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.