by David M. Uhlmann, the Jeffrey F. Liss Professor from Practice and Director of the Environmental Law and Policy Program, University of Michigan Law School. For more on deferred prosecution agreements and corporate liability see Professor Uhlmann’s Maryland Law Review article, “Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability.” Also see his recent post for The CLS Blue Sky Blog.
The Justice Department announced last month that JP Morgan Chase would pay a record $13 billion for its role in the mortgage crisis that produced the Great Recession of 2008. The Justice Department deserves praise for reaching a civil settlement that will restore billions to investors and homeowners who were misled by JP Morgan Chase and Washington Mutual, the failing savings and loan that JP Morgan Chase bought in the midst of the financial crisis. In addition, if there is sufficient evidence, the Justice Department still can bring criminal charges against the individuals involved in the corporate wrongdoing.
It is unlikely that JP Morgan Chase will face criminal charges, however, despite causing billions in losses and untold more in collateral damage to the global economy. Instead, if the bank pays anything more, it almost certainly will be the beneficiary of a disturbing shift in corporate prosecution policy that began in the Bush administration and has accelerated during the Obama administration: the increased use of deferred prosecution and non-prosecution agreements to address corporate wrongdoing. Under these agreements, corporations can avoid criminal charges if they pay large penalties, improve their compliance programs, and cooperate in investigations. Yet plea agreements -- the preferred approach to corporate crime before the last decade -- offer the same benefits without making it appear that justice can be bought.
The Justice Department’s embrace of deferred prosecution and non-prosecution agreements has been dramatic. From 2004 through 2012, the Justice Department entered 242 deferred prosecution and non-prosecution agreements with corporations, after entering just 26 in the preceding 12 years combined (half of which occurred from 2001 to 2004). The use of the agreements has become so routine that the Justice Department’s Criminal Division now resolves most of its corporate criminal cases using “non-criminal alternatives” to prosecution. From 2010 to 2012, the Criminal Division entered more than twice as many deferred prosecution and non-prosecution agreements with corporations (46) as plea agreements (22).
Nor are these small cases involving technical violations of the law. The Justice Department agreed to a deferred prosecution with HSBC even though the bank was involved in nearly a trillion dollars of money laundering, much of it from drug trafficking. The Justice Department entered a non-prosecution agreement in the Upper Big Branch Mining disaster even though 29 miners died, and the Labor Department found that Massey, the company that owned the mine, committed over 300 violations of federal mine safety laws and kept a double-set of books to hide its misconduct from safety inspectors.
The failure to prosecute corporations like HSBC and Massey sends the wrong message about how our society views corporate misconduct and sows doubts about the Justice Department’s commitment to address corporate crime. The Justice Department would never allow individuals who committed such serious crimes to escape prosecution. So why the double-standard for corporate defendants? Why has the Obama administration continued the questionable corporate crime policies of the Bush administration?