Structuring Corporate Plea and Settlement Agreements - Essay Example

? I. Summary of the Case Structuring Corporate Plea and Settlement Agreements: An Exercise in Damage Control When a corporate entity commits crime such as fraud, it does not go jail like a natural person. The penalty that is typically meted against an erring corporation usually comes in the sanction of fines, restitution and possible forfeiture. For publicly traded corporations, the harshest penalty inflicted upon a corporation does not come in the conviction of a fraud but usually in the economic consequence of devaluing its stock value in the marketplace. This may have a serious impact on a company’s image and bottom line to the point that it will fold. To avoid going to court and risk getting being convicted and suffer its dire consequence, pretrial arrangements are usually resorted to as a damage control measure of corporations who are subjected to a criminal charge. The most common measures employed to control the collateral consequence of litigation comes in the form of pretrial agreements. Types of Pretrial Agreements a. Plea agreements Plea agreement is the most common form of pretrial agreement whereby a corporation pleads guilty to the most provable charge in the indictment. It requires an admission of guilt as a mitigating factor and in exchange for a lesser punishment including the avoidance of a jail term. The following memoranda sets the guidelines of a plea agreement between government prosecutor and the corporation investigated of a corporate crime. The Thompson Memo The Thompson Memo guidelines, Plea Agreement with Corporations set the limit of a prosecutor’s ability to bargain. Per Thomson memorandum, prosecutors should only bargain to the most serious cases which is also known as “top count” policy. This memorandum requires the accused corporation to plead guilty on the charge and its provisions ensure “punishment, deterrence, rehabilitation, and compliance with the agreement. The deterrence mechanism of this policy comes in the hefty fines, mandatory restitution and compliance measures. The McNulty Memo The McNulty memo was drafted by Deputy Attorney General Paul McNulty as Guidelines for Prosecuting Corporate Fraud. This new memo removed few of the restrictions in the Thompson Memo to ensure the complete and fruitful corporate cooperation. The provision that were removed from the previous memo includes; “that the corporation waive attorney-client and work product protection, make employees and agents available for debriefing, disclose the results of internal investigation, file appropriate certified financial statements, agree to governmental or third-party audits, and take whatever other steps are necessary to ensure that the full scope of the corporate wrongdoing is disclosed and that the responsible culprits are identified and prosecuted”. Filip Memo The Filip Memorandum is a revision of McNulty Memo and was updated on August 28, 2008. This process of revisions of the policy culminated in the incorporation in the final policy form into the United States Attorney’s Manual (USAM). This memo requires the prosecutors to ask permission from DOJ before requesting waivers of attorney-client privilege and work product protections during criminal investigations. In summary, Filip Memo; Prohibits prosecutors from asking protected materials from charged corporations. Not to treat refusal of such request as non-cooperation Prohibits prosecutors from including the disciplinary action of corporations in their evaluation of cooperation; and Refusal to cooperate in the part of corporation is not an admission of guilt b. Deferred prosecution agreements (DPA) The usage of deferred prosecution agreement as a resolution to a corporate criminal investigation is rare. It is an alternative disposition towards a corporate criminal case whereby government files the charge against the corporation in a court and agrees to “defer” the prosecution of the case and to dismiss the charge if the corporation pays the fines and rehabilitate itself. c. Nonprosecution agreements This is being used by prosecutor to obtain cooperation in the prosecution of a criminal case. USAM however limits the usage of nonprosecution agreements as an alternative resolution in a corporate criminal case when other means of obtaining desired cooperation is unavailable. This is also seldomly resorted to by corporations in controlling the damage of a criminal lawsuit. II. Argument Against Corporate Plea and Settlement Agreements The recent increased of government’s regulatory sensitiveness towards business; particularly the financial corporations were brought by the unscrupulous actions of these corporations themselves and their disregard of public interest (Stuebs & Wilkinson, 2010 pg. 33). The chapter of the book, titled Structuring Corporate Plea and Settlement Agreements: An Exercise in Damage Control” may have help precipitate the numerous accounting scandals that have caused corporate collapses which have shaken the financial arena and created huge losses for investors, in the financial crisis of the latter part of 2008 . . . The majority of these collapses were caused directly by the unethical behavior of CEO’s, directors, officers and employees who misrepresented the financial condition of the corporation by providing misleading financial information” (Ashe & Nealy, 2010, pg. 1). This mindset of plea bargaining such as what is spawned in the book brought financial scandals of such magnitude because it focused more on damage control rather than corporate ethical practice. This is so because the basic premise of the book is hedged on the notion that corporate malpractices is a given which explains why it is necessary to bargain with prosecutors to ameliorate the damage of court litigation. With how the book argued about the idea of white collar crimes, it seems that it is petty as prosecutors and the government entertains the idea of bargaining in the form of Plea Agreement, Deferred Prosecution Agreements (DPA) and Nonprosecution Agreements (DPA). Interestingly, the government through the DOJ can only hope that the actual punishment should be proportionate of the crime. It is more concern about the preservation of the company as it contends that if prosecution would be aggressive, it may lead to its decimation (Weissma, 2008:74). Further, it contends that fines, penalties and restitutions that will be imposed against an erring corporation are already a heavy punishment. It hoped that after such an agreement, corrective mechanisms will be in placed such as compliance and monitoring measuring. It did not however consider that the companies, being big business, and who may have already profited from such illegal acts, are able to afford the hefty fines and is most likely to do it again. In effect, the pretrial agreements provide these unscrupulous companies a way to buy themselves out of a litigation and possible conviction and most likely, will do it again when it can afford to pay. It may be unthinkable but the used of deferred prosecution as a pretrial agreement is increasing. That if only a company admits to its guilt and will take measures rehabilitate itself and pay the penalties, the government, through its prosecutors, will in fact agree to these corporations not to prosecute even if they have filed the case. In effect, government is letting white collars go unpunished as long as they are sorry and will make amend. This is even being reinforced by an official policy. Memo after memo, from Thomson, to McNutty to Filip, government prosecution is being gradually handcuffed in prosecuting corporate crimes. The McNutty memo removed some restrictions in the Thompson Memo that will compel corporations to disclose information that can help to prosecute them. Filip memo aggravated this because government prosecutors now can no longer asked protected materials from erring corporations and their refusal can no longer be taken against them as noncooperation and admission of guilt. And as if this is still enough, in November 2007, the House passed H.R. 3013, the Attorney-Client Privilege Protection Act of 2007 was introduced that would make it illegal for prosecutors to demand companies under criminal investigation to disclose information pertinent to the investigation. This trend of government’s forgiving attitude to white collar crime and kid glove treatment to corporation’s malfeasance is no exaggeration. In fact, when compared to the traditional crimes, white collar criminals are the least likely to go to jail with only 20% of them will serve time and that will come at the shortest sentence (Buckhoff and Wilson, 2008). Pretrial agreements such as what is argued by Weissma are one of the reasons why there are very few litigation and conviction among white collar crimes because companies know that they can buy their way out. This explains why corporate greed became so prevalent that scandal after scandal rocked the corporate world with the news of corporate malfeasance from Enron to Worldcom became a habitual occurrence. This finally culminated in the late quarter of 2008 where the financial crisis erupted and slid this country and the global economy into recession (Dancy, 2004). What the government thought of as petty crime made the life of everybody difficult which we are still reeling until today. Corporations, being what they are, are primarily driven by profit motive. Corporations’ economic determinism when left unchecked, are apt to be law breakers given their very nature to maximize profits at whatever cost. And yes they will violate the law if the benefit that can be derived from them exceeds the cost of breaking them. If a corporations stands to profit billions, it would not mind paying millions because in the cost benefit analysis of their bottom line, they still stand to make millions more. Pretrial arrangements do not deter white collar crime but in fact encourages them. The knowledge that the company can control the damage that can be brought by a trial can even serve as an incentive to break the law if it can profit from it. Companies also know that they can take the government hostage with the prospect of decimating the company thus inducing them to accommodate pretrial arrangement to a degree that the company can absorb. III. Conclusion: What is to be done? First, the prosecution should have a mindset that a criminal company does not deserve to exist. The jobs that it created and the taxes it paid to the government far exceeded the damage it wrought to the economy. This was evident in the late 2008 financial crisis where the recession was caused primarily by corporate malfeasance and slid the global economy into an economic downslide (Business Round Table, 2009). The jobs that were lost were more than the jobs that these greedy companies have created. Having this mindset will prevent the prosecutor to negotiate for any pretrial arrangement that can be used by an erring company to either bargain or buy itself out. Criminology Theory of Rational Thought There is a classical theory in criminology that is best applicable to refute the idea of Weissman’s book. It is this theory known as “rational thought that the best deterrence of a crime is the idea that the punishment for criminal behavior should exceed the benefits derived from it” (Buckhoff and Wilson, 2008:65). This is applicable to a corporate environment because it speaks the language of the business of weighing the benefits vis-a-vis cost. When corporations will realize that the penalties far exceed the benefits that they do not stand to gain anything from it, they will likely stop the behavior. The certainty of prosecution should companies commit fraud is also one of the best deterrence of committing a crime. The availability of pretrial arrangements only encourages companies to do more malfeasance because they know they can bargain and buy their way out of it. If they know that they will certainly go to jail if they commit crime, they will most likely stop or not contemplate a criminal behavior. Instill Ethics As the cliche goes, an ounce of prevention is better than cure. Instead of mulling over pretrial arrangements, energies should be directed towards instilling ethical behavior among corporations. When corporations are circumscribed by ethical consideration, there may no longer be a point to do a pretrial agreement because there is very little or no offenders anymore. Corporate conduct and ethics should be instilled not only as suggestions and only considered when deemed expedient and subservient to organization or personal goals. It should be the beacon that lights the way of each company and the compass that should guide every acts of a corporation (Smith and Dubbink , 2010). References: Ashe, Carolyn and Chynette. Nealy. "Ethical Standards and Accounting Practices: Still an Area for Concern." Journal of International Business Disciplines Vol. 5.Issue 1 (2010): 12. Buckhoff, Thomas A., Wilson, Levon E. (2008). Ethical Lessons for Accountants. The CPA Journal. Vol. 78 Issue 11, p54-56 Business Roudtable-Institute for Corporate Ethics. (2009). The dynamics of public trust trust in business—Emerging opportunities for leaders. Retrieved from www.corporate-ethics.org Dancy, Jonathan. Moral Perception. Aristotelian Society Supplementary Volume, 2010, Vol. 84 Issue 1, p99-117, 19p; DOI: 10.1111/j.1467-8349.2010.00188.x Stuebs, Martin; Wilkinson, Brett. Ethics and the Tax Profession: Restoring the Public Interest Focus.. Accounting & the Public Interest, 2010, Vol. 10, p13-35, 23p, 4 Diagrams, 2 Charts; DOI: 10.2308/api.2010.10.1.13 Smith, Jeffrey; Dubbink, Wim. Understanding the Role of Moral Principles in Business Ethics: A Kantian Perspective.. Business Ethics Quarterly, Apr2011, Vol. 21 Issue 2, p205-231, 27p Weissman Miriam F (2009. Crime Incorporated: Legal and Financial Implications of Corporate Misconduct chapter 6 “Structuring Corporate Plea and Settlement Agreement: An Exercise in Damage Control,”. Read More