Risk Management

Deferring Prosecution of Corporate Crime

A form of ''corporate probation'' may be a good tool for ''prosecuting large corporations with lots of employees and lots of stakeholders.''
Stephen TaubJanuary 5, 2005

A growing number of companies settling charges of accounting fraud have agreed to a form of corporate probation that enables them to avoid criminal prosecution in exchange for good behavior, according to Bloomberg.

Companies that have agreed to “deferred prosecution” provisions, reported the wire service, include Time Warner Inc., Computer Associates International Inc., American International Group Inc., PNC Financial Services Group Inc., and AmSouth Bancorp. And “we’re going to see a lot more of these,” said Robert Giuffra, an attorney with Sullivan & Cromwell who headed an internal probe into accounting fraud at Computer Associates.

Deferred prosecution “[shows] compassion for the people who work for the company,” said Robert Nardoza, a spokesman for U.S. Attorney Roslynn Mauskopf in Brooklyn, according to Bloomberg. Many critics of the government’s actions following Enron’s bankruptcy have complained that prosecutors unnecessarily harmed thousands of careers by driving its auditor, Arthur Andersen, out of business.

Under a deferred prosecution agreement, explained the wire service, the government’s choice isn’t simply between indicting a company and letting it get away altogether. Instead, typically, the company must acknowledge that it has a problem and agree to a series of facts that can be used against it in court; pay fines or restitution; and put corrective measures in place over a period typically lasting one to three years. If the company lives up to the deal, added Bloomberg, prosecutors agree to dismiss criminal charges.

The most recent company to agree to these arrangements is Time Warner, which last month agreed to pay $510 million to settle government probes into whether its America Online unit improperly booked advertising sales. Under the terms of the deferred prosecution, the Department of Justice will dismiss charges if the company cooperates with prosecutors and doesn’t engage in similar fraud for two years.

On the other hand, said U.S. Deputy Attorney General James Comey, “If AOL fails to comply with the agreement, the deal is off, and they are in a world of trouble.”

Bloomberg noted that the Federal Bureau of Investigation has more than 300 open fraud investigations and opens three to six new cases each month. Because of that volume, “we are using the deferred prosecution option much more frequently,” Timothy Coleman, senior counsel at the Justice Department, told the wire service. “We think it’s a good tool for use in prosecuting large corporations with lots of employees and lots of stakeholders.”