New Report: “The Shadow Lengthens: The Continuing Threat of Regulation by Prosecution”

U.S. Department of Justice regularly enters into “deferred prosecution” or “non-prosecution” agreements costing companies billions of dollars annually, without trial, transparency, or oversight.

NEW YORK, NY – This week, new rules permitting prosecutors in the United Kingdom to enter into “deferred prosecution agreements” (DPAs) went into effect. These agreements—such as the agreement last month in which the nation’s largest bank, J.P. Morgan Chase, agreed to pay the U.S. government $1.7 billion to resolve a criminal inquiry into its role in Bernie Madoff’s Ponzi scheme—have become commonplace in the U.S.

Today, the Manhattan Institute’s Center for Legal Policy released a report, “The Shadow Lengthens: The Continuing Threat of Regulation by Prosecution,” which explores these trends. Authored by Manhattan Institute legal scholars James R. Copland and Isaac Gorodetski, the report describes how DPA’s regularly go beyond imposing fines and requiring that companies correct the alleged violations, instead requiring companies to implement major changes in business practices, without any transparency or oversight.

How common are DPAs, and how much do they cost?

Ten Fortune 100 companies have entered a DPA or non-prosecution agreement (NPA) since 2010. The DOJ and other federal agencies have entered into at least 278 of these agreements in the past decade. Corporate fines and forfeitures under these arrangements have totaled $25 billion over the last five years alone.

What are the impacts of federal DPAs?

In their report, Copland and Gorodetski examine recent NPAs and DPAs reached between the federal government and four companies: Ralph Lauren, GlaxoSmithKline, the Royal Bank of Scotland, and HSBC. These agreements involve not only major changes in business practices (including changes to sales and marketing practice, changes to compensation, new hires, and the firing of key personnel) but also significant social costs beyond the confines of the businesses themselves (including effects on public health, world markets, and global development).

Where do we go from here?

Copland and Gorodetski argue that prosecutors with little to no business experience are not ideal candidates to regulate major international corporations, especially without any oversight or transparency.

They view the U.K.’s new DPA rules—which include strict procedural guidelines, mandated transparency, and required judicial oversight–as a potential blueprint for reform in the United States. In the authors’ view, reforms insuring consistent procedures, transparency, and oversight make sense—regardless of whether one’s view is that current practice is too aggressive against corporations or too lenient of corporate misconduct.

Click here to read the full report.

James R. Copland is the director of the Manhattan Institute’s Center for Legal Policy, which seeks to develop and communicate thoughtful ideas on how to improve the civil and criminal justice system. He also oversees the Institute’s corporate-governance website, ProxyMonitor.org. 

Isaac Gorodetski is the deputy director of the Manhattan Institute’s Center for Legal Policy, the managing editor of PointOfLaw.com, and the project manager for the Trial Lawyers, Inc. series of publications.