Corporate Crime
DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness Gao ID: GAO-10-110 December 18, 2009Recent cases of corporate fraud and mismanagement heighten the Department of Justice's (DOJ) need to appropriately punish and deter corporate crime. Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution. In June and November 2009, GAO testified on DOJ's use and oversight of DPAs and NPAs, and this report discusses additional findings, including (1) the extent to which DOJ has used DPAs and NPAs to address corporate misconduct and tracks use of these agreements, (2) the extent to which DOJ measures the effectiveness of DPAs and NPAs, and (3) the role of the court in the DPA and NPA process. GAO examined 152 DPAs and NPAs negotiated from 1993 through September 2009 and analyzed DOJ data on corporate prosecutions in fiscal years 2004 through 2009. GAO also interviewed DOJ officials, prosecutors from 13 DOJ offices, 20 company representatives, 11 monitors who oversee company compliance, and 12 federal judges. While not generalizable, these results provide insight into decisions about DPAs and NPAs.
Since fiscal year 2004, the number of DPAs and NPAs has generally been less than the number of corporate prosecutions, and in 2009, DOJ began tracking its use of these agreements. DOJ has made more frequent use of DPAs and NPAs in recent years, entering into four agreements in fiscal year 2003 compared to a high of 38 agreements in fiscal year 2007, although use declined in fiscal years 2008 and 2009 when DOJ entered into 24 and 23 agreements, respectively. The U.S. Attorneys Offices (USAO) and DOJ's Criminal Division entered into the vast majority of agreements. From fiscal years 2004 to 2009, for USAOs, the number of DPAs and NPAs was less than the number of corporate prosecutions, whereas for the Criminal Division, the number of DPAs and NPAs was comparable to the number of corporate prosecutions. Prior to 2009, DOJ did not have a mechanism to centrally track its use of DPAs and NPAs, which inhibited its ability to accurately report the number and terms of the agreements to the Congress and the public. However, in response to GAO's requests for information, DOJ has recently taken steps to better track its use of DPAs and NPAs, steps that will allow it to more accurately report on the number and terms of DPAs and NPAs to Congress and the public and identify best practices and ensure consistency across agreements. DOJ lacks performance measures to assess how DPAs and NPAs contribute to its efforts to combat corporate crime. Two possible measures of DPA and NPA effectiveness could be (1) whether the company repeats the criminal behavior either during or after its agreement; or (2) whether the company successfully implements the terms of the agreement; implementation could be a proxy measure for whether the company reformed because DPAs and NPAs often require companies to make improvements in internal controls, compliance programs, or training to detect and prevent future wrongdoing. By developing performance measures to evaluate DPAs and NPAs, DOJ will be better positioned to gauge whether they are effective tools in deterring and combating corporate crime. The Speedy Trial Act allows judges to approve the deferral of prosecution pursuant to a written agreement between the government and the defendant, for the purpose of allowing the defendant to demonstrate its good conduct; however, the law does not otherwise specify judicial involvement in the DPA process. GAO obtained responses from 12 U.S. district and magistrate judges who handled cases involving a DPA, and these judges reported they were generally not involved in the DPA process. Prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement--such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement--than advantages to such involvement--such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-10-110, Corporate Crime: DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
December 2009:
Corporate Crime:
DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-
Prosecution Agreements, but Should Evaluate Effectiveness:
GAO-10-110:
GAO Highlights:
Highlights of GAO-10-110, a report to congressional requesters.
Why GAO Did This Study:
Recent cases of corporate fraud and mismanagement heighten the
Department of Justice‘s (DOJ) need to appropriately punish and deter
corporate crime. Recently, DOJ has made more use of deferred
prosecution and non-prosecution agreements (DPAs and NPAs), in which
prosecutors may require company reform, among other things, in exchange
for deferring prosecution. In June and November 2009, GAO testified on
DOJ‘s use and oversight of DPAs and NPAs, and this report discusses
additional findings, including (1) the extent to which DOJ has used
DPAs and NPAs to address corporate misconduct and tracks use of these
agreements, (2) the extent to which DOJ measures the effectiveness of
DPAs and NPAs, and (3) the role of the court in the DPA and NPA
process. GAO examined 152 DPAs and NPAs negotiated from 1993 through
September 2009 and analyzed DOJ data on corporate prosecutions in
fiscal years 2004 through 2009. GAO also interviewed DOJ officials,
prosecutors from 13 DOJ offices, 20 company representatives, 11
monitors who oversee company compliance, and 12 federal judges. While
not generalizable, these results provide insight into decisions about
DPAs and NPAs.
What GAO Found:
Since fiscal year 2004, the number of DPAs and NPAs has generally been
less than the number of corporate prosecutions, and in 2009, DOJ began
tracking its use of these agreements. DOJ has made more frequent use of
DPAs and NPAs in recent years, entering into four agreements in fiscal
year 2003 compared to a high of 38 agreements in fiscal year 2007,
although use declined in fiscal years 2008 and 2009 when DOJ entered
into 24 and 23 agreements, respectively. The U.S. Attorneys Offices
(USAO) and DOJ‘s Criminal Division entered into the vast majority of
agreements. From fiscal years 2004 to 2009, for USAOs, the number of
DPAs and NPAs was less than the number of corporate prosecutions,
whereas for the Criminal Division, the number of DPAs and NPAs was
comparable to the number of corporate prosecutions. Prior to 2009, DOJ
did not have a mechanism to centrally track its use of DPAs and NPAs,
which inhibited its ability to accurately report the number and terms
of the agreements to the Congress and the public. However, in response
to GAO‘s requests for information, DOJ has recently taken steps to
better track its use of DPAs and NPAs, steps that will allow it to more
accurately report on the number and terms of DPAs and NPAs to Congress
and the public and identify best practices and ensure consistency
across agreements.
DOJ lacks performance measures to assess how DPAs and NPAs contribute
to its efforts to combat corporate crime. Two possible measures of DPA
and NPA effectiveness could be (1) whether the company repeats the
criminal behavior either during or after its agreement; or (2) whether
the company successfully implements the terms of the agreement;
implementation could be a proxy measure for whether the company
reformed because DPAs and NPAs often require companies to make
improvements in internal controls, compliance programs, or training to
detect and prevent future wrongdoing. By developing performance
measures to evaluate DPAs and NPAs, DOJ will be better positioned to
gauge whether they are effective tools in deterring and combating
corporate crime.
The Speedy Trial Act allows judges to approve the deferral of
prosecution pursuant to a written agreement between the government and
the defendant, for the purpose of allowing the defendant to demonstrate
its good conduct; however, the law does not otherwise specify judicial
involvement in the DPA process. GAO obtained responses from 12 U.S.
district and magistrate judges who handled cases involving a DPA, and
these judges reported they were generally not involved in the DPA
process. Prosecutors, company representatives, monitors, and judges
with whom GAO spoke more frequently cited disadvantages to greater
judicial involvement”such as the lack of time and resources available
to judges and concerns about the separation of powers and
constitutionality of increased judicial involvement”than advantages to
such involvement”such as the court‘s ability to act as an independent
arbiter of disputes, increased transparency in the DPA process, and
decreased perceptions of favoritism in selecting the monitor.
What GAO Recommends:
GAO recommends that DOJ develop performance measures to assess the
effectiveness of DPAs and NPAs. DOJ agreed with our recommendation.
View [hyperlink, http://www.gao.gov/products/GAO-10-110] or key
components. For more information, contact Eileen Larence at (202) 512-
8777 or larencee@gao.gov.
[End of section]
Contents:
Letter:
Background:
The Number of DPAs and NPAs Has Generally Been Less Than the Number of
Corporate Prosecutions, and DOJ Recently Began Tracking Its Use of
These Agreements:
DOJ Lacks Performance Measures to Evaluate How DPAs and NPAs Contribute
to Its Strategic Objective to Combat Corporate Crime:
Courts Generally Had Limited Involvement in the DPA Process, and
Prosecutors, Company Officials, Monitors, and Judges More Frequently
Cited Disadvantages Than Advantages to Greater Court Involvement:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Terms of 57 DPAs and NPAs Reviewed and Discussed in June
2009 Testimony:
Appendix II: Number of DPAs and NPAs by Each U.S. Attorney's Office and
DOJ Litigating Division:
Appendix III: Comments from the Department of Justice:
Appendix IV: Comments from the Administrative Office of the U.S.
Courts:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Number of Corporate Criminal Prosecutions to Each DPA or NPA
Entered into by USAOs and the Criminal Division from Fiscal Year 2004
to Fiscal Year 2009:
Table 2: Number of DPAs and NPAs Entered into by Each U.S. Attorney's
Office (USAO):
Table 3: Number of DPAs and NPAs Entered into by Each DOJ Litigating
Division:
Figures:
Figure 1: How the Principles of Federal Prosecution of Business
Organizations Influence Prosecutors' Decisions to Decline Prosecution,
Enter into a DPA or NPA, or Prosecute of the offense:
Figure 2: Number of DPAs and NPAs Entered Into by DOJ, per Fiscal Year:
Abbreviations:
ACTS: Automated Case Tracking System:
AOUSC: Administrative Office of the U.S. Courts:
DOJ: Department of Justice:
DPA: deferred prosecution agreement:
EOUSA: Executive Office for United States Attorneys:
JMD: Justice Management Division:
LIONS: Legal Information Office Network System:
LCMS: Litigation Case Management System:
NPA: non-prosecution agreement:
ODAG: Office of the Deputy Attorney General:
USAO: U.S. Attorneys Offices:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
December 18, 2009:
Congressional Requesters:
According to the Department of Justice (DOJ), one of its chief missions
is to ensure the integrity of the nation's business organizations and
protect the public from corporate corruption. In light of this goal,
DOJ has prosecuted company executives and employees, as well as
companies themselves, for crimes such as tax evasion, securities fraud,
health care fraud, and bribery of foreign officials, among other
illegal activities. However, over the past decade, DOJ has recognized
the potentially harmful effects that criminally prosecuting a company
can have on investors, employees, pensioners, and customers who were
uninvolved in the company's criminal behavior. In particular, the
failure of the accounting firm Arthur Andersen, and the associated loss
of thousands of jobs following its indictment and conviction for
obstruction of justice for destroying Enron-related records,[Footnote
1] has been offered as a prime example of the potentially harmful
effects of criminally prosecuting a company. To avoid serious harm to
innocent third parties and as an alternative to criminal prosecution or
declining to prosecute, DOJ guidance allows prosecutors to negotiate
agreements--referred to as deferred prosecution (DPA) and non-
prosecution (NPA) agreements. These agreements may require companies to
institute or reform corporate ethics and compliance programs,[Footnote
2] pay restitution to victims, and cooperate with ongoing
investigations of individuals in exchange for prosecutors' deferring
the decision to prosecute. As part of DPAs and NPAs, prosecutors may
also require a company to hire, at its own expense, an independent
monitor to oversee the company's compliance with the agreement. DOJ and
companies have generally worked together to select monitors, but DOJ
leaves it up to the company to enter into a contract with a monitor
that specifies the monitor's fees, among other things.
DOJ views DPAs and NPAs as appropriate tools to use in cases where the
goals of punishing and deterring criminal behavior, providing
restitution to victims, and reforming otherwise law-abiding companies
can be achieved without criminal prosecution. The use of these
agreements and the associated monitors, however, is not without debate.
Some commentators view the use of DPAs and NPAs as encouraging
disrespect for the law and failing to deter corporate crime, and others
have suggested a need to evaluate the effectiveness of DPAs and NPAs as
a tool to combat such crime. Further, commentators have acknowledged
monitors' value in ensuring company compliance with the terms of DPAs
and NPAs and in instituting corporate reform, but have also pointed to
challenges associated with monitorships, such as concerns regarding
potential favoritism in the monitor selection process and questions
about monitor accountability, oversight, and costs. In addition,
members of Congress have expressed interest in understanding the role
of courts in selecting monitors and other aspects of DPAs and NPAs.
Given the discussion surrounding these agreements, the Subcommittee on
Commercial and Administrative Law, Committee on the Judiciary, House of
Representatives, asked us to testify in June 2009 on DOJ's use and
oversight of DPAs and NPAs,[Footnote 3] and in November 2009 on issues
related to the selection and use of independent monitors in DPAs and
NPAs.[Footnote 4] We reported that DOJ determined whether or not to use
DPAs and NPAs, and what the terms of these agreements should be, based
on DOJ's Principles of Federal Prosecution of Business Organizations,
[Footnote 5] as well as other factors such as the Federal Sentencing
Guidelines[Footnote 6] and negotiations with companies. In addition, we
reported that DOJ employed several oversight mechanisms to ensure that
companies were complying with the agreements, including the use of
independent monitors, where monitors were typically required to file
written reports with prosecutors on the companies' progress in
complying with the terms of their DPAs or NPAs. Also, we reported that
DOJ generally took the lead in selecting monitors and varied in the
extent to which it involved companies in monitor selection decisions.
In cases where DOJ officials identified monitor candidates, they
generally did so based on their personal knowledge of individuals whose
reputations suggested they would be effective monitors, or through
recommendations from colleagues or professional associates who were
familiar with the requirements of a monitorship. We reported that for
all 46 DPAs and NPAs where DOJ required independent monitors and the
monitors had been selected, companies hired a total of 42 different
individuals to oversee the agreements; 23 of the 42 monitors had
previous experience working for DOJ--which some companies valued in a
monitor choice--and those without prior DOJ experience had worked in
other federal, state, or local government agencies, the private sector,
or academia.
While most of the companies we interviewed did not express concerns
about monitors having prior DOJ experience, some companies raised
general concerns about potential impediments to independence or
impartiality if the monitor had previously worked for DOJ or had
associations with DOJ officials. We reported that DOJ had acknowledged
concerns about the cost to companies of hiring a monitor and perceived
favoritism in the selection of monitors, and thus the need to instill
public confidence in the monitor selection process, and that DOJ had
made efforts to allay these concerns by issuing guidance in March 2008--
known as the Morford Memo--to help ensure that the monitor selection
process is collaborative and merit-based.[Footnote 7] We found that
prosecutors had adhered to the Morford Memo guidance in selecting
monitors required under agreements entered into between March 2008 and
September 2009. However, we also found that prosecutors or the Office
of the Deputy Attorney General (ODAG) were not fully documenting the
steps they took to select monitors, and we recommended that the Deputy
Attorney General adopt internal procedures to document both the process
used and reasons for monitor selection decisions to avoid the
appearance of favoritism and instill public confidence in monitor
selection. In August 2009, DOJ established such procedures.
Lastly, we reported that companies we spoke with identified concerns
about the monitor's cost, scope, and amount of work completed, and that
DOJ had not clearly communicated to companies its role in addressing
such concerns. Given that DOJ relies on monitors to assess companies'
compliance with DPAs and NPAs, clearly communicating to companies the
role DOJ will play in addressing companies' disputes with monitors
would help increase awareness among companies and better position DOJ
to be notified of potential issues related to monitor performance. We
recommended in our November 2009 testimony that the Attorney General
direct all litigating components and U.S. Attorneys Offices to explain
in each corporate DPA or NPA what role DOJ could play in resolving such
disputes, given the facts and circumstances of the case.[Footnote 8]
In this report, we discuss additional findings since our testimonies on
aspects related to DOJ's use and oversight of DPAs and NPAs and the
role of the judiciary, including: (1) the extent to which DOJ has used
DPAs and NPAs to address corporate misconduct and tracks its use of
these agreements, (2) whether and how DOJ measures the extent to which
DPAs and NPAs have contributed to DOJ's efforts to combat corporate
crime, and (3) the role the court has played in the DPA and NPA
process, and the role select prosecutors, companies, monitors, and
representatives from the judiciary believe the courts should play.
To address all 3 objectives, we identified 152 DPAs and NPAs that DOJ
prosecutors had negotiated from 1993 (when the first two were signed)
through September 2009 (which was the end of our review period), and
reviewed copies of all but one of the agreements.[Footnote 9] Because
DOJ did not begin to centrally track all DPAs and NPAs until 2009, we
used four sources to identify all of the agreements. First, in May
2008, DOJ provided the House Judiciary Committee, at its request,
copies of DPAs or NPAs that DOJ divisions or the U.S. Attorneys Offices
entered into with corporations. Second, we reviewed recent published
academic papers on DPAs and NPAs and three Web sites that included a
list of DPAs and NPAs compiled from publicly available data
sources.[Footnote 10] Third, in November 2008, we requested from DOJ's
Criminal Division and the Executive Office for United States Attorneys
(EOUSA) copies of DPAs and NPAs entered into after DOJ's May 2008
response to the House Judiciary Committee. Lastly, we identified
additional DPAs and NPAs through DOJ press releases and our own Web
searches. Through the course of our audit work, we confirmed that our
list of DPAs and NPAs was consistent with information maintained by
DOJ. We interviewed prosecutors from DOJ's Criminal Division and 12
U.S. Attorneys Offices (USAO) that had negotiated most (119) of the 152
agreements. We selected the Criminal Division because it had negotiated
the vast majority of agreements entered into by prosecutors at DOJ
headquarters, and we selected 12 specific USAOs because they were the
only offices that had negotiated at least two agreements, of which at
least one had been completed as of September 30, 2008. During our
interviews we discussed 57 agreements. Of these 57, 25 were completed
agreements that required companies to institute an ethics or compliance
program. In addition, 15 of the 25 companies were required to hire an
independent monitor; we interviewed or obtained written responses from
legal representatives or compliance officials for 20 of these 25
companies who had knowledge of the DPA and NPA process,[Footnote 11]
and interviewed 11 of these monitors.[Footnote 12] In addition, we
reviewed DOJ guidance regarding the prosecution of business entities
and spoke to DOJ headquarters officials including Senior Counsel to the
Office of the Deputy Attorney General, Associate Deputy Attorney
General, Deputy Assistant Attorney General for the Criminal Division,
Senior Counsel to the Assistant Attorney General for the Criminal
Division, Criminal Division Fraud Section Chief, and White Collar Crime
Coordinator for EOUSA regarding policies and procedures related to the
use and oversight of DPAs and NPAs. Since we selected a nonprobability
sample of DOJ officials, company representatives, and monitors to
interview, the information we obtained is not generalizable to all DOJ
litigating components, U.S. Attorneys Offices, companies, and monitors
involved in DPAs and NPAs.[Footnote 13] However, the interviews
provided insights into the negotiation and implementation of DPAs and
NPAs.
To assess the extent to which DOJ has used DPAs and NPAs to address
corporate misconduct and tracks its use of these agreements, we
compared the number of DPAs and NPAs entered into by the USAOs and
DOJ's Criminal Division with the number of corporate criminal cases
prosecuted by these offices from fiscal years 2004 through 2009.
[Footnote 14] We chose to compare DPAs and NPAs with prosecutions in
the USAOs and the Criminal Division because these offices had entered
into 128 of the 130 agreements entered into between fiscal years 2004
and 2009. As discussed above, we identified the DPAs and NPAs entered
into during this time period from DOJ data, academic papers, and Web
site searches. We obtained data on the number of cases filed against
business entities by USAOs and the Criminal Division from EOUSA's Legal
Information Office Network System (LIONS), and the Division's Automated
Case Tracking System (ACTS). The data on the number of cases filed
against business entities that we obtained from these databases
included both corporate criminal prosecutions and DPAs entered into by
the USAOs and the Criminal Division. For each fiscal year, we computed
the number of corporate criminal prosecutions by subtracting our counts
of the number of DPAs entered into by all the USAOs and the Criminal
Division from LIONS and ACTS data on the number of cases filed against
business entities. We confirmed with EOUSA and the Criminal Division
that our computations were accurate. We also reviewed documentation for
LIONS and ACTS, and spoke with data specialists in EOUSA and the
Criminal Division regarding how cases involving corporate entities are
recorded in each system. We determined that the data were sufficiently
reliable for our purposes. We also reviewed documentation on, and spoke
to information technology specialists in, DOJ's Justice Management
Division regarding DOJ's plans for tracking DPAs and NPAs in a case
management system currently under development for DOJ's litigating
components, including all the USAOs. We compared DOJ's tracking
procedures with criteria in standards for internal control in the
federal government[Footnote 15].:
To assess how DOJ measures the extent to which DPAs and NPAs have
contributed to DOJ's efforts to combat corporate crime, we reviewed
DOJ's 2007-2012 Strategic Plan and the corresponding Performance and
Accountability Reports for fiscal years 2007 through 2009 and
Activities Reports for DOJ's Criminal Division Fraud Section for fiscal
years 2007 and 2008.[Footnote 16] We also spoke with Senior Counsel to
the ODAG regarding the status of DOJ's efforts to measure the
effectiveness of DPAs and NPAs, and with the same selected company
representatives and monitors we contacted to address all our objectives
regarding their perspectives on how the effectiveness of these tools
might best be measured.[Footnote 17] We compared DOJ's current
measurement practices with the requirements of the Government
Performance and Results Act of 1993,[Footnote 18] which stipulates
federal agencies are to prepare annual performance plans that
articulate performance goals and indicators that are aligned with the
agencies' long-term strategic goals, and with criteria in standards for
internal control in the federal government.[Footnote 19]
To assess what role the courts have played in the DPA process, we
obtained written responses to structured interview questions from 12 of
the 14 judges who had overseen DPAs in federal courts, where the DPA
had been completed as of March 2009, and where the judge had overseen a
DPA for one of the 25 companies we had selected for our interviews.
[Footnote 20] The Chair of the Judicial Conference's Committee on
Criminal Law agreed to conduct, for GAO, telephone interviews of the
judges who had overseen DPAs in order to protect the confidentiality of
individual judges' answers. Officials from the Administrative Office of
the U.S. Courts (AOUSC) assisted the Chair in carrying out the
interviews.[Footnote 21] The information we obtained is not
generalizable to all judges who have overseen DPAs; however, it
provides insights into the range of judges' activities in overseeing
DPAs. To obtain the perspectives of select prosecutors, companies,
monitors, and the judiciary on the role the courts should play in the
DPA and NPA process, we interviewed the same prosecutors, company
representatives, and monitors we contacted to address all our
objectives, as well as one of the two retired U.S. magistrate judges
who had overseen DPAs and the Chair of the Judicial Conference
Committee on Criminal Law.[Footnote 22]
We conducted this performance audit from September 2008 to December
2009 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our objectives.
Background:
Factors Considered When Using and Setting the Terms of DPAs and NPAs:
As part of its mission to defend the interests of the United States,
DOJ controls all criminal prosecutions in which the United States has
an interest, including those against corporations. Prosecutors'
decisions on investigating, charging, and negotiating a plea or other
agreement with respect to corporate crimes are guided by DOJ's
Principles of Federal Prosecution of Business Organizations, which
instruct prosecutors to consider nine factors when determining how to
treat a corporation suspected of criminal misconduct and provide
guidance on when the nine factors most appropriately apply. The
principles also provide a number of actions prosecutors may take
regarding a corporation, including declining to prosecute, entering
into a DPA or NPA, or criminally prosecuting the corporation. According
to the principles, DPAs and NPAs are an important alternative to
declining prosecution against a corporation and obtaining the
conviction of a company through prosecution. The nine factors, and
examples of the manner in which they influence the prosecutors' choices
of action, are shown in figure 1 below.[Footnote 23]
Figure 1: How the Principles of Federal Prosecution of Business
Organizations Influence Prosecutors' Decisions to Decline Prosecution,
Enter into a DPA or NPA, or Prosecute of the offense:
[Refer to PDF for image: illustration]
This illustration depicts factors that lead toward different
resolutions for the following principles:
Nature and seriousness of the offense:
More serious:
Deferred prosecution agreement leading to Criminal prosecution;
Less serious:
Non-prosecution agreement leading to Declination.
Wrongdoing within corporation:
More pervasive:
Deferred prosecution agreement leading to Criminal prosecution;
Less pervasive:
Non-prosecution agreement leading to Declination.
Similar misconduct:
Some history:
Deferred prosecution agreement leading to Criminal prosecution;
Less history:
Non-prosecution agreement leading to Declination.
Disclosure of wrong-doing and willingness to cooperate[A]:
Less cooperation:
Deferred prosecution agreement leading to Criminal prosecution;
More cooperation:
Non-prosecution agreement leading to Declination.
Pre-existing compliance program:
Less effective:
Deferred prosecution agreement leading to Criminal prosecution;
More effective:
Non-prosecution agreement leading to Declination.
Remedial actions[B]:
Fewer actions:
Deferred prosecution agreement leading to Criminal prosecution;
More actions:
Non-prosecution agreement leading to Declination.
Collateral consequences[C]:
Fewer consequences:
Deferred prosecution agreement leading to Criminal prosecution;
Greater consequences:
Non-prosecution agreement leading to Declination.
Prosecution of responsible individuals:
Less adequate:
Deferred prosecution agreement leading to Criminal prosecution;
More adequate:
Non-prosecution agreement leading to Declination.
Civil or regulatory enforcement actions:
Less adequate:
Deferred prosecution agreement leading to Criminal prosecution;
More adequate:
Non-prosecution agreement leading to Declination.
Source: GAO analysis of DOJ's Principles of Federal Prosecution of
Business Organizations.
[A] Willingness to cooperate includes cooperation in the government's
investigation of the company's agents.
[B] Remedial actions include efforts to implement an effective
compliance program or improve an existing one, pay restitution, or
discipline wrongdoers, among other things.
[C] Collateral consequences include disproportionate harm to
shareholders, pension holders, employees, and others not proven
personally culpable, and any impact on the public arising from
prosecution.
[End of figure]
As part of DPAs and NPAs, companies are generally required to comply
with a set of terms for a specified duration in exchange for
prosecutors deferring the decision to prosecute or deciding not to
prosecute. These terms have included:[Footnote 24]
* monetary payments--such as restitution to victims of the crime,
forfeiture of the proceeds of the crime, and monetary penalties imposed
by DOJ;
* requirements that the company improve or enhance its compliance
program;
* requirements that the company hire, at its own expense, an
independent monitor to assist the company in establishing a compliance
program, review the effectiveness of a company's internal control
measures, and determine whether the company has otherwise met the terms
of the agreements (The agreements typically require monitors to
periodically submit written reports to track the company's progress in
complying with the terms of the DPA or NPA); and:
* extraordinary restitution provisions, which are payments or services
to organizations or individuals not directly affected by the crime.
(DOJ issued guidance in May 2008--which was incorporated into the
United States Attorneys' Manual--prohibiting the use of terms requiring
payments to charitable, educational, community, or other organizations
or individuals that are not the victims of the criminal activity or are
not providing services to redress the harm caused by the criminal
conduct.[Footnote 25] According to DOJ, the use of such terms could
create actual or perceived conflicts of interest or other ethical
issues.[Footnote 26])
Judicial Approval of Deferred Prosecutions:
NPAs typically are not filed with the court, but instead are maintained
by DOJ and the corporation. On the other hand, DPAs are typically filed
with the court, along with a document that identifies the charges that
the prosecution has brought against the corporation. The Speedy Trial
Act sets time limits for the various phases of the criminal justice
process--for example, a defendant's trial must begin within 70 days of
charges being filed or the date when the defendant appeared before the
court--and violations of these time limits may result in the dismissal
of the case.[Footnote 27] However, the Speedy Trial Act also includes
provisions that allow for certain delays that do not count towards the
act's time limits. Under one of these provisions, courts have the
authority to approve the deferral of a prosecution pursuant to a
written agreement between the government and the defendant.[Footnote
28]
The Number of DPAs and NPAs Has Generally Been Less Than the Number of
Corporate Prosecutions, and DOJ Recently Began Tracking Its Use of
These Agreements:
DOJ's Use of DPAs and NPAs Peaked in Fiscal Year 2007, Then Declined,
and USAOs Have Used Fewer DPAs and NPAs Than Corporate Prosecutions
While the Criminal Division Has Used about the Same Number of Each:
DOJ has made more frequent use of DPAs and NPAs in recent years,
entering into four agreements in fiscal year 2003 compared to a high of
38 agreements in fiscal year 2007, although use declined in fiscal
years 2008 and 2009 when DOJ entered into 24 and 23 agreements,
respectively. According to DOJ officials, the decrease in the use of
DPAs and NPAs cannot be attributed to any specific reason because DOJ
is a reactive agency and experiences fluctuations in the types of cases
that occur each year. However, the officials noted that fiscal year
2007 appeared to be an aberration because the use of DPAs and NPAs in
fiscal year 2007 was significantly higher than in any other fiscal
year. Figure 2 below depicts the number of DPAs and NPAs by fiscal
year.
Figure 2: Number of DPAs and NPAs Entered Into by DOJ, per Fiscal Year:
[Refer to PDF for image: line graph]
Fiscal year: 1993;
Number of DPAs and NPAs: 1.
Fiscal year: 1994;
Number of DPAs and NPAs: 2.
Fiscal year: 1995;
Number of DPAs and NPAs: 1.
Fiscal year: 1996;
Number of DPAs and NPAs: 4.
Fiscal year: 1997;
Number of DPAs and NPAs: 0.
Fiscal year: 1998;
Number of DPAs and NPAs: 2.
Fiscal year: 1999;
Number of DPAs and NPAs: 1.
Fiscal year: 2000;
Number of DPAs and NPAs: 2.
Fiscal year: 2001;
Number of DPAs and NPAs: 1.
Fiscal year: 2002;
Number of DPAs and NPAs: 4.
Fiscal year: 2003;
Number of DPAs and NPAs: 4.
Fiscal year: 2004;
Number of DPAs and NPAs: 5.
Fiscal year: 2005;
Number of DPAs and NPAs: 17.
Fiscal year: 2006;
Number of DPAs and NPAs: 23.
Fiscal year: 2007;
Number of DPAs and NPAs: 38.
Fiscal year: 2008;
Number of DPAs and NPAs: 24.
Fiscal year: 2009;
Number of DPAs and NPAs: 23.
Source: GAO analysis of DOJ data.
[End of figure]
From 1993--when the first DPA or NPA was reached--to September 2009, 38
of the 94 USAOs have entered into at least one DPA or NPA, with the
total number of agreements per office ranging from 1 agreement entered
into by 21 of these USAOs, to 23 agreements entered into by the USAO
for the Southern District of New York. In addition, during this same
time period, of the seven litigating components based in DOJ
headquarters, five have entered into DPAs or NPAs, with the total
number of agreements per division ranging from one agreement entered
into by the National Security Division to 49 entered into by the
Criminal Division. See appendix II for the number of DPAs and NPAs
entered into by the USAOs and Divisions.
As shown in table 1, the number of DPAs and NPAs entered into by the
USAOs is small compared to the number of corporate prosecutions they
pursued, but the number of DPAs and NPAs entered into by the Criminal
Division is similar to--and in some fiscal years, more than--the number
of corporate prosecutions it pursued.[Footnote 29] For example, USAOs
pursued almost 18 times more corporate prosecutions than DPAs and NPAs
from fiscal years 2004 to 2009. For the same time period, the Criminal
Division pursued 0.9 times more prosecutions than DPAs and NPAs, or
rather 1.2 times more DPAs and NPAs than prosecutions. According to
Criminal Division officials, unlike the USAOs, the number of DPAs and
NPAs the division has entered into was similar to the number of
corporate prosecutions it carried out for two reasons. First, the
Criminal Division more often handles cases against larger multinational
corporations--many of which may have federal contracts--than the USAOs
do. Prosecution of such companies may have significant collateral
consequences, such as the inability to contract with the federal
government--a factor prosecutors are to consider based on the
Principles of Federal Prosecution of Business Organizations when
determining whether to enter into a DPA or NPA versus prosecute.
Second, the Criminal Division handles all cases involving violations of
the Foreign Corrupt Practices Act,[Footnote 30] for which cases have
increased since fiscal year 2007 and for which the Criminal Division
has entered into DPAs to improve companies' compliance.
Table 1: Number of Corporate Criminal Prosecutions to Each DPA or NPA
Entered into by USAOs and the Criminal Division from Fiscal Year 2004
to Fiscal Year 2009:
Fiscal year 2004: Prosecutions[A];
USAOs: 297;
Criminal Division: 5.
Fiscal year 2004: DPAs and NPAs[B];
USAOs: 4;
Criminal Division: 1.
Fiscal year 2004: Prosecutions per DPA or NPA:
USAOs: 74.3;
Criminal Division: 5.0.
Fiscal year 2005: Prosecutions;
USAOs: 350;
Criminal Division: 3.
Fiscal year 2005: DPAs and NPAs;
USAOs: 11;
Criminal Division: 9.
Fiscal year 2005: Prosecutions per DPA or NPA:
USAOs: 31.8;
Criminal Division: 0.3.
Fiscal year 2006: Prosecutions;
USAOs: 304;
Criminal Division: 5.
Fiscal year 2006: DPAs and NPAs;
USAOs: 19;
Criminal Division: 5.
Fiscal year 2006: Prosecutions per DPA or NPA;
USAOs: 16.0;
Criminal Division: 1.0.
Fiscal year 2007: Prosecutions;
USAOs: 257;
Criminal Division: 11.
Fiscal year 2007: DPAs and NPAs;
USAOs: 31;
Criminal Division: 10.
Fiscal year 2007: Prosecutions per DPA or NPA;
USAOs: 8.3;
Criminal Division: 1.1.
Fiscal year 2008: Prosecutions;
USAOs: 257;
Criminal Division: 6.
Fiscal year 2008: DPAs and NPAs;
USAOs: 12;
Criminal Division: 13.
Fiscal year 2008: Prosecutions per DPA or NPA;
USAOs: 21.4;
Criminal Division: 0.5.
Fiscal year 2009: Prosecutions;
USAOs: 194;
Criminal Division: 8.
Fiscal year 2009: DPAs and NPAs;
USAOs: 17;
Criminal Division: 6.
Fiscal year 2009: Prosecutions per DPA or NPA;
USAOs: 11.4;
Criminal Division: 1.3.
Total fiscal year 2004 through fiscal year 2009: Prosecutions;
USAOs: 1659;
Criminal Division: 38.
Total fiscal year 2004 through fiscal year 2009: DPAs and NPAs;
USAOs: 94;
Criminal Division: 44.
Total fiscal year 2004 through fiscal year 2009: Prosecutions per DPA
or NPA;
USAOs: 17.6;
Criminal Division: 0.9.
Source: GAO analysis of EOUSA and Criminal Division data.
[A] Prosecution data obtained from LIONS and ACTS, which are the
respective EOUSA and Criminal Division case management systems,
included both prosecutions of business entities and corporate DPAs, but
did not include NPAs, matter data, or cases that have been declined. In
LIONS, matters are referrals on which an attorney spends one hour or
more of time and on which formal papers have not been filed with the
court; in ACTS, a matter is an investigation on which a staff person
has worked a minimum of 30 minutes. We obtained prosecution data from
LIONS and ACTS and subtracted from the data for each fiscal year the
number of DPAs in that fiscal year based on the agreements we
identified that included court filings. We confirmed the number of DPAs
to subtract from each fiscal year with EOUSA and the Criminal Division.
[B] The number of DPAs and NPAs in each fiscal year is based on the
agreements we identified.
[C] EOUSA provided prosecution data through July 31, 2009.
[End of table]
DOJ Has Improved Its Ability to Centrally Track Its Use of DPAs and
NPAs:
Prior to 2009, DOJ did not have a mechanism to centrally track its use
of DPAs and NPAs, which inhibited its ability to accurately report the
number and terms of the agreements to the Congress and the public.
However, in response to our requests for information, DOJ has recently
taken steps to better track its use of DPAs and NPAs, steps that will
allow it to more accurately report on the number and terms of DPAs and
NPAs to Congress and the public, and identify best practices and ensure
consistency across agreements.
In January 2008, as part of its oversight of DOJ's efforts to combat
corporate crime, the House Judiciary Committee requested that DOJ
disclose all of the DPAs and NPAs that DOJ had entered into since
January 20, 2003.[Footnote 31] On May 15, 2008, DOJ submitted a total
of 76 agreements entered into during this 5-year time frame, but
acknowledged that the DPAs and NPAs it provided to the committee did
not represent all agreements entered into during the requested time
period.[Footnote 32] According to DOJ, to respond to the committee's
request, it had to ask the USAOs and litigating divisions to submit all
DPAs and NPAs entered into by their respective offices. However, it
appears that the USAOs and divisions did not provide all the DPAs and
NPAs they had entered into because, in conducting our audit work, we
found that DOJ had actually entered into 99 agreements during that time
period. According to standards for internal control in the federal
government, information--which could include entering into a DPA or
NPA--should be recorded and communicated to management in a form and
within a time frame that enables it to carry out its internal control
and other responsibilities. Subsequently, in response to our inquiries,
DOJ has taken several steps to better track its use of DPAs and NPAs,
steps that will better position DOJ to more accurately report to
Congress and the public on the number of existing DPAs and NPAs, the
outcome of the cases, and the terms of the agreements. According to the
Senior Counsel to the ODAG, DOJ wants to track the agreements
internally to help identify best practices and ensure consistency
across agreements, with the recognition that the agreements will need
to vary based on the facts of each case. The new tracking efforts
include:
* In April 2009, EOUSA--which provides administrative and operational
support to the USAOs--updated the case management system USAOs use to
maintain workload information, the Legal Information Office Network
System (LIONS), and issued guidance to prosecutors on the procedure for
tracking their use of DPAs and NPAs in LIONS.[Footnote 33] According to
an EOUSA data official, instructing all USAOs to enter data on DPAs and
NPAs in LIONS will provide EOUSA with the capability to centrally track
the use of these agreements across the USAOs.
* Similarly, in May 2009, the Criminal Division updated its case
management system, the Automated Case Tracking System (ACTS), and
issued guidance to prosecutors on the procedure for tracking DPAs and
NPAs in this system. According to a Criminal Division data official,
prosecutors were already tracking their use of DPAs and NPAs largely in
the manner described in the guidance, but the updates to the system
allowed the Criminal Division to centrally track DPAs and NPAs
separately, a process that it could not do previously.[Footnote 34]
Doing so will provide the Criminal Division with the capability to
centrally maintain data on the use and characteristics of both types of
agreements.
* DOJ is currently in the process of developing a new case management
system--the Litigation Case Management System (LCMS)--that seven of
DOJ's litigating components are to eventually use, including the USAOs
and four of the five headquarters-based components that have entered
into DPAs and NPAs.[Footnote 35] According to officials from DOJ's
Justice Management Division (JMD) responsible for the implementation of
LCMS, the system is to enable prosecutors to centrally track their use
of DPAs and NPAs as it is implemented throughout the USAOs and
litigating components.[Footnote 36] This in turn will provide DOJ with
the ability to centrally collect data on its use of DPAs and NPAs
across all DOJ components.
According to the Senior Counsel to the ODAG, centrally tracking its use
of DPAs and NPAs will provide DOJ with the capability to internally
monitor the circumstances in which the agreements are being used by
prosecutors, including whether the agreement requires a monitor.
Further, centrally tracking DPAs and NPAs in these databases will allow
DOJ to assure itself that it has a reliable count of the universe of
DPAs and NPAs in order to be responsive to requests from Congress.
In addition to tracking DPAs and NPAs in DOJ data systems, the March
2008 Morford Memo required, among other things, that prosecutors submit
copies of DPAs and NPAs involving the use of a monitor to the Assistant
Attorney General for the Criminal Division in order for DOJ to capture
data on agreements that required monitors. As such, on January 15,
2009, DOJ issued guidance outlining the process by which prosecutors
were to submit DPAs and NPAs to the Criminal Division, and requiring
that all DPAs and NPAs--not only those involving the use of monitors--
be submitted, along with a reporting form detailing certain information
about the agreement, including whether it required a monitor and
whether it was filed in court. Since the issuance of the January 2009
guidance, DOJ has entered into 13 agreements, and the Criminal Division
has received copies of the agreements and the associated reporting
forms for all of these agreements. As a result, according to the Senior
Counsel, DOJ is in a position to review and analyze the characteristics
of these agreements--for instance, DOJ can determine whether there is
variation among the DPAs and NPAs and whether any such variation is
appropriate given the facts and circumstances of the case.
DOJ Lacks Performance Measures to Evaluate How DPAs and NPAs Contribute
to Its Strategic Objective to Combat Corporate Crime:
According to DOJ, along with prosecution, DPAs and NPAs are invaluable
tools in achieving its strategic objective to combat public and
corporate corruption, fraud, economic crime, and cybercrime, although
the public, as well as the Congress, have called into question the
effectiveness of these agreements. However, DOJ cannot evaluate and
demonstrate the extent to which DPAs and NPAs--in addition to other
tools, such as prosecution--contribute to the department's efforts to
combat corporate crime because it has no measures to assess their
effectiveness. Specifically, DOJ intends for these agreements to
promote corporate reform; however, DOJ does not have performance
measures in place to assess whether this goal has been met.[Footnote
37] Therefore, it could be difficult for DOJ to justify its increasing
use of these tools.
The Government Performance and Results Act of 1993[Footnote 38]
requires that federal agencies prepare annual performance plans that
articulate performance goals and indicators that are aligned with their
long-term strategic goals in order to generate information
congressional and executive branch decision-makers need in considering
measures to improve government performance and reduce costs. In
addition, standards for internal controls in the federal government
state that activities need to be established to monitor performance
measures and indicators, and that controls aimed at both organizational
and individual performance need to be implemented.[Footnote 39]
Performance measures are established in order to assess whether a
program has achieved its objectives and are expressed as measurable,
quantifiable indicators. Outcome-oriented performance measures, in
particular, assess a program activity by comparing it to its intended
purpose or targets.[Footnote 40] Although DOJ has a strategic objective
to combat public and corporate corruption, fraud, economic crime, and
cybercrime, which includes the use of DPAs and NPAs, it has not
determined how it will measure the extent to which these agreements
have helped it to achieve this strategic objective to demonstrate the
effectiveness of these tools, despite its increased use of these tools
in recent years.
DOJ has mechanisms to assess how litigating divisions achieve favorable
results in criminal cases in general, but not for corporate criminal
cases in particular, including the use of DPAs and NPAs to resolve
these cases.[Footnote 41] Specifically, DOJ measures the performance of
its litigating divisions in meeting the strategic goal of preventing
crime, enforcing federal laws, and representing the rights and
interests of the American people by measuring the percent of cases in
which prosecutors achieve a favorable resolution. DOJ's fiscal year
2009 Performance and Accountability Report stated that 92 percent of
criminal cases were favorably resolved.[Footnote 42] However, this
performance measure does not specifically address corporate criminal
cases or litigating division efforts to achieve the strategic objective
of combating public and corporate corruption, fraud, economic crime,
and cybercrime. Further, while one of the measures the Fraud Section
uses to report its annual accomplishments is counting and reporting on
the number of DPAs or NPA it initiates, among other things,[Footnote
43] this measure does not provide an evaluation of the effectiveness of
DPAs or NPAs.
DOJ officials acknowledged that one of DOJ's goals in using DPAs and
NPAs is to help reform the company. In our discussions with the Senior
Counsel to the ODAG as well as the five monitors and seven companies
that provided opinions on how DOJ could measure the effectiveness of
DPAs and NPAs, these officials suggested two possible models for
measuring effectiveness by considering (1) a company's recidivist
behavior--or the extent to which the company re-engages in criminal
misconduct--after the agreement is complete or during the term of the
DPA or NPA, or (2) whether the company successfully met the terms of
the agreement, which often include requirements to establish or enhance
compliance programs as a means to reform the company.
While half of the company officials and monitors with whom we spoke who
discussed the use of recidivism as a measure did not have concerns with
using such a metric, an equal number did express concerns about using
this as the sole metric.[Footnote 44] One consideration is that DOJ
would have to define the types of criminal misconduct engaged in by the
company and the organizational level of employees engaging in the
misconduct that would constitute recidivism. For example, according to
the Senior Counsel to the Assistant Attorney General for the Criminal
Division, DPAs and NPAs are tailored to address the violations of a
specific law based on specific misconduct. Therefore, if the company
entered into a DPA or NPA because it violated the Commodity Exchange
Act, for example, it could be problematic to consider subsequent
violations of the Foreign Corrupt Practices Act as recidivism. In
addition, DOJ may have to consider whether criminal misconduct
committed by an individual employee should be considered recidivism--
for instance, one company official said that, at a large international
company, it is possible that individual employees may engage in
misconduct in violation of the company's compliance program, but this
should not constitute recidivism on the part of the entire company.
Another consideration regarding measuring recidivism after the
completion of the DPA or NPA, according to DOJ officials with whom we
spoke, is that DOJ does not have the resources to monitor a company's
activities after the agreement has been completed over the long term,
nor is it the mission of DOJ to do so. DOJ officials further stated
that criminal misconduct committed after completion of the agreement is
not reasonably within DOJ's control because, once the agreement has
ended, DOJ is not monitoring the company's behavior, and any further
misconduct may be influenced by other factors--such as the
characteristics of the corporation--and not the effectiveness of the
agreement. Finally, according to the Senior Counsel to the Assistant
Attorney General for the Criminal Division, if the company re-engaged
in criminal misconduct, and the misconduct was reported to federal law
enforcement officials, the Principles of Federal Prosecution of
Business Organizations instruct prosecutors to consider the company's
recidivist behavior in determining how to treat the company.[Footnote
45] However, the Senior Counsel said that, because one of DOJ's goals
in entering into the DPA or NPA is to reform the company, DOJ takes
responsibility for monitoring any recidivist behavior on the part of
the company during the term of the DPA or NPA.
In addition to recidivism--both after and during the agreement--whether
the company successfully met the terms of the DPA or NPA could be a
proxy measure--or indirect indicator--for whether the agreement was
effective at successfully reforming the company. As part of the DPA or
NPA, companies are often required to establish or enhance internal
controls or company compliance programs, or engage in training to
detect and prevent further wrongdoing. According to DOJ officials, if a
company meets all of these requirements, it is likely that the company
has reformed. Overall, five of the seven companies and three of the
five monitors with whom we discussed this issue reported that such a
performance measure would be a useful way to measure the effectiveness
of DPAs and NPAs. For instance, to show whether companies meet the
objectives of their agreements, DOJ could report the percentage of
companies that successfully meet the terms of their agreements, the
percentage of companies that violate the terms of their agreements and
face prosecution, and the percentage of agreements DOJ extends because
the company has not yet complied with the terms of the agreement. Of
the 152 DPAs and NPAs that DOJ had entered into as of October 2009, we
are aware of at least one company that was prosecuted because it
violated the terms of its DPA while the agreement was still ongoing and
two companies for which DOJ extended the agreement because the company
had not yet complied with the terms of the agreement.
However, it may be difficult to determine the extent to which the
agreement itself, rather than other factors, was responsible for
corporate reform. For example, according to one company official,
companies can commit to making necessary compliance changes even before
entering into a DPA or NPA, so the agreement did not cause the reforms.
Yet, because the Principles of Federal Prosecution of Business
Organizations instruct prosecutors to consider a company's remedial
actions--such as its efforts to implement or enhance an effective
compliance program--when determining how to treat the corporation, this
factor may motivate a company to institute reforms in order to
influence DOJ's decision as to whether to use a DPA or NPA. The Senior
Counsel to the ODAG also believed that measuring whether companies
successfully meet the terms of their agreements would be valuable, and
that the fact that companies do not often violate their agreements and
subsequently face prosecution was an indicator that agreements have
helped companies to successfully reform.
Several factors would have to be considered in developing these--or any
other--measures, such as clearly defining what is meant by recidivism
and assessing the feasibility of tracking recidivism. However, by
developing measures to evaluate DPAs and NPAs, DOJ will be able to
gauge whether the agreements are effective tools in achieving its
strategic objective and reassure those with concerns about the
appropriate use of these tools that they are effective in deterring and
combating corporate crime.
Courts Generally Had Limited Involvement in the DPA Process, and
Prosecutors, Company Officials, Monitors, and Judges More Frequently
Cited Disadvantages Than Advantages to Greater Court Involvement:
Judges Reported Limited Involvement in the DPA Process:
The Speedy Trial Act allows judges to approve the deferral of
prosecution pursuant to a written agreement between the government and
the defendant, for the purpose of allowing the defendant to demonstrate
his good conduct; however, the law does not otherwise specify judicial
involvement in the DPA process.[Footnote 46] We obtained responses from
12 U.S. district and magistrate judges who handled cases involving a
DPA, and these judges reported they were generally not involved in the
DPA process.[Footnote 47] Specifically:
* Nine of the 12 judges stated that they did not hold a hearing to
review the DPA or its terms, while the 3 remaining judges held
hearings. One of these judges did so in the context of a plea hearing.
Another judge held a hearing to arraign the company; at which time, the
company and DOJ informed the judge that they intended to enter into a
DPA. The judge then had a second hearing to approve the DPA.[Footnote
48] The third judge conducted a hearing to arraign the company and
verify that the company's decision to enter into the DPA was informed
and voluntary. Ten of the 12 judges reported that they relayed their
decision approving the DPA through a written order. One judge relayed
the decisions orally at a hearing, and one judge did both.
* Ten of the 12 judges reported that they did not have a role in the
selection of a monitor required under the DPA, while the remaining 2
judges did. In one of the 2 cases, the company identified the names of
five monitor candidates, the DOJ prosecutors in the case determined
three of the five candidates were acceptable, and the judge extensively
interviewed the three candidates before selecting one of the candidates
to serve as monitor. In the other case, the DOJ prosecutors interviewed
and identified monitor candidates, and the judge made a final selection
from this group.
* Ten of the 12 judges stated that the monitors did not report any
information to the court during the DPA, and the remaining 2 judges
stated they received information from the monitor. In one of these two
cases, the monitor filed quarterly reports with DOJ and the company's
board of directors, and the court received a copy of the monitor's
final report. In the other case, the court received a copy of the
reports the monitor was required to prepare as part of the DPA and also
spoke with the monitor occasionally. Similarly, 11 of the 12 judges did
not receive any information from DOJ regarding the monitor's compliance
with monitoring obligations under the DPA. The remaining judge received
calls from DOJ after the monitor submitted bills to the court in order
for DOJ to confirm to the court that the monitor was in compliance with
the monitoring obligations in the DPA.
* Eleven of the 12 judges reported that they played no role in
determining the terms of the monitor's contract or setting the
monitor's fees. The remaining judge set, reviewed, and approved the
monitor's fees. Ten of the 12 judges did not receive copies of the
monitoring contracts, while 1 judge received a copy and another judge
was uncertain.
* Ten of the 12 judges said that they dismissed the charges against the
company after receiving information or a court filing from DOJ or the
monitor reflecting compliance, but did not report taking actions to
independently assess the company's compliance with the DPA. One
additional judge stated that he ensured the company understood the
agreement before dismissing the charges, and the final judge reported
that the court would review DOJ's submission to determine whether
dismissal of the charges against the company was warranted.
Prosecutors, Company Officials, Monitors, and Judges with Whom We Spoke
Identified More Disadvantages than Advantages to Greater Court
Involvement in the DPA Process:
Prosecutors from 7 of the 13 DOJ offices, officials from 9 of the 20
companies, and 6 of the 11 monitors with whom we spoke reported
disadvantages to a greater court role, while no prosecutors, 7 of 20
company officials, and 3 of 11 monitors described advantages to a
greater court role. Two company officials did not believe there were
advantages or disadvantages to greater court involvement, and another
company official said that the advantages and disadvantages would
depend on the judge involved in the case.[Footnote 49] We also spoke
with 2 judges, and 1 cited disadvantages to greater court involvement,
while the other cited both advantages and disadvantages.[Footnote 50]
The advantages cited most often included:
* the court's ability to act as an independent arbiter of disputes that
companies and DOJ identify, or to handle significant events in the DPA
process, such as the determination of a breach;
* court involvement in monitor selection could decrease the appearance
of favoritism and add to the perception of fairness in the monitor's
selection; and:
* court involvement could increase transparency in the DPA process by,
for example, making monitor reports filed in the case publicly
available.
The disadvantages most frequently cited were:
* the lack of time and resources available to judges to become more
involved in the DPA process or their willingness to do so. For
instance, three prosecutors, one monitor, one company official, and one
judge noted that, because of already high caseloads, judges may not
have the time or resources to thoroughly review the terms of a DPA,
interview and select appropriate monitor candidates, review monitor
reports, or determine whether a company is in compliance with the DPA;
* concerns over the appropriateness of judges playing a larger role in
the DPA process. For example, two officials noted that judges are
prohibited from participating in plea bargaining between two parties in
a case and believed that negotiations over DPAs were similar to plea
bargaining.[Footnote 51] Others believed that decisions in the DPA
process--such as whether to enter into a DPA instead of prosecute, set
the terms of the agreement, or determine whether a company has complied
with or breached an agreement--were functions of the executive rather
than the judicial branch. For example, one judge noted that if a judge
disagreed with the prosecutor's determination that a company had
complied with the DPA, the judge's authority to refuse the prosecutor's
request to dismiss the indictment and proceed with prosecution is
unclear. Thus, greater court involvement might create a problem related
to the separation of powers under the Constitution, as well as inhibit
prosecutors' discretion in their cases. According to DOJ officials, DOJ
does not have a position on whether greater judicial involvement in the
DPA process creates separation of powers issues; however, DOJ believes
that judicial involvement in the NPA process would create concerns
related to the separation of powers because no judicial review is
involved for NPAs, as they typically do not involve court filings.
* the additional time and processes associated with court involvement,
such as hearings, which may slow down the DPA process; and:
* judges' lack of knowledge and expertise about the case or its subject
matter, such as the operation of an environmental management system at
a wastewater treatment plant, which prosecutors in the case may have
spent years developing.
Conclusions:
According to DOJ, DPAs and NPAs can be invaluable tools for fighting
corporate corruption and helping to rehabilitate a company, although
use of these agreements has not been without controversy, including
questions about the effectiveness of these tools. DOJ has taken several
steps to better track its use of DPAs and NPAs, steps that will better
position DOJ to more accurately report to Congress and the public on
the number of existing DPAs and NPAs, the outcome of the cases, and the
terms of the agreements. However, while DOJ has stated that DPAs and
NPAs are useful tools for combating and deterring corporate crime,
without performance measures, it will be difficult for DOJ to
demonstrate that these agreements are effective at helping the
department achieve this goal. Models exist that would allow DOJ to
create such measures, including measuring whether a company reengages
in misconduct over the long-term or during the course of the agreement
or whether a company successfully meets the terms of its DPA or NPA. By
developing performance measures to evaluate DPAs and NPAs, DOJ will be
better positioned to gauge whether they are effective tools in
deterring and combating corporate crime.
Recommendation for Executive Action:
To assess its progress toward meeting its strategic objective of
combating public and corporate corruption, the Attorney General should
develop performance measures to evaluate the contribution of DPAs and
NPAs towards achieving this objective.
Agency Comments and Our Evaluation:
On December 15, 2009, DOJ provided written comments on a draft of this
report, which we discussed with the Associate Deputy General Counsel
for ODAG and the White Collar Crime Coordinator for EOUSA on December
17, 2009. DOJ agreed with our recommendation. The full text of DOJ's
written comments is included in appendix III.
In its letter, DOJ stated that the department uses a variety of tools
to achieve its mission of protecting the public from corporate
corruption, and in some cases, DPAs and NPAs are appropriate tools and
offer a number of benefits, such as the avoidance of negative
collateral consequences of prosecution and conviction to companies and
innocent third parties.
DOJ agreed with our recommendation that the Attorney General develop
performance measures to evaluate the contribution of DPAs and NPAs
toward achieving its strategic objective of combating public and
corporate corruption, and recognizes the value of appropriate
performance measures in this area. DOJ did not think that the
Government Performance and Results Act of 1993 (GPRA) was a relevant a
criterion for the development of performance measures for DPAs and
NPAs, stating that it requires agencies to develop performance measures
for broader program activities, such as those set forth in agency
budgets, and not for tools such as DPAs and NPAs, which are used less
frequently and are narrowly defined to rectify specific wrongdoing.
While we acknowledge that GPRA does not require the department to
develop performance measures at levels below the program activities set
forth in the agency's budget, we also note that a practice among
leading organizations when implementing results-oriented management
practices consistent with GPRA has been to develop performance measures
for each organizational level, which could help managers and staff
understand how their daily activities contribute to attaining
organizationwide strategic goals. Also, there are other criteria in
addition to GPRA that we cited in our draft report--specifically, the
standards for internal control in the federal government--which state
that agencies should establish activities to monitor performance
measures and indicators and implement controls aimed at organizational
performance. Additionally, with regard to DOJ's comment that DPAs and
NPAs are relatively few in number, while that may be the case for the
U.S. Attorneys' Offices, as we stated in our report, the Criminal
Division has entered into about the same number of DPAs and NPAs as the
number of prosecutions it has pursued.
As to the specific types of performance measures DOJ could adopt, we
proposed in our draft report that DOJ might measure whether the company
successfully met the terms of the agreement or whether the company re-
offended, as two potential measures of the effectiveness of DPAs and
NPAs. In its comments, DOJ identified some of the same limitations as
we did in our report regarding the use of recidivism as a performance
measure. Specifically, DOJ stated that it would be difficult to
determine whether a company recidivated if the company's subsequent
violation was different than the original violation that resulted in
the DPA or NPA. However, DOJ stated that the recent efforts under way
by EOUSA and the Criminal Division to track the department's use of
DPAs and NPAs and monitor the disposition of these agreements will help
DOJ know whether the corporation has fulfilled all of the terms of the
agreement, knowledge that could be useful information for the
department as it develops its performance measures for DPAs and NPAs.
We also received written comments from the Administrative Office of the
U.S. Courts (AOUSC) on December 17, 2009, and the full text of the
Office's written comments is included in appendix IV.
AOUSC in its comments emphasized concerns about greater judicial
involvement in the use of DPAs and NPAs, including concerns about
constitutional and other separation of powers issues contained in the
report, and suggested these be given greater emphasis. We maintain that
we have accurately and objectively represented the views of
prosecutors, company officials, monitors, and judges as presented to us
in the course of our review and have reflected these issues in the
report.
As agreed with your offices, we plan no further distribution of this
report until 24 days from its date, unless you publicly announce its
contents earlier. At that time, we will send copies of this report to
the Attorney General, the Director of AOUSC, selected congressional
committees, and other interested parties. The report will also be
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any further questions about this report,
please contact me at (202) 512-8777 or larencee@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Key contributors to this report
are listed in appendix V.
Signed by:
Eileen R. Larence:
Director, Homeland Security and Justice Issues:
List of Requesters:
The Honorable Patrick J. Leahy:
Chairman:
Committee on the Judiciary:
United States Senate:
The Honorable John Conyers, Jr.
Chairman:
Committee on the Judiciary:
House of Representatives:
The Honorable Steve Cohen:
Chairman:
Subcommittee on Commercial and Administrative Law
Committee on the Judiciary:
House of Representatives:
The Honorable Frank Pallone, Jr.
House of Representatives:
The Honorable Bill Pascrell, Jr.
House of Representatives:
The Honorable Linda T. Sanchez:
House of Representatives:
[End of section]
Appendix I: Terms of 57 DPAs and NPAs Reviewed and Discussed in June
2009 Testimony:
The terms of the 57 DPAs and NPAs we previously reviewed for our June
2009 testimony included: [Footnote 52]
* durations ranging from 3 months to 5 years (One of the 57 agreements
we reviewed did not specify the duration);
* monetary payments ranging from $30,000 to $615 million (Forty-five of
the 57 DPAs and NPAs we reviewed required monetary payments, while 12
did not);
* requirements that the company improve or enhance its compliance
program (Forty-five of the 57 DPAs and NPAs we reviewed included
compliance program requirements, while 12 did not);
* requirements that the company hire, at its own expense, an
independent monitor to assist the company in establishing a compliance
program, review the effectiveness of a company's internal control
measures, and determine whether the company has otherwise met the terms
of the agreements (Twenty-six of the 57 DPAs and NPAs required
companies to hire independent monitors); and:
* extraordinary restitution provisions, which are payments or services
to organizations or individuals not directly affected by the crime.
(Four of the 57 DPAs and NPAs we reviewed included such terms. However,
DOJ issued guidance in May 2008 prohibiting the use of terms requiring
payments to charitable, educational, community, or other organizations
or individuals that are not the victims of the criminal activity or are
not providing services to redress the harm caused by the criminal
conduct).
[End of section]
Appendix II: Number of DPAs and NPAs by Each U.S. Attorney's Office and
DOJ Litigating Division:
Table 2: Number of DPAs and NPAs Entered into by Each U.S. Attorney's
Office (USAO):
USAO: Southern District of New York;
Number of DPAs and NPAs entered into as only office: 20;
Number of DPAs and NPAs entered into jointly with other office: 3;
Total: 23.
USAO: Massachusetts;
Number of DPAs and NPAs entered into as only office: 11;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 12.
USAO: Eastern District of New York;
Number of DPAs and NPAs entered into as only office: 11;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 11.
USAO: Central District of California;
Number of DPAs and NPAs entered into as only office: 10;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 11.
USAO: New Jersey;
Number of DPAs and NPAs entered into as only office: 7;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 7.
USAO: Northern District of California;
Number of DPAs and NPAs entered into as only office: 3;
Number of DPAs and NPAs entered into jointly with other office: 2;
Total: 5.
USAO: Western District of Virginia;
Number of DPAs and NPAs entered into as only office: 3;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 4.
USAO: Northern District of Alabama;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 2.
USAO: Connecticut;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 2.
USAO: Southern District of Mississippi;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 2.
USAO: Rhode Island;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 2.
USAO: Eastern District of Virginia;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 2;
Total: 2.
USAO: Southern District of Ohio;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 2.
USAO: Northern District of Georgia;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 2.
USAO: Western District of Missouri;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 2.
USAO: Southern District of Texas;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 2.
USAO: Northern District of New York;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 2.
USAO: Eastern District of Arkansas;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Southern District of California;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: District of Columbia;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Northern District of Florida;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Southern District of Illinois;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Southern District of Indiana;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Northern District of Iowa;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Western District of Kentucky;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Eastern District of Missouri;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Northern District of Mississippi;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: New Mexico;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Northern District of Ohio;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Western District of Pennsylvania;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Southern District of Florida;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Middle District of Florida;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: North Dakota;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Western District of North Carolina;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Northern District of Illinois;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Kansas;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
USAO: Alaska;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with other office: 1;
Total: 1.
USAO: Western District of Oklahoma;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with other office: 0;
Total: 1.
Source: GAO analysis of DOJ data:
Note: The USAOs not listed in this table had not entered into any DPAs
or NPAs as of September 2009.
[End of table]
Table 3: Number of DPAs and NPAs Entered into by Each DOJ Litigating
Division:
Division and Section: Criminal Division: Fraud Section;
Number of DPAs and NPAs entered into as only office: 29;
Number of DPAs and NPAs entered into jointly with another office: 7;
Total: 36.
Division and Section: Criminal Division: Asset Forfeiture and Money
Laundering Section;
Number of DPAs and NPAs entered into as only office: 6;
Number of DPAs and NPAs entered into jointly with another office: 0;
Total: 6.
Division and Section: Criminal Division: Enron Task Force;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with another office: 0;
Total: 2.
Division and Section: Criminal Division: Obscenity Prosecution Task
Force;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with another office: 1;
Total: 1.
Division and Section: Criminal Division: Public Integrity Section;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with another office: 1;
Total: 1.
Division and Section: Criminal Division: no section listed;
Number of DPAs and NPAs entered into as only office: 1;
Number of DPAs and NPAs entered into jointly with another office: 2;
Total: 3.
Total Criminal Division: 49.
Division and Section: Antitrust Division;
Number of DPAs and NPAs entered into as only office: 2;
Number of DPAs and NPAs entered into jointly with another office: 1;
Total: 3.
Division and Section: Environment and Natural Resources Division:
Environmental Crimes Section;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with another office: 2;
Total: 2.
Total Environment and Natural Resources Division: 2.
Division and Section: Tax Division;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with another office: 2;
Total: 2.
Division and Section: National Security Division;
Number of DPAs and NPAs entered into as only office: 0;
Number of DPAs and NPAs entered into jointly with another office: 1;
Total: 1.
Source: GAO analysis of DOJ data:
Note: The DOJ litigating divisions not listed in this table--the Civil
Division and Civil Rights Division--had not entered into any DPAs or
NPAs as of September 2009.
[End of table]
[End of section]
Appendix III: Comments from the Department of Justice:
U.S. Department of Justice:
Office of the Deputy Attorney General:
Associate Deputy Attorney General:
Washington, DC 20530:
Ms. Eileen Larence:
Director:
Homeland Security and Justice:
Washington, DC 20542:
Re: GAO Report 10-110: Corporate Crime: DOI Has Taken Steps to Better
Track Its Use of Deferred and Non-Prosecution Agreements, but Should
Evaluate Effectiveness:
Dear Ms. Larence:
Thank you for the opportunity to review the Government Accountability
Office (GAO) draft Report entitled "Corporate Crime: DOJ Has Taken
Steps to Better Track Its Use of Deferred and Non-Prosecution
Agreements, but Should Evaluate Effectiveness" (the "draft Report").
The draft Report has been reviewed by various components of the
Department of Justice (the "Department"), including the Executive
Office of U.S. Attorneys (EOUSA), the Criminal Division, and the
Environment and Natural Resources Division. This letter serves as the
formal comments of the Department and it is requested that this letter
be included by the GAO in its final report.
The Department's Use of DPAs and NPAs to Combat Corporate Crime:
As the draft Report states, one of the chief missions of the Department
is "to ensure the integrity of the nation's business organizations and
protect the public from corporate corruption." [Footnote 53] In
fulfilling its mission, the Department has vigorously investigated and
pursued criminal corporate conduct. Indeed. since 2002, the Department
has obtained approximately 1,300 corporate fraud convictions, including
convictions including convictions or more than 350 senior corporate
executives. In addition to prosecuting individuals the Department has
prosecuted and/or settled a substantial number of corporate fraud cases
against corporations, Further, the Department has prosecuted
corporations for environmental of other federal criminal violations
involving, for example, environmental violations and corruption
relating to international bribery. In the last year alone, due to the
Department's efforts, corporations have paid over $1 billion in
criminal penalties and have been subjected to a variety of stringent
guidelines to detect and prevent future criminal conduct.
To achieve its mission of protecting the public from corporate
corruption, the Department uses a variety of tools, including corporate
Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements
(NPAs). Criminally charging and convicting a company or corporation
runs the risk of triggering significant negative consequences for
innocent third parties who played no role in the criminal conduct, were
unaware of it, or were unable to prevent it, including employees.
pensioners, shareholders, creditors, customers, and the general public.
Furthermore, in certain circumstances, the collateral consequences of
such prosecutions -- such as the exclusion front government contracting
pursuant to debarment rules -- may be unjustified where a corporation
fully cooperates with the government's investigation, appropriately
disciplines culpable individuals, implements comprehensive compliance
reforms and other remedial measures, and makes restitution to all the
victims. In these circumstances, DPAs and NPAs are an appropriate tool
to resolve a corporate case while still bringing justice to innocent
victims and the public.
DPAs and NPAs in corporate cases give the Department an alternative to
outright prosecution or declination, and are used effectively by the
Department. The obligations imposed upon a business organization in a
DPA or NPA generally include:
1. the payment of restitution to victims and/or financial penalties to
the Government;
2. cooperation by the business organization with ongoing Government
investigations of potentially culpable individuals and/or other
business organizations; and;
3. the implementation of a remedial ethics and compliance program,
including internal controls that will effectively prevent, deter,
detect, and respond to possible future misconduct.
These alternative dispositions are beneficial for a variety of reasons.
First, as noted above. DPAs and NPAs often require the payment of
restitution to victims and/or financial penalties. Because a DPA NPA is
the result of a negotiated disposition, the payments to the victims can
be accomplished more quickly and efficiently as the restitution can be
obtained without the delays resulting from the formal charging of a
company, the protracted litigation, post-conviction restitution
hearings and administration, and appeals.
Second, DPAs and NPAs promote the public interest in ferreting out
crime more quickly by requiring corporate cooperation. DPAs and NPAs
require companies to cooperate with the government in obtaining
evidence necessary to prosecute individuals and other corporations who
have engaged in misconduct, including culpable corporate executives and
employees. Notably, prosecution of a corporation is not a substitute
for the prosecution of criminally culpable individuals, and corporate
cooperation has proved to be invaluable in a variety of corporate and
financial fraud cases against individual defendants.
Third, many DPAs and NPAs benefit the public by requiring the
corporation to initiate comprehensive ethics and compliance programs.
The agreements help ensure that going forward, the business entity
roots out illegal and unethical conduct, appropriately disciplines
culpable employees, prevents recidivism, and adheres to business
practices that meet or exceed applicable Iced! and regulatory mandates.
There is a dual benefit to this approach: it helps to prevent future
conduct and to restore the integrity and preserve the financial
viability of a corporation that has been mired in corruption or fraud.
Fourth, DPAs and NPAs benefit the public and industries by providing
guidance on what constitutes improper conduct. A vast majority of the
DPAs and many NPAs are made available to the public by the Department
or by the corporation. DPAs are typically filed with a court and are
available to the public through the local clerk's office (or may be
available electronically as most courts now post pleadings online),
Further, copies of DPAs and NPAs are frequently made available by the
Department online or are otherwise available upon request. Because the
agreements typically provide a recitation of the improper conduct at
issue, the agreements can serve as an educational tool for other
companies in a particular industry. Furthermore, the agreements contain
information about the type of remedial efforts the Department and, in
certain circumstances our regulatory partners, will require the company
to take. This is beneficial in helping companies determine "best
practices" in their industry.
Finally, DPAs and NPAs allow the Department to achieve these benefits
without necessarily subjecting companies to the collateral consequences
of prosecution and conviction. Importantly, all of this is achieved
while preserving the Department's ability to prosecute the business
organization, using a set of facts to which the organization has
already admitted, if the agreement is materially breached.
Response to the GAO's recommendations:
The draft Report recommends the following:
To assess its progress towards meeting its strategic objective of
combating public and corporate corruption, the Attorney General should
develop performance measures to evaluate the contribution of DPAs and
NPAs towards achieving this objective.
The Department understands the value of performance measures and why
the GAO made this recommendation. Also, we recognize the time and
thought the GAO has expended on its audit work, the thoroughness of the
draft Report, and the recommendation that the Department develop
performance measures to evaluate the contribution of DPAs and NPAs.
Twice during the course of this audit, the GAO issued testimony reports
in this matter with suggestions for the Department to improve its
procedures with regard to DPAs and NPAs. In both instances the
Department worked with GAO to implement its recommendations. In the
first instance, the Department agreed with the recommendation, provided
the GAO with our position, and wrote to Congress about our et forts
that satisfied the recommendation. When the GAO presented the
Department with its second draft testimony/report, the Department
provided the GAO with comments about how the recommendation could be
edited to make it more comprehensive; the Department's suggested edits
expanded the reach of the draft recommendation to include all
litigation divisions at the Department and litigation conducted in the
94 Offices of the United States Attorneys. The GAO incorporated our
suggestions when it issued its Report issued June 25, 2009.
With respect to the current recommendation, we believe the Department's
method for capturing and measuring the performance of the requirements
in DPAs and NPAs provides a useful and appropriate performance measure
that takes into account the varied nature of DPAs and NPAs, Indeed, as
noted in the draft Report, the Department has already started updating
its case tracking systems to that end. In Spring 2009, as the draft
Report notes, EOUSA and the Criminal Division began monitoring DPA and
NPA progress and case dispositions based upon whether the corporation
has abided by all of the terms of the agreement. This determination is
made either by the prosecuting attorney or a federal judge (if the
matter is filed with a court). This approach lets us know whether
corporations have fulfilled the terms of their agreements ” terms which
were designed to rectify actions that the Department had deemed
violated the law.[Footnote 54]
In its draft Report, the GAO made several references to the Government
Performance and Results Act of 1993 (GPRA) when the GAO discussed the
value of performance measures. See discussion at the top of pace 22.
The discussion implied that the GPRA applies to the circumstances at
hand We believe the circumstances do not justify the development of
performance measures like those associated with and constructed
pursuant to the GPRA. In fact, the law limits the applicability of the
GPRA, The law requires "each agency to prepare an annual performance
plan covering each program activity set forth in the budget of such
agency," The GPRA declines a program activity as a specific activity or
project as listed in the program and financing schedules of the annual
budget of the United States Government." DPAs and NPAs do not
constitute program activities; DPAs and NPAs are merely tools used,
where appropriate, in lieu of prosecutions. hey are relatively few in
number and of limited duration, usually three years, unlike government
"programs" that continue over many years. Also. DPAs and NPAs are
narrowly defined to rectify specific exposed wrongdoing. Consequently,
DPAs and NPAs are not like the budgetary program activities covered by
the GPRA, Accordingly, DPAs and NPAs are not listed in the program and
financing schedules of the annual budget.
Also, the Department evaluated carefully the suggestion by the GAO that
we develop a performance indicator that measured whether DPAs and NPAs
prevented companies from re-offending. We feel that our performance
measures fit the circumstances more so than would the development of a
"recidivism" measure suggested by the GAO. Each DPA or NPA addresses
specific violations of law. Those violations vary widely by type. For
example, the corporation that enters into a DPA because a subsidiary
bribed a foreign official could, at a later date, find that one or its
employees at a wholly different subsidiary violated a securities fraud
statute. Any performance measure tracking recidivism would capture the
second violation. However, capturing the securities fraud would not
indicate progress or lack thereof relative to the earlier public
corruption matter. Even the draft Report noted that, half of the
company officials and monitors with whom the GAO spoke expressed
concerns about using recidivism as a sole metric.[Footnote 55]
The Department agrees with the GAO on the value of appropriate
performance measures in this area. We believe that the performance
measures we are developing will provide an effective means for
evaluating the contribution of DPAs and NPAs towards achieving the goal
of combating public and corporate corruption. We appreciate the
suggestions the GAO made in this regard, and find them useful in
refining our thoughts about performance measures.
The Department appreciates the work done by the GAO. the findings made
in this draft Report, and this opportunity to comment.
Sincerely yours,
Signed by:
Edward N. Siskel:
Associate Deputy General Counsel:
Office of the Deputy Attorney General:
[End of section]
Appendix IV: Comments from the Administrative Office of the U.S.
Courts:
Administrative Office Of The United States Courts:
James C. Duff, Director:
Washington, D.C. 20544:
"A Tradition Of Service To The Federal Judiciary:"
December 17, 2009:
Ms. Eileen R. Larence:
Director, Homeland Security and Justice:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Ms. Larence:
Thank you for the opportunity to review the draft report entitled
Corporate Crime: DOJ Has Taken Steps to Better Thick Its Use of
Deferred and Non-Prosecution Agreements, but Should Evaluate
Effectiveness (GAO-10-110). We commend and appreciate the study team's
professional work and cooperation on this complex study.
In light of pending legislation that would increase judicial
responsibilities for Deferred Prosecution Agreements and Non-
Prosecution Agreements. it would be helpful if the report
covered more prominently the important concerns contained in the report
regarding any increased judicial role in these agreements. We note that
GAO has not recommended additional Judicial Branch involvement in
corporate oversight. Considering the serious and potentially definitive
nature of some of the problems identified, such as Constitutional and
other separation-of-powers issues, you could emphasize these points in
the highlights section and earlier in the report titan they now appear.
I hope these comments are helpful. We are providing technical comments
separately.
Sincerely,
Signed by:
James C. Duff:
Director:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Eileen R. Larence, (202) 512-8777 or larencee@gao.gov.
Staff Acknowledgments:
In addition to the contact named above, Kristy N. Brown, Assistant
Director; Jill Evancho; Tom Jessor; Danielle Pakdaman; Sarah Kaczmarek;
Janet Temko; Amanda Miller; Katherine Davis; and Mandana Yousefi made
significant contributions to this report.
[End of section]
Footnotes:
[1] The conviction was ultimately overturned by the Supreme Court.
Arthur Andersen LLP v. United States, 544 U.S. 696 (2005). In a
unanimous decision, the Court held that the jury instructions used to
convict Arthur Andersen were impermissibly flawed. Id. at 705-07.
[2] The U.S. Sentencing Guidelines define a compliance and ethics
program as "a program designed to prevent and detect criminal conduct."
U.S. Sentencing Guidelines Manual § 8B2.1 cmt. n.1.
[3] GAO, Corporate Crime: Preliminary Observations on DOJ's Use and
Oversight of Deferred Prosecution Agreements and Non-Prosecution
Agreements, [hyperlink, http://www.gao.gov/products/GAO-09-636T]
(Washington, D.C.: June 25, 2009). This statement provided preliminary
observations on factors DOJ considered when entering into and setting
the terms of the agreements, methods DOJ used to oversee companies'
compliance, the monitor selection process, and companies' perspectives
regarding the costs and role of the monitor.
[4] GAO, Corporate Crime: Prosecutors Adhered to Guidance in Selecting
Monitors for Deferred Prosecution and Non-Prosecution Agreements, but
DOJ Could Better Communicate Its Role in Resolving Conflicts,
[hyperlink, http://www.gao.gov/products/GAO-10-260T] (Washington, D.C.:
Nov. 19, 2009). This statement provided additional findings on the
extent to which prosecutors adhered to DOJ guidelines regarding
selecting monitors for DPAs and NPAs; what previous professional
experience monitors had and what were company perspectives on monitors'
experience; and to what extent companies raised concerns about their
monitors and whether DOJ has defined its role in resolving any
concerns.
[5] U.S. Department of Justice, United States Attorneys' Manual § 9-
28.000, Principles of Federal Prosecution of Business Organizations.
[6] Pursuant to the Sentencing Reform Act of 1984, the United States
Sentencing Guidelines Manual ("Sentencing Guidelines") was developed by
the United States Sentencing Commission, an independent body within the
judicial branch of the federal government charged with promulgating
guidelines for federal sentencing. 28 U.S.C. § 994. In 2005, the
Supreme Court found the Sentencing Guidelines, which had previously
been binding for federal judges to follow in sentencing criminal
defendants, to be advisory in nature. See United States v. Booker, 543
U.S. 220 (2005). Regardless of their advisory nature, judges are still
required to calculate properly and consider the Sentencing Guidelines
and other sentencing goals, and sentences properly calculated within
the guidelines range are entitled to a presumption of reasonableness
upon appellate review. See 18 U.S.C. § 3553(a); United States v. Rita,
551 U.S. 338, 347-48 (2007); Booker, 543 U.S. at 264: see also Gall v.
United States, 552 U.S. 38, 49 (2007) (stating that "the Guidelines
should be the starting point and the initial benchmark"). The
Sentencing Guidelines contain promulgated sentencing guidelines, policy
statements, and commentary applicable to business organizations, such
as ranges and considerations for applying fines and requirements for an
effective compliance and ethics program. See U.S. Sentencing Guidelines
Manual §§ 8B2.1, 8C1.1-4.11.
[7] Deputy Attorney General Craig Morford, DOJ, Selection and Use of
Monitors in Deferred Prosecution Agreements and Non-Prosecution
Agreements with Corporations (Mar. 7, 2008). The Morford Memo requires
U.S. Attorneys Offices and other DOJ litigation divisions to establish
ad-hoc or standing committees, consisting of the office's ethics
advisor, criminal or section chief, and at least one other experienced
prosecutor, to consider the candidates--which may be proposed by either
prosecutors, companies, or both--for each monitorship. DOJ components
are also reminded to follow federal conflict-of-interest guidelines and
to check monitor candidates for potential conflicts-of-interest
relationships with the company. In addition, the names of all selected
monitors must be submitted to the Office of the Deputy Attorney General
(ODAG) for final approval.
[8] DOJ did not comment as to whether they agreed or disagreed with
this recommendation, but provided technical comments related to the
recommendation, which we incorporated in the statement as appropriate.
[9] This agreement was sealed by order of the court. We obtained a DOJ
press release describing the key terms in the agreement.
[10] [hyperlink,
http://www.law.virginia.edu/html/librarysite/garrett_bycompany.htm;
http://lawprofessors.typepad.com/whitecollarcrime_blog/deferred_prosecut
ion_agreements/]; hyperlink,
http://www.corporatecrimereporter.com/deferredreport.htm].
[11] Five companies declined to participate in interviews.
[12] Four monitors declined to participate in interviews or did not
return our calls.
[13] DOJ's litigating components, among other things, litigate on
behalf of the U.S. government by enforcing the law and defending the
interests of the United States according to the law. These components
include the U.S. Attorneys Offices, Criminal Division, Antitrust
Division, Civil Division, Civil Rights Division, Environment and
Natural Resources Division, National Security Division, and Tax
Division. Seven of these litigating components--excluding the U.S.
Attorneys Offices--are based at DOJ headquarters in Washington, D.C. In
addition, the Office of the Solicitor General conducts all litigation
on behalf of the U.S. in the Supreme Court and supervises the handling
of litigation in the federal appellate courts.
[14] We obtained data beginning in fiscal year 2004 from the USAOs
because USAO officials told us that data on business entities were
reliable for the last 6 fiscal years. We obtained data beginning in
fiscal year 2004 from the Criminal Division for comparison.
[15] GAO, Internal Control: Standards for Internal Control in the
Federal Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999).
[16] The fiscal year 2009 Fraud Section Activities Report had not been
completed as of the end of our review period.
[17] We discussed how DOJ could measure the effectiveness of DPAs and
NPAs with 7 of the 20 companies and 5 of the 11 monitors we
interviewed.
[18] Pub. L. No. 103-62, 107 Stat. 285.
[19] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[20] The 12 judges who responded also included one judge who had
overseen a DPA for a company that was not among the 25 companies we had
selected for interviews, because we were unable to discuss the DPA with
prosecutors who had negotiated the agreement. We included this judge in
our structured interviews because the USAO that had negotiated the
agreement had a monitor selection policy that required prosecutors to
compile a list of potential monitor candidates and submit the list to
the court, where the district judge would then appoint a monitor from
the list.
[21] We were unable to obtain responses from two judges who had retired
since overseeing DPAs in their district. The 12 judges' responses were
anonymous so we were unable to associate the judges' responses with the
cases they oversaw. We are, therefore, unable to determine
characteristics of cases that had more or less judicial involvement.
However, two of the agreements overseen by two of the judges specified
court involvement in the DPA.
[22] This Chair, who is also the chief judge in her federal district,
also provided her perspectives on the role the courts should play in
the DPA and NPA process. Her views do not necessarily represent the
positions of the Judicial Conference of the United States, which has no
official policy position at this time.
[23] GAO analysis based on the Principles of Federal Prosecution of
Business Organizations. The examples given are illustrative of the
manner in which the prosecutors consider each factor and the
circumstances of each case will determine the relevance of and weight
placed on each factor.
[24] In our June 2009 testimony, we reviewed the terms of 57 DPAs and
NPAs that we discussed with prosecutors at the 13 DOJ offices we
selected for our site visits and interviews. See appendix I for the
terms included in these 57 agreements.
[25] U.S. Department of Justice, United States Attorneys' Manual § 9-
16.325, Plea Agreements, Deferred Prosecution Agreements, Non-
Prosecution Agreements and "Extraordinary Restitution."
[26] According to the U.S. Attorneys' Manual, the section does not
restrict this practice in limited circumstances. These include: 1) the
defendant's own decision, outside of the context of a plea agreement,
deferred prosecution agreement or a non-prosecution agreement, to
unilaterally pay monies to a charitable, education, community or other
organization or individual; 2) "community restitution" payments made
pursuant to 18 U.S.C. § 3663, where the defendant is convicted of
certain offenses under the Controlled Substances Act and there is no
identifiable victim, among other conditions; and 3) the use of
community service as a condition of probation for environmental
prosecutions, where the United States Attorneys' Manual instructs
prosecutors considering the use of community service to consult with
the Environmental Crimes Section of the Environment and Natural
Resources Division, which has issued guidance on the use of community
service provisions. Of the 33 agreements DOJ entered into between May
2008--when the prohibition was issued--and September 2009, 30 of these
agreements did not include an extraordinary restitution provision;
however, the remaining 3 agreements included payments to third parties
to fund environmental projects, enforcement efforts, and initiatives.
According to the ODAG, the payments required in these three agreements-
-which were all cases involving environmental crimes--were intended to
be encompassed by the exception for community service in cases
involving environmental crimes.
[27] 18 U.S.C. § 3161.
[28] 18 U.S.C. § 3161(h)(2).
[29] The Criminal Division and the USAOs are responsible for overseeing
criminal matters under the more than 900 federal criminal statutes. The
Criminal Division develops, enforces, and supervises the application of
all federal criminal laws except those specifically assigned to other
divisions. For instance, according to DOJ, the Criminal Division
handles all cases involving violations of the Foreign Corrupt Practices
Act, 15 U.S.C. §§ 78m, 78dd-1 to -3, 78ff. The USAOs conduct most of
the trial work--including criminal cases--in which the United States is
a party. Other DOJ litigating divisions that have entered into DPAs or
NPAs since fiscal year 1993 include the Antitrust Division, which has
entered into three agreements; the Environment and Natural Resources
Division, which has entered into two agreements; the National Security
Division, which has entered into one agreement; and the Tax Division,
which has entered into two agreements.
[30] 15 U.S.C. §§ 78m, 78dd-1 to -3, 78ff.
[31] The House Judiciary Committee requested disclosure of agreements
dating back to January 20, 2003, because then-Deputy Attorney General
Larry Thompson issued an updated version of the Principles of Federal
Prosecution of Business Organizations, known as the Thompson Memo, on
that date, and the committee was aware that the use of DPAs and NPAs
had grown since 2003.
[32] In its response, DOJ provided a total of 86 agreements, which
included 10 agreements entered into prior to January 20, 2003.
[33] Following the April 2009 guidance, prosecutors at the USAOs are to
code all cases in which the United States has entered into an NPA or
DPA with a business entity as "CPA" in the case type field in LIONS.
[34] Prior to the issuance of the May 2009 guidance, Criminal Division
prosecutors were able to track DPAs and NPAs using a code for DPAs.
After the May guidance, codes were available for both DPAs and NPAs,
allowing the prosecutors to differentiate between the types of
agreements and track them separately. To track DPAs and NPAs following
the May guidance, prosecutors at the Criminal Division, upon reaching a
DPA or NPA, are to enter the disposition code "DP" for a DPA or "NPA"
for an NPA under the Defendant tab in ACTS, and enter information
regarding the terms of the agreements, including the duration, in the
Notes section of ACTS.
[35] The National Security Division was established in 2006, after
development of LCMS had begun; therefore, the National Security
Division was not included in DOJ's planning for LCMS. Further, because
LCMS is an unclassified system and much of the National Security
Division's case information is classified, it may be difficult for LCMS
to handle the National Security Division's case information. LCMS will
replace the components' data systems when implemented and is to be
rolled out to the litigating components in three stages, beginning with
the USAOs. According to officials from DOJ's Justice Management
Division (JMD) responsible for the implementation of LCMS, LCMS is to
be piloted at one USAO in the first quarter of fiscal year 2010, but
further roll-out dates to the remaining USAOs following this initial
pilot are not yet set. The officials said that the current plan is to
begin to deploy LCMS to the litigating components other than the USAOs
in fiscal year 2011, although the schedule is subject to change.
[36] According to the JMD officials, the framework for data collection
used in EOUSA's current database--which includes the ability to track
DPAs and NPAs, following the April 2009 guidance--is to be incorporated
into LCMS, and prosecutors at the USAOs are to be able to track DPAs
and NPAs in the same way they are tracked in their current data system.
As LCMS is rolled out to the other litigating components besides the
USAOs, whose data systems may handle the coding and tracking of DPA and
NPA data differently than LCMS, the officials said that DOJ will
determine whether there is a need to standardize the process for
tracking DPAs and NPAs. Regardless of whether or not the process is
standardized, however, the officials told us that LCMS is to allow
prosecutors to centrally track their use of DPAs and NPAs in LCMS.
[37] While DOJ does not have performance measures to assess the
effectiveness of any of its efforts to combat corporate crime,
including prosecution, because the scope of our work was focused
specifically on DPAs and NPAs, we only discuss performance measures
related to these types of agreements.
[38] Pub. L. No. 103-62 107 Stat. 285.
[39] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[40] See 31 U.S.C. § 1115(g)(2).
[41] The FBI has performance measures for the strategic objective to
combat public and corporate corruption, fraud, economic crime, and
cybercrime, but the FBI is not a DOJ litigating division, and its
measure focuses on the results of its investigations, rather than
results from litigation.
[42] Favorably resolved cases include those cases that resulted in
court judgments favorable to the government, as well as settlements.
U.S. Department of Justice, FY 2009 Performance and Accountability
Report, Strategic Goal II, p 25.
[43] Fraud Section, DOJ Criminal Division, Fraud Section Activities
Report, Fiscal Year 2008, p 2.
[44] Two monitors and five companies discussed the use of recidivism as
a measure of the effectiveness of DPAs and NPAs. One monitor and two
companies did not have concerns with using this metric, while one
monitor and two companies did. The remaining company was not sure.
[45] We are aware of at least two cases of recidivism that involved
further criminal misconduct after the successful completion of an
agreement. In one case, the company entered into a subsequent agreement
to address the additional misconduct. According to the prosecutor who
entered into this subsequent agreement, prosecutors considered the
company's recidivist behavior when deciding to enter into the
agreement, but other factors--such as the fact that the entity that had
committed the wrongdoing had been sold to another company--were also
considered in the decision. In the other case, the company was
prosecuted.
[46] 18 U.S.C. § 3161(h)(2). Because NPAs typically do not involve
court filings, judges are not involved in the NPA process.
[47] The judges' responses were anonymous so we were unable to
associate the judges' responses with the cases they oversaw. We are
therefore unable to determine the characteristics of cases that had
more or less judicial involvement. However, two of the agreements
overseen by two of the judges specified court involvement in the DPA.
[48] An arraignment must be conducted in open court, at which time the
court must ensure that the defendant has a copy of the indictment or
information; read the indictment or information to the defendant or
state to the defendant the substance of the charge; and then ask the
defendant to plead to the indictment or information. Fed. R. Crim. P.
10(a).
[49] Prosecutors from six DOJ offices, seven company officials, and
three monitors did not respond or were not asked their opinion of court
involvement in the DPA process. Five company officials and one monitor
are included in both counts because they reported both disadvantages
and advantages to a greater court role, and another company is double-
counted because one company official cited advantages to greater court
involvement, while another believed it would depend on the judge.
[50] We obtained views from a retired U.S. magistrate judge who had
overseen a DPA, and the chief judge in one federal judicial district.
We did not obtain opinions from the 12 judges who handled cases
involving a DPA because our questions were limited to their roles in
these cases.
[51] Federal Rule of Criminal Procedure 11 states that an attorney for
the government and the defendant's attorney, or the defendant when he
or she does not have an attorney, may discuss and reach a plea
agreement, but the court must not participate in these discussions.
Fed. R. Crim. P. 11(c)(1).
[52] For the purposes of our June 2009 testimony statement, we reviewed
the terms of the 57 agreements we discussed with prosecutors at the 13
DOJ offices we selected for our site visits and interviews. The
criteria we used to select these offices, and thus the 57 agreements,
are described earlier in this report.
[53] Draft Report at 1 (draft Report transmitted December 4, 2009).
[54] In addition, the Department is exploring the development of a
performance measure that would assess the Department's effectiveness in
combating corporate crime, the subject of footnote 36 in the draft
Report. Although the GAO's comments in this regard were outside the
scope of its recommendation, the Department agrees that this is an
important area of focus and is working to develop performance
measurements to assess the Department's effectiveness in the area of
corporate crime.
[55] See Draft Report at 23.
[End of section]
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