Just promising to do better may no longer be enough to mollify a U.S. Justice Department keen to go after corporate crime. 

In the space of a single week, the department in May scored two guilty pleas from Glencore Plc and one from a unit of Allianz SE. That follows admissions of guilt in April from two executives at Archegos Capital Management, after it collapsed in what prosecutors said was a market manipulation scheme.  

The spate of guilty pleas marks a change from the prior practice of the agency—made infamous by the book “The Chickensh** Club ”—of relying on so-called deferred prosecution agreements (or non-prosecution agreements), under which a company might agree to pay a penalty and bring in a monitor, but not admit to a crime and rarely see an individual blamed. 

The department’s second-highest ranking official said the recent pleas—which came with combined criminal penalties of $6.8 billion from Glencore and Allianz—are examples of the Justice Department’s resolve to exact appropriate punishment from corporate offenders. Deputy Attorney General Lisa Monaco laid out the new policy in a speech last fall, and now the government is following through, she said.  

“We are very determined to walk the walk when it comes to our corporate criminal enforcement,” Monaco, the No. 2 official at the department, said in an interview last week. “We are going to look at the full range of criminal conduct when it comes to our corporate resolutions and our corporate enforcement.”

Guilty pleas raise reputational risks that can have real-world consequences. For financial firms, guilty pleas can result in the loss of their ability to manage retirement assets, although banks that have pleaded guilty in recent years have been given waivers by the Department of Labor to continue serving as qualified professional asset managers.

Admissions of guilt can also increase a company’s exposure to civil lawsuits.

“If the DOJ secures more corporate guilty pleas now relative to non-plea settlements, we are likely to learn more about how much corporate convictions alone add to fines and other corporate punishments,” said Samuel Buell, a professor at Duke University Law School and a former federal prosecutor. 

Deferred prosecution agreements can still force a defendant to accept the government’s account of any misconduct. 

Repeat Offenders
Use of deferred prosecution agreements wasn’t curbing bad behavior at some companies, Monaco said. According to data her office reviewed when she returned to DOJ last year, Monaco said somewhere between 10% and 20% of all significant corporate criminal resolutions involved companies that were repeat offenders. 

“That tells me we have to look at this” Monaco said. Agreements to defer or not prosecute cannot be “cost free” because it “sends a signal that if you can pay your way out of it, there’s no consequences” for bad actors, she said.

Monaco doesn’t want to take any tools off the table for prosecutors, but she has previously said existing agreements can be unwound in light of new revelations of wrongdoing. 

The Archegos case shows the department is prepared to go after high-ranking individuals, by focusing on the firm’s founder, Bill Hwang, and his chief financial officer, Patrick Halligan. The department has also brought charges against the former chief investment officer of Allianz’s Structured Alpha funds, Greg Tournant. All three men have pleaded not guilty. 

Months prior to its settlement with Glencore, the Justice Department secured two guilty pleas from traders at the company for crimes including bribery and price manipulation. No additional charges against individuals were announced with the company’s guilty plea last month. 

Self-Reporting
Monaco has warned companies that they need to come forward and self report any issues to authorities. The lack of self-reporting was a factor in the decision to seek guilty pleas from Glencore and the Allianz unit, she said at a gathering last week of the securities industry. 

“Self-reporting and cooperation are two different matters,” Monaco said at a Securities Industry and Financial Markets Association conference in New York on Thursday. “If you don’t self-report, you start from behind the 8-ball, you start from a significant deficit with the Department of Justice.”

The Justice Department’s tougher position on self-reporting might backfire, given its longstanding need to rely on such material, said Dan Richman, a former federal prosecutor who teaches at Columbia Law School.

“How seriously the department will punish failure to self-report remains to be seen, since it will still have to give firms that failed to self-report an incentive to cooperate in an investigation triggered by some other means,” Richman wrote in an email. 

This article was provided by Bloomberg News.