The U.S. government never entered into a deferred or nonprosecution agreement with a business entity until 1992, when they were introduced by the Department of Justice during the first Bush administration. There were only 18 agreements in the first 10 years but in the decade since — in both the second Bush and Obama administrations — the Justice Department has entered into more than 300. Over the past five years, 10 of the largest 100 American companies by revenue, across multiple sectors, have been under the supervision of U.S. prosecutors through these accords.
In essence this means that English majors with law degrees are remaking entire industries, without clear legal authorization, public transparency or much if any judicial oversight. Even those who think government should do more to rein in business abuse should be troubled by what my colleagues and I have called the “shadow regulatory state.”
Because executives cannot usually afford to bet the company on a criminal trial — and in some cases, to escape individual prosecution — they often agree to terms notwithstanding ambiguous facts, or strained or novel interpretations of the law. Deferred and nonprosecution agreements regularly require hiring and firing of key personnel, major adjustments to business plans and the placement of supervising monitors who report to prosecutors. Then prosecutors have sole discretion to determine whether companies are in breach of the agreement's terms, without significant judicial review or the possibility of appeal. Companies can find themselves paying billions of dollars to the government annually without trial.
But deferred and nonprosecution agreements are here to stay and are preferable to corporate prosecutions that throw tens of thousands of innocent employees out of work. So, they must be brought out of the shadows. Last year, the British Parliament adopted new rules that subject such arrangements to a clearly delineated and transparent process, along with significant judicial oversight. The U.S. should do the same, or risk further abuses of the system.
This piece originally appeared in New York Times Room for Debate