with a mon­i­tor, typ­i­cal­ly an unre­lat­ed law firm or audi­tor, for a peri­od gen­er­al­ly of five years to ensure that the fail­ures in their com­pli­ance and AML sys­tems were fixed, and that the same pit­falls that led to the vio­la­tions in the first place were not repeat­ed.4 If the defen­dant sat­is­fies their oblig­a­tions under the DPA, the charges are dis­missed and it is as though the gov­ern­ment decid­ed nev­er to bring charges in the first place.5 If how­ev­er, the con­di­tions of the DPA are not met, then the defen­dant could face crim­i­nal pros­e­cu­tion.6

Many of those agree­ments, signed in 2010 through 2012, either have or are about to come to the end of the mon­i­tor­ing term.7 Reg­u­la­tors and law enforce­ment agen­cies are or will be work­ing with the finan­cial insti­tu­tions and banks them­selves to deter­mine whether the terms of the DPAs were ful­filled.8 This will inevitably raise the ques­tion of what options are left for reg­u­la­tors and law enforce­ment agen­cies that find that a finan­cial insti­tu­tion has failed to ful­fill the require­ments of its DPA.

Both crim­i­nal and civ­il pro­ceed­ings could be brought fol­low­ing a bank’s fail­ure to meet the require­ments of its DPA. On the crim­i­nal side, the two major options are pur­su­ing crim­i­nal charges against the cor­po­ra­tion and impos­ing indi­vid­ual crim­i­nal lia­bil­i­ty against cor­po­rate exec­u­tives. Each of these options presents its own ben­e­fits, incen­tives, and chal­lenges, and they are not mutu­al­ly exclu­sive. This Con­tri­bu­tion will argue a com­bi­na­tion of crim­i­nal charges against banks who do not uphold their oblig­a­tions under a DPA along with bring­ing actions to dis­gorge exec­u­tives of bonus and dis­cre­tionary com­pen­sa­tion would be the best ways to ensure that the gov­ern­ment is able to enforce sanc­tions and AML com­pli­ance on major inter­na­tion­al banks.

I.              Cor­po­rate Crim­i­nal Lia­bil­i­ty

The first option that pros­e­cu­tors could con­sid­er in the event of a failed DPA is to bring crim­i­nal charges against the bank or finan­cial insti­tu­tion. Crim­i­nal charges against the cor­po­ra­tion would vary depend­ing on the con­duct, but could involve crimes like mail fraud, wire fraud, fal­si­fy­ing busi­ness records, and tax eva­sion, as in the Cred­it Suisse case.9 The ben­e­fit to direct­ly pur­su­ing charges is that it is arguably the strongest “stick” of enforce­ment. How­ev­er, pur­su­ing crim­i­nal charges can also come with enor­mous con­se­quences that give pros­e­cu­tors and reg­u­la­tors pause.

The main con­cern with this course of action is the pre­vail­ing wis­dom that the col­lat­er­al con­se­quences of actu­al­ly indict­ing a bank like­ly out­weigh the ben­e­fits of an indict­ment.10 Indict­ments in this sit­u­a­tion can wreak hav­oc on the employ­ees, share­hold­ers, and cus­tomers of the insti­tu­tion. These harms could exceed any ben­e­fit to be gained by pun­ish­ing the bank in this way.11 The col­lapse of Arthur Ander­sen under the weight of a crim­i­nal indict­ment and pros­e­cu­tion led to the idea that pur­su­ing a crim­i­nal case against a large cor­po­ra­tion is effec­tive­ly a death sen­tence for the com­pa­ny, regard­less of the ulti­mate out­come of the case.12 This so-called “Ander­sen effect” is often cit­ed as a major fac­tor in the Depart­ment of Justice’s pol­i­cy of pur­su­ing DPAs instead of crim­i­nal indict­ments.13

Recent­ly, how­ev­er, the Depart­ment of Jus­tice (DOJ) has faced some crit­i­cism for this approach, and this may indi­cate that crim­i­nal charges are a more like­ly and desired result of a failed DPA. Crit­ics argue that the fear of the “Ander­sen effect” and fear of accu­sa­tions of pros­e­cu­to­r­i­al over­reach­ing have led the DOJ and oth­er agen­cies to be too soft on cor­po­rate crime.14 Court E. Golumbic and Albert D. Lichy, two schol­ars who have stud­ied trends in enforce­ment, cite two major shifts in the exec­u­tive and judi­cial branch­es as evi­dence that the tide may be turn­ing back in favor of crim­i­nal charges.15

The first shift is the judi­cial branch’s appar­ent view that the Depart­ment of Jus­tice is being too soft on cor­po­rate crime and desire to be involved in the set­tle­ment process. In Unit­ed States v. HSBC Bank USA, N.A., Judge Glee­son took the unprece­dent­ed step of find­ing that the super­vi­so­ry pow­er of the court gives judges the author­i­ty to super­vise the terms of the DPA and ulti­mate­ly the pow­er to approve or reject it should the court find the terms improp­er.16 Judge Gleeson’s rul­ing comes after Judge Rakoff’s refusal to approve the Secu­ri­ty Exchange Commission’s (SEC) set­tle­ment with Cit­i­group Glob­al Mar­kets for their role in the finan­cial cri­sis of 2008.17 In his opin­ion, Judge Rakoff railed against the judi­cia­ry sim­ply grant­i­ng rub­ber-stamp approval of set­tle­ments between the gov­ern­ment and finan­cial insti­tu­tions, going to far to say that doing so is “worse than mind­less, it is inher­ent­ly dan­ger­ous.”18 The Sec­ond Cir­cuit dis­agreed with Judge Rakoff, but the trend of judges becom­ing more involved in the agree­ment and set­tle­ment process can still be seen as an indi­ca­tion of an over­all dis­sat­is­fac­tion with the government’s cur­rent “soft” approach towards cor­po­rate crime and judi­cial dis­sat­is­fac­tion at being effec­tive­ly cut out of the process. By mov­ing towards crim­i­nal charges fol­low­ing failed DPAs, the judi­cia­ry will have a more active role in pro­mot­ing account­abil­i­ty among banks and finan­cial insti­tu­tions.

The sec­ond shift is that the Depart­ment of Jus­tice has shown itself increas­ing­ly will­ing to pur­sue crim­i­nal charges instead of DPAs in cas­es against major finan­cial insti­tu­tions.20 In the months fol­low­ing the announce­ment of the DPA with HSBC, the DOJ announced that they had secured guilty pleas from the Japan­ese sub­sidiaries from the Unit­ed Bank of Switzer­land (UBS) and the Roy­al Bank of Scot­land (RBS) for their role in the LIBOR21 manip­u­la­tion scheme, in Decem­ber of 2012 and Feb­ru­ary of 2013, respec­tive­ly.22 In addi­tion to this, the DOJ announced the indict­ment of S.A.C. Cap­i­tal advi­sors on alle­ga­tions of insid­er trad­ing. S.A.C. ulti­mate­ly set­tled the case by plead­ing guilty and agree­ing to pay a $1.8 bil­lion fine in addi­tion to ter­mi­nat­ing their invest­ment busi­ness.23 Final­ly, there is the guilty plea entered by Cred­it Suisse Group for con­spir­ing to aid tax eva­sion, which led to the bank pay­ing a fine of $2.6 bil­lion.24 Golumbic and Lichy’s point is that the DOJ’s deci­sion to bring crim­i­nal charges against each of these enti­ties so soon after the HSBC case indi­cates that the DOJ is not in fact crip­pled by the Ander­sen effect and pur­sues an indict­ment when it finds it appro­pri­ate.

Fur­ther, it is unclear whether the Ander­sen effect is in fact a real phe­nom­e­non that should be con­sid­ered.25 Gabriel Markoff used pub­licly avail­able data to devel­op a data set of all pub­licly trad­ed com­pa­nies that were con­vict­ed of a crime in the years 2001 through 2010.26 Of the 54 com­pa­nies includ­ed in his dataset, Markoff found that none could rea­son­ably be said to have gone out of busi­ness as a result of a fed­er­al crim­i­nal con­vic­tion.27 This, Markoff argues, calls into ques­tion the verac­i­ty of the stan­dard wis­dom that crim­i­nal pros­e­cu­tion alone could destroy a com­pa­ny.28 Markoff acknowl­edges a few expla­na­tions for this, but focus­es pri­mar­i­ly on the notion that the Ander­sen effect might be the excep­tion rather than the rule when it comes to cor­po­rate pros­e­cu­tions.29 Despite the evi­dence and the increas­ing will­ing­ness of the DOJ to bring crim­i­nal charges, fear of the “Ander­sen effect” remains strong and is often cit­ed as the major rea­son to pur­sue DPAs.30

While there is a push from the exec­u­tive and judi­cial branch­es to pur­sue crim­i­nal charges in the first place, there remains a strong argu­ment for turn­ing to crim­i­nal charges when DPAs fail. Ran­dall Elia­son, for­mer chief of the DOJ’s Fraud Sec­tion, has argued that reluc­tance to pur­sue crim­i­nal charges has encour­aged cor­po­ra­tions and their exec­u­tives to be less fear­ful of the con­se­quences of a fed­er­al inves­ti­ga­tion. Accord­ing to Elia­son,

[w]ith the threat of crim­i­nal lia­bil­i­ty effec­tive­ly off the table, cor­po­rate exec­u­tives may be more will­ing to skate aggres­sive­ly close to the line — or to jump over it. If the prospect of real crim­i­nal sanc­tions against the com­pa­ny is removed, then engag­ing in crim­i­nal activ­i­ty becomes just anoth­er dol­lars-and-cents deci­sion. The moral con­dem­na­tion aspect of a crim­i­nal con­vic­tion is lost — and with it the unique deter­rent val­ue of crim­i­nal law.31

While the DOJ might hes­i­tate to start pur­su­ing crim­i­nal charges in lieu of DPAs from the start, find­ing that banks and finan­cial insti­tu­tions have failed to fol­low through with the terms of the agree­ment pro­vide some evi­dence that Elia­son may be right, and that per­haps actu­al­ly pur­su­ing the crim­i­nal charges out­lined in the crim­i­nal infor­ma­tion filed at the out­set of the DPA is the best way to deal with fail­ures to com­ply.

II.            Indi­vid­ual Crim­i­nal Lia­bil­i­ty

The oth­er major option that law enforce­ment agen­cies could pur­sue in the wake of a failed DPA is indi­vid­ual crim­i­nal lia­bil­i­ty. While indi­vid­ual crim­i­nal lia­bil­i­ty in the cor­po­rate con­text is a rel­a­tive­ly new legal devel­op­ment, it has been imple­ment­ed suc­cess­ful­ly in area of secu­ri­ties fraud and oth­er types of cor­po­rate fraud. For exam­ple, the Sar­banes-Oxley Act (“SOX”) requires that the CEO and CFO for­feit any bonus­es, com­pen­sa­tion, and any stock sale prof­its if the com­pa­ny is required to file a restate­ment of any of finan­cial report­ing require­ments under fed­er­al secu­ri­ties laws because of mate­r­i­al non­com­pli­ance as a result of mis­con­duct, and the Yates Memo33 assert­ed that the DOJ would no longer be will­ing to award coop­er­a­tion cred­it to a cor­po­ra­tion unless the cor­po­ra­tion iden­ti­fied “indi­vid­u­als involved in the mis­con­duct, and pro­vide the DOJ with all rel­e­vant facts, regard­less of the employ­ees’ posi­tion, sta­tus, and senior­i­ty.”34 This empha­sis on indi­vid­ual crim­i­nal lia­bil­i­ty in the cor­po­rate con­text could and should be applied to vio­lat­ing sanc­tions and AML laws, both for indi­vid­u­als and cor­po­ra­tions, after a failed DPA.

A.    Indi­vid­ual Lia­bil­i­ty as Applied to Low-Lev­el Employ­ees

Near­ly every inves­ti­ga­tion into a large finan­cial insti­tu­tion vio­lat­ing U.S. sanc­tions and AML laws traces down to the low­est lev­el employ­ees.35 In many of the DPAs relat­ed to sanc­tions and AML vio­la­tions, the indi­vid­u­als in the bank who had actu­al knowl­edge of the vio­la­tions were not high­er lev­el exec­u­tives, but rather low­er lev­el employ­ees in both the com­mer­cial and retail bank­ing sec­tors. In large, com­pli­cat­ed finan­cial insti­tu­tions, often­times low-lev­el employ­ees’ com­pen­sa­tions and job secu­ri­ties are tied to met­rics that give the employ­ees an incen­tive to break the rules. For many rela­tion­ship man­agers or low-lev­el com­pli­ance and risk man­age­ment offi­cers, there was, and con­tin­ues to be, a direct con­flict between fol­low­ing prop­er pro­to­cols, and doing their job.

This con­flict man­i­fest­ed itself in the con­text of sanc­tions and AML by lead­ing bank employ­ees at sev­er­al large banks to engage in a process called “strip­ping” to cir­cum­vent the laws.36 Know­ing that any trans­ac­tions that involved sanc­tioned coun­tries could be blocked in fil­ters estab­lished by the Office of For­eign Asset Con­trol (“OFAC”), a branch of the Trea­sury Depart­ment, the banks engaged in behav­ior that would allow them to con­ceal the true nature of trans­ac­tions con­duct­ed on behalf of clients from sanc­tioned coun­tries.37 In addi­tion to alter­ing pay­ment instruc­tions, these low-lev­el employ­ees also have incen­tives to cir­cum­vent sanc­tion require­ments in oth­er ways, notably in help­ing cus­tomers from sanc­tioned coun­tries open accounts and coach­ing them on how to prop­er­ly pass “Know Your Cus­tomer” (KYC) require­ments, which are the con­trols put in place to screen out these exact indi­vid­u­als.38

The prac­ti­cal­i­ties of the com­plex fed­er­al inves­ti­ga­tions and inter­nal inves­ti­ga­tions are such that these are the employ­ees for whom inves­ti­ga­tors can find a “smok­ing gun.” In build­ing a crim­i­nal case, pros­e­cu­tors are acute­ly aware of the high beyond a rea­son­able doubt stan­dard. Absent a strict lia­bil­i­ty regime, this means that in pros­e­cut­ing indi­vid­u­als for cor­po­rate bad acts, the only peo­ple who would have an actu­al fear of tri­al are those low-lev­el employ­ees. When a bank coop­er­ates and turns over inter­nal emails, poli­cies, and pay­ment cov­er mes­sages, it is the rela­tion­ship man­agers and low-lev­el com­pli­ance offi­cers who are send­ing and receiv­ing the emails and alter­ing the pay­ment mes­sages. The strongest evi­dence relates to them, not to the bank’s offi­cers.

While it may be fea­si­ble to pros­e­cute the low-lev­el employ­ees involved in the crime, enforc­ing indi­vid­ual crim­i­nal lia­bil­i­ty against these low-lev­el employ­ees would like­ly not be at all effec­tive in achiev­ing the pol­i­cy goal of crack­ing down on cor­po­rate crime and hold­ing cul­pa­ble indi­vid­u­als respon­si­ble. As a prac­ti­cal mat­ter, the first hur­dle is that many of vio­la­tions occurred at bank branch­es out­side of the U.S., and that the employ­ees pro­cess­ing the trans­ac­tions are not U.S. cit­i­zens, and there­fore unlike­ly to be extra­dit­ed to the U.S. to be held respon­si­ble for their crimes.39 The oth­er prac­ti­cal con­cern is that impos­ing crim­i­nal penal­ties on these employ­ees is unlike­ly to dis­cour­age the behav­ior. From the stand­point of the employ­ee, espe­cial­ly those locat­ed out­side of the U.S., it sim­ply may be worth the risk. An employ­ee half way across the world, whose income depends on the vol­ume of busi­ness he or she gen­er­ates, is unlike­ly to be con­cerned with the pos­si­bil­i­ty of fac­ing crim­i­nal charges in the U.S. For the bank, these employ­ees are large­ly dis­pos­able. Crim­i­nal sanc­tions imposed against a rela­tion­ship man­ag­er locat­ed in remote bank branch in the Mid­dle East is unlike­ly to cause as much alarm for a inter­na­tion­al bank as crim­i­nal sanc­tions imposed against the bank’s top exec­u­tives. Though it is a pes­simistic atti­tude, the real­i­ty is that low lev­el employ­ees are replace­able, and pun­ish­ing them will do lit­tle to cor­rect the bank’s behav­ior.

In addi­tion to the prac­ti­cal con­cerns, there are eth­i­cal con­cerns. Though the Yates Memo aims to be tougher on cul­pa­ble indi­vid­u­als, regard­less of senior­i­ty, who engage in and enable cor­po­rate crime, includ­ing those who are “judg­ment proof” and thus sub­ject to a large­ly sym­bol­ic pros­e­cu­tion, it seems unlike­ly that low-lev­el employ­ees will yield the result the DOJ is look­ing for.40 Impos­ing crim­i­nal lia­bil­i­ty only on those low lev­el employ­ees for which sub­stan­tial evi­dence exists would do lit­tle to stem the tide of cor­rup­tion in a large orga­ni­za­tion. The DOJ has rec­og­nized this prob­lem in pros­e­cut­ing oth­er large, com­plex orga­ni­za­tions like orga­nized crime and gangs. Pun­ish­ing the “lit­tle guys” at the bot­tom of the food chain is unlike­ly to sat­is­fy the pub­lic desire to hold cor­po­ra­tions account­able.

B.    Indi­vid­ual Lia­bil­i­ty as Applied to Cor­po­rate Exec­u­tives and Direc­tors

Indi­vid­ual lia­bil­i­ty imposed against Cor­po­rate Exec­u­tives and Direc­tors would pro­vide the ben­e­fit of actu­al­ly hold­ing those in charge of these major finan­cial insti­tu­tions account­able for bad behav­ior. The pos­si­bil­i­ty of lia­bil­i­ty ensures that these exec­u­tives have some “skin in the game” and incen­tivizes them to encour­age a cor­po­rate cul­ture that is com­pli­ant with U.S. reg­u­la­to­ry regimes. Indi­vid­ual lia­bil­i­ty imposed against cor­po­rate exec­u­tives and direc­tors seems more in line with achiev­ing the pol­i­cy goal of stem­ming cor­po­rate bad behav­ior but presents its own chal­lenges.

Unlike their low­er-lev­el coun­ter­parts, there is sel­dom sub­stan­tial evi­dence that high­er-lev­el offi­cers or exec­u­tives of the com­pa­ny direct­ly engaged in the bad behav­ior for which the bank is being inves­ti­gat­ed. Because of this, it is very dif­fi­cult to see how pros­e­cu­tors could suc­cess­ful­ly pur­sue crim­i­nal charges against the offi­cers absent some oth­er change. The vio­la­tions that the banks are charged with in most of the DPAs involve a will­ful or know­ing state of mind.41 While the bank as a whole may be will­ing to sign such an agree­ment, it is doubt­ful that an indi­vid­ual will. Absent any “smok­ing gun” emails, mem­os, or oth­er direct evi­dence estab­lish­ing actu­al knowl­edge or will­ful­ness by the exec­u­tive in ques­tion, the gov­ern­ment will have a very dif­fi­cult time prov­ing their case, espe­cial­ly if a savvy defense attor­ney is aware of this and push­es for tri­al.

One way around this is to change the stan­dard of lia­bil­i­ty for crim­i­nal mis­con­duct in this con­text. There are a few ways law­mak­ers could do this. First, Con­gress could impose a RICO-style regime that would allow pros­e­cu­tors to com­mute the acts of low­er lev­el employ­ees engaged in sys­temic vio­la­tion of sanc­tions and AML pro­to­cols to the high­er-lev­el exec­u­tives charged with mak­ing sure the bank is fol­low­ing them. By intro­duc­ing a con­spir­a­cy-type charg­ing regime into this con­text, pros­e­cu­tors would be able to cir­cum­vent the chal­lenges pre­sent­ed by will­ful and know­ing stan­dards. The prob­lem, how­ev­er, is that this type of regime, draw­ing com­par­isons between large finan­cial insti­tu­tions and orga­nized crime, is unlike­ly to gain much sup­port in Con­gress. Anoth­er option that would be avail­able to Con­gress would be to adopt a strict lia­bil­i­ty regime for exec­u­tive offi­cers in this con­text, sim­i­lar to the strict lia­bil­i­ty regime imposed on exec­u­tive offi­cers in the con­text of secu­ri­ties laws. Under Sec­tion 304 of the Sar­banes-Oxley Act:

If an issuer is required to pre­pare an account­ing restate­ment due to the mate­r­i­al non­com­pli­ance of the issuer, as a result of mis­con­duct, with any finan­cial report­ing require­ment under the secu­ri­ties laws, the chief exec­u­tive offi­cer and chief finan­cial offi­cer of the issuer shall reim­burse the issuer for—

(1) any bonus or oth­er incen­tive-based or equi­ty-based com­pen­sa­tion received by that per­son from the issuer dur­ing the 12-month peri­od fol­low­ing the first pub­lic issuance or fil­ing with the Com­mis­sion (whichev­er first occurs) of the finan­cial doc­u­ment embody­ing such finan­cial report­ing require­ment…42

To the extent that offi­cer com­pen­sa­tion is based on the vol­ume of busi­ness done with pro­hib­it­ed enti­ties, Con­gress could impose a claw back on that com­pen­sa­tion as well. By impos­ing a strict lia­bil­i­ty regime on incen­tive com­pen­sa­tion of the high-lev­el exec­u­tives, pros­e­cu­tors would be more able to over­come the chal­lenge of prov­ing that an exec­u­tive will­ful­ly or know­ing­ly engaged in bad con­duct. Lim­it­ing the pun­ish­ment to a claw back of cer­tain cat­e­gories of com­pen­sa­tion would also assuage con­cerns that the pun­ish­ment is too harsh for indi­vid­u­als whom pros­e­cu­tors can­not prove had first­hand knowl­edge of the mis­con­duct.

There are, how­ev­er, some con­cerns with this option as well. In par­tic­u­lar, there is a con­cern that impos­ing strict lia­bil­i­ty on exec­u­tives for this con­duct could result in an exo­dus of capa­ble com­pli­ance offi­cers from trou­bled com­pa­nies.43 The crux of this argu­ment is that by putting the risk of lia­bil­i­ty on cor­po­rate offi­cers dri­ves tal­ent­ed exec­u­tives into sec­tors that are less risky.44 This is espe­cial­ly true when one con­sid­ers that many of these banks have thou­sands of employ­ees across the globe. Exec­u­tives who fear lia­bil­i­ty on the basis of actions tak­en by a few bad employ­ees across the globe would pos­si­bly sway them to lead­er­ship roles in less risky sec­tors or dri­ve up the cost of exec­u­tive com­pen­sa­tion pack­ages to make up for the risk.45

III.          Con­clu­sion

Though each option presents its own chal­lenges, a com­bi­na­tion of both major options is best. Mov­ing ahead with charges against banks who do not uphold their oblig­a­tions under a DPA, along with bring­ing actions to dis­gorge exec­u­tives of bonus com­pen­sa­tion might be the best way to ensure that the DOJ is able to enforce sanc­tions and AML com­pli­ance on major inter­na­tion­al banks. Recent trends in judi­cial behav­ior and a will­ing­ness to file crim­i­nal charges against finan­cial insti­tu­tions indi­cate that the age of liv­ing in fear of the Ander­sen effect may be dimin­ish­ing, and so fil­ing of crim­i­nal charges could be a more real­is­tic pos­si­bil­i­ty. The biggest hur­dle to this would be impos­ing indi­vid­ual lia­bil­i­ty on exec­u­tives due to the fear of dri­ving capa­ble exec­u­tives out of the indus­try. How­ev­er, pros­e­cu­tors, reg­u­la­tors, and Con­gress should not this fear like a new ver­sion of the Ander­sen effect. Instead, they should pur­sue a strong strat­e­gy to deter vio­la­tions and com­pli­ance with DPAs to ensure a healthy finan­cial cor­po­rate cul­ture and mar­ket.


Rec­om­mend­ed Cita­tion: Brit­tney Nagle, Dead on Defer­ral?: Whether to Pros­e­cute Com­pa­nies That Fail to Com­ply with DPAs, 2018 N.Y.U. Pro­ceed­ings 4, http://proceedings.nyumootcourt.org/2018/02/dead-on-deferral-whether-to-prosecute-companies-that-fail-to-comply-with-dpas/.

Notes:

1. Brit­tney Nagle is a 3L at New York Uni­ver­si­ty School of Law. This piece was pre­pared in con­junc­tion with the author’s Com­pli­ance and Risk Man­age­ment for Lawyers class. The views expressed in this arti­cle do not nec­es­sar­i­ly rep­re­sent the views of the author on this point of law. Rather, this arti­cle is a dis­til­la­tion of one side of the argu­ment regard­ing Deferred Pros­e­cu­tion Agree­ments dis­cussed in the course of the class.
2. See, e.g., Press Release, Lloyds TSB Bank Plc Agrees to For­feit $350 Mil­lion in Con­nec­tion with Vio­la­tions of the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act, Dep’t of Just. (Jan. 9, 2009), https://www.justice.gov/archive/opa/pr/2009/January/09-crm-023.html [here­inafter “Lloyds Press Release”]; Press Release, Bar­clays Bank PLC Agrees to For­feit $298 Mil­lion in Con­nec­tion with Vio­la­tions of the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act and the Trad­ing with the Ene­my Act, Dep’t of Just. (Aug. 18, 2010), https://www.justice.gov/opa/pr/barclays-bank-plc-agrees-forfeit-298-million-connection-violations-international-emergency [here­inafter “Bar­clays Press Release”]; Press Release, ING Bank N.V. Agrees to For­feit $619 Mil­lion for Ille­gal Trans­ac­tions with Cuban and Iran­ian Enti­ties, Dep’t of Just. (June 12, 2012), https://www.justice.gov/opa/pr/ing-bank-nv-agrees-forfeit-619-million-illegal-transactions-cuban-and-iranian-entities-0 [here­inafter “ING Press Release”]; Press Release, Stan­dard Char­tered Bank Agrees to For­feit $227 Mil­lion for Ille­gal Trans­ac­tions with Iran, Sudan, Libya, and Bur­ma, Dep’t of Just. (Dec. 10, 2012), https://www.justice.gov/opa/pr/standard-chartered-bank-agrees-forfeit-227-million-illegal-transactions-iran-sudan-libya-and [here­inafter “Stan­dard Char­tered Press Release”].
3. See Steven R. Peikin, Deferred Pros­e­cu­tion Agree­ments: Stan­dard for Cor­po­rate Probes, N.Y. L. J. (Jan. 31, 2005), http://www.newyorklawjournal.com/id=900005422568/Deferred-Prosecution-Agreements:-Standard-for-Corporate-Probes?slreturn=20140117032629.
4. See id.
5. See id.
6. See id.
7. See id.
8. See id.
9. See Press Release, Cred­it Suisse Pleads Guilty to Con­spir­a­cy to Aid and Assist U.S. Tax­pay­ers in Fil­ing False Returns, Dep’t of Just. (May 19, 2014), http://www.justice.gov/opa/pr/2014/May/14-ag-531.html [here­inafter “Cred­it Suisse Press Release”].
10. See F. Joseph War­ren, et. al., Gib­son Dunn Offers Update on Non-Pros­e­cu­tion and Deferred Pros­e­cu­tion Agree­ments, CLS Blue Sky Blog (Jan. 16, 2017), http://clsbluesky.law.columbia.edu/2017/01/16/gibson-dunn-offers-update-on-non-prosecution-and-deferred-prosecution-agreements/.
11. See Eliz­a­beth K. Ainslie, Indict­ing Cor­po­ra­tions Revis­it­ed: Lessons of the Arthur Ander­sen Pros­e­cu­tion, 43 Am. Crim. L. Rev. 107, 109 (2006); Court E. Golumbic & Albert D. Lichy, The “Too Big to Jail” Effect and the Impact on the Jus­tice Department’s Cor­po­rate Charg­ing Pol­i­cy, 65 Hast­ings L.J. 1293, 1296 (2014).
12. See Gabriel Markoff, Arthur Ander­sen and the Myth of the Cor­po­rate Death Penal­ty: Cor­po­rate Crim­i­nal Con­vic­tions in the Twen­ty-First Cen­tu­ry, 15 U. Pa. J. Bus. L. 797, 800 (2013).
13. See, e.g., Mem­o­ran­dum from Lar­ry D. Thomp­son, Deputy Attor­ney Gen., U.S. Dep’t of Jus­tice, to Heads of Dep’t Com­po­nents on Prin­ci­ples of Fed. Pros­e­cu­tion of Bus. Orgs. (Jan. 20, 2003) [here­inafter Thomp­son Memo], avail­able at http://www.americanbar.org/content/dam/aba/migrated/poladv/priorities/privilegewaiver/2003jan20_privwaiv_dojthomp.authcheckdam.pdf .
14. See Golumbic & Lichy, supra note 11, at 1296.
15. See id. at 1297.
16. Unit­ed States v. HSBC Bank USA, N.A., 12-CR-763, 2013 U.S. Dist. LEXIS 92438, at *18–20 (E.D.N.Y. July 1, 2013).
17. See Unit­ed States SEC v. Cit­i­group Glob­al Mkts. Inc., 827 F. Supp. 2d 328 (S.D.N.Y. Nov. 28, 2011).
18. Id. at 335.
19. See SEC v. Cit­i­group Cap­i­tal Mkts., 673 F.3d 158, 164 (2d. Cir. 2012).
20. See Golumbic & Lichy, supra note 11, at 1297.
21. LIBOR, the Lon­don Inter­bank Offered Rate, is a bench­mark rate which indi­cates the rate at which some of the world’s top banks would agree to short-term loans with each oth­er and influ­ences glob­al inter­est rates. See LIBOR, Investo­pe­dia, https://www.investopedia.com/terms/l/libor.asp (last vis­it­ed Feb. 2, 2018).
22. See Press Release, UBS Secu­ri­ties Japan Co. Ltd. to Plead Guilty to Felony Wire Fraud for Long-Run­ning Manip­u­la­tion of LIBOR Bench­mark Inter­est Rates, Dep’t of Just. (Dec. 19, 2012), [http://www.justice.gov/opa/pr/2012/December/12-ag-1522.html here­inafter “UBS Press Release”]; Press Release, RBS Secu­ri­ties Japan Lim­it­ed Agrees to Plead Guilty in Con­nec­tion with Long-Run­ning Manip­u­la­tion of Libor Bench­mark Inter­est Rates, Dep’t of Just. (Feb. 6, 2013),  http://www.justice.gov/opa/pr/2013/February/13-crm-161.html [here­inafter “RBS Press Release”].
23. See Press Release, Man­hat­tan U.S. Attor­ney Announces Guilty Plea Agree­ment With SAC Cap­i­tal Mgmt. Cos., Dep’t of Just. (Nov. 4, 2013), http://www.justice.gov/usao/nys/pressreleases/November13/SACPleaPR.php [here­inafter “SAC Press Release”].
24. See Cred­it Suisse Press Release, supra note 9.
25. See Markoff, supra note 12 at 797 (find­ing that there is no empir­i­cal evi­dence to sup­port the “Ander­sen effect” and that in a study of orga­ni­za­tion­al con­vic­tions in the peri­od from 2001–2010, no pub­licly trad­ed com­pa­ny failed because their con­vic­tion).
26. See id. at 812–15.
27. See id. at 827.
28. See id.
29. See id.
30. See id. at 807–08.
31. Ran­dall D. Elia­son, We Need to Indict Them, Legal Times, Sept. 22, 2008; see also Sara Sun Beale, A Response to the Crit­ics of Cor­po­rate Crim­i­nal Lia­bil­i­ty, 46 Am. Crim. L. Rev. 1481, 1482–86 (2009) (argu­ing that cor­po­ra­tions, as large, pow­er­ful actors, are more than just legal fic­tions and should bear direct respon­si­bil­i­ty for their acts).
32. Paul F. Wes­sell, Key Pro­vi­sions of the Sar­banes-Oxley Act of 2002, Rhoads & Sinon, http://www.rhoadssinon.com/updates-publications-142.html (last vis­it­ed Oct. 2, 2017).
33. See Mem­o­ran­dum from Sal­ly Quil­lian Yates, Deputy Att’y Gen., Indi­vid­ual Account­abil­i­ty for Cor­po­rate Wrong­do­ing (Sept. 9, 2015) [here­inafter Yates Memo], http://www.justice.gov/dag/file/769036/download [http://perma.cc/PD2L -AVX9].
34. Sharon Oded, Cough­ing Up Exec­u­tives or Rolling the Dice?: Indi­vid­ual Account­abil­i­ty for Cor­po­rate Cor­rup­tion, 35 Yale L. & Pol’y Rev. 49, 52 (2016).
35. See, e.g., Lloyds Press Release, supra note 2; Bar­clays Press Release, supra note 2; ING Press Release, supra note 2; Stan­dard Char­tered Press Release, supra note 2.
36. See, e.g., Unit­ed States v. Stan­dard Char­tered Bank, Deferred Pros­e­cu­tion Agree­ment (Dec. 10, 2012) [here­after “Stan­dard Char­tered DPA”], avail­able at http://lib.law.virginia.edu/Garrett/corporate-prosecution-registry/agreements/Standard_Chartered.pdf;  Unit­ed States v. Bar­clays PLC, Deferred Pros­e­cu­tion Agree­ment (Aug. 10, 2010) [here­after “Bar­clays DPA”], avail­able at http://lib.law.virginia.edu/Garrett/corporate-prosecution-registry/agreements/barclays.pdf; Unit­ed State of Amer­i­ca v. ING Bank, N.V. , Deferred Pros­e­cu­tion Agree­ment (June 12, 2012) [here­after ING DPA”], avail­able at:http://lib.law.virginia.edu/Garrett/corporate-prosecution-registry/agreements/ING.pdf; Unit­ed State of Amer­i­ca v. Lloyds TSB Bank PLC, Deferred Pros­e­cu­tion Agree­ment (Jan. 09, 2009) [here­after “Lloyds DPA”], avail­able at http://lib.law.virginia.edu/Garrett/corporate-prosecution-registry/agreements/lloyds.pdf.
37. See Stan­dard Char­tered DPA, supra note 36, Appx A at 9; Bar­clays DPA supra note 36, at 26; Lloyds DPA, supra note 36, at 22.
38. See Dan Ryan, Fin­CEN: Know Your Cus­tomer Require­ments, Har­vard Law Sch. Forum on Corp. Gov­er­nance and Fin. Reg­u­la­tion (Feb. 7, 2016), https://corpgov.law.harvard.edu/2016/02/07/fincen-know-your-customer-requirements/.
39. To the extent that the Unit­ed States has an extra­di­tion treaty with coun­tries where these vio­la­tions occur, they would not cov­er the extra­di­tion of a for­eign nation­al from his or her own coun­try to face lia­bil­i­ty in the Unit­ed States. See 18 U.S.C. Sect. 3181.
40. See Oded, supra note 34, at 52.
41. See, e.g., Bar­clays DPA, supra note 36, Exhib­it A at 1 (Bar­clays charged with “(1) will­ful­ly vio­lat­ing and attempt­ing to vio­late the Trad­ing with the Ene­my Act, 50 U.S.C. app. §§ 5, 16, and reg­u­la­tions issued there­un­der and (2) will­ful­ly vio­lat­ing and attempt­ing to vio­late the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act, 50 U.S.C. § 1705, and reg­u­la­tions there­un­der.”); ING DPA, supra note 36, at 1–2 (ING agree­ing to be charged with “know­ing and will­ful­ly con­spir­ing, in vio­la­tion of Title 18, Sec­tion 371 to com­mit the fol­low­ing offens­es: (a) engag­ing in trans­ac­tions with enti­ties asso­ci­at­ed with Cuba, in vio­la­tion of the Trad­ing with the Ene­my Act, Title 50, Unit­ed States Code, Appen­dix, Sec­tions 1–44, and reg­u­la­tions issued there­un­der; and (b) engag­ing in trans­ac­tions with enti­ties asso­ci­at­ed with sanc­tioned coun­tries, includ­ing Iran, in vio­la­tion of the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act, Title 50, Unit­ed States Code, Sec­tion 1705, and reg­u­la­tions issued there­un­der.”); Lloyds DPA, supra note 36, at 1 (agree­ing to be charged with “know­ing­ly and will­ful­ly vio­lat­ing and attempt­ing to vio­late reg­u­la­tions under the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act, Title 50, Unit­ed States Code, Sec­tion 1705, to wit, Title 31, Code of Fed­er­al Reg­u­la­tions, Sec­tions 560.203 and 560.204 which pro­hib­it: (a) the expor­ta­tion from the Unit­ed States of a ser­vice to Iran with­out autho­riza­tion and (b) any trans­ac­tion with­in the Unit­ed States that evad­ed and avoid­ed, or had the pur­pose of evad­ing and avoid­ing such reg­u­la­tions.”); Stan­dard Char­tered DPA, supra note 36, at 1 (agree­ing to be charged with one count of “know­ing­ly and will­ful­ly con­spir­ing, in vio­la­tion of Title 18, Sec­tion 371 to engage in trans­ac­tions with enti­ties asso­ci­at­ed with sanc­tioned coun­tries, includ­ing Iran, Sudan, Libya, and Bur­ma, in vio­la­tion of the Inter­na­tion­al Emer­gency Eco­nom­ic Pow­ers Act, Title 50, Unit­ed States Code, Sec­tion 1705, and reg­u­la­tions issued there­un­der.”).
42. Sarbanes–Oxley Act of 2002, Pub.L. 107–204 § 304 (2002).
43. See gen­er­al­ly Court. E. Golumbic, “The Big Chill”: Per­son­al Lia­bil­i­ty and the Tar­get­ing of Finan­cial Sec­tor Com­pli­ance Offi­cers 69 Hast­ings L.J. 45 (2014).
44. See id.
45. See id.