After the DOJ released the Yates Memo last September, I suggested that the DOJ was probably very serious about focusing attention on prosecuting individuals involved in corporate misconduct (including FCPA violations). This would constitute a significant shift away from the DOJ’s recent practice of resolving most allegations of corporate wrongdoing through deferred or non-prosecution agreements (known as DPAs and NPAs). Some proponents of DPAs and NPAs claim that such settlements—which allow companies to avoid formal legal charges if they cooperate with a DOJ investigation, disclose desired information, improve compliance measures, and perhaps pay a fine—are actually a “a more powerful tool” than convictions in changing corporate behavior. But many critics—such as Judge Rakoff—have argued that settlements usually obscure who is actually responsible for the misconduct, and “ever more expensive” compliance programs may do little to prevent future misconduct. As Judge Rakoff suggested:
“[T]he impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”
Federal judges, including Judge Rakoff, are responsible for approving the DOJ’s settlements with corporations. The scope of their review is quite limited, and they are required to defer to the prosecution decisions of the DOJ. But even before the Yates Memo, judges had begun reviewing settlements more carefully when individuals were not charged. At least one federal judge is still dissatisfied with the DOJ’s enforcement strategy, and recently took the opportunity—in a corruption case—to urge the DOJ to adhere to the Yates Memo and deal directly with individual wrongdoers. Moreover, he suggested this could have broader significance for how we think about the rest of the criminal justice system.
In United States v. Saena Tech, the CEO of a South Korean company paid cash bribes to a U.S. Army contracting official in exchange for awarding government contracts. After completing its investigation, the DOJ negotiated a DPA with Saena Tech and submitted it for judicial approval. The DOJ’s agreement with Saena Tech was unusual. Rather than the standard two-party agreement between the DOJ and a corporate defendant, the Saena Tech DPA is an agreement between three parties: the federal government, the corporation, and the individual CEO who paid the bribes, Mr. Jin Seok Kim. Yet under the terms of the settlement, only the company—not Mr. Kim—was charged with bribery of a public official. As Judge Emmet Sullivan explained in his opinion, under this peculiar arrangement the CEO “thus receives the benefits of deferred prosecution without having been named in a criminal case,” with the effect of “immunizing Mr. Kim.”
This, Judge Sullivan concluded, cannot be what the Yates Memo was intended to achieve. The Memo states expressly: “Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.” Yet Mr. Kim will avoid personal liability so long as his company adheres to the DPA. From a cynic’s point of view, this looks like preferential treatment for criminal defendants with the privilege of having a corporation to take the blame. Judge Sullivan ulitmately approved the Saena Tech agreement, because he could find was no legal basis to reject it. But he nonetheless took the opportunity to voice a number of serious concerns:
First, Judge Sullivan indicated his general disappointment in the government’s seeming failure to follow through on the Yates Memo, noting (with apparent disapproval) the fact that just one week after the release of the Yates Memo, the DOJ reached a settlement with General Motors imposing a $900 million fine against the corporation but not a single charge against any individual. Considering the settlements with General Motors and Saena Tech, the DOJ has not offered great evidence of their commitment to the Yates Memo.
But the Saena Tech opinion is not the typical “DOJ is soft on corporations” critique. Instead, Judge Sullivan makes a more nuanced point: not only that individuals should bear responsibility for their conduct, but also that deferred prosecution agreements are a valuable means of rehabilitation for individuals—not just for corporate executives, but for everyone in the criminal justice system:
“The Court respectfully requests the Department of Justice to consider expanding the use of deferred-prosecution agreements and other similar tools to use in appropriate circumstances when an individual who might not be a banker or business owner nonetheless shows all of the hallmarks of significant rehabilitation potential.”
In an uncertain environment for criminal justice reform, Judge Sullivan’s proposal may offer a pragmatic approach for prosecutors seeking to reduce the United States’ exceptional incarceration rates, and shift towards more rehabilitative methods.
It’s striking that Judge Sullivan chose a corruption case to advocate for criminal justice reform. He openly departs from the case at hand and addresses the DOJ directly about its broader mission, challenging the disparate treatment for “bribery conspiracy” by elite economic actors and “drug conspiracy” in so-called street crime. He reminds us that defendants in a drug conspiracy case may actually be under similar or even more difficult circumstances. Indeed, Malcolm Gladwell has suggested that corruption functioned as a temporary tool for upward social mobility among Italians, Jews, and other marginalized immigrant groups in early 20th century America, but similar tactics have been closed to African-Americans and more recent waves of immigrants by the aggressive enforcement posture of the War on Drugs. Perhaps unknowingly, Judge Sullivan hints at this similarity.
Moreover, deferred prosecution did not originate in corporate liability. As Judge Rakoff noted, prosecutors first introduced deferred prosecution agreements in the 1930s to work with juvenile offenders, by offering to drop charges if juveniles completed a rehabilitative program. Only in the 1990s did the DOJ expand deferred prosecution for corporate defendants.
Yet, as Judge Sullivan points out, while the privileges of a DPA are nearly standard for corporate offenders, this is not the case for a tremendous majority of other criminal defendants. Under the current leadership of Loretta Lynch, the DOJ has certainly focused its attention on criminal justice reforms (see here, here, and here). Building on these positive steps, if we are willing to prioritize rehabilitative models for commercial forms of corruption, perhaps corporate prosecution tools like the DPA are transferable for defendants who are not economic elites. Judge Sullivan proposes the Yates Memo as pragmatic inspiration for a more individual-oriented, rehabilitative approach.
Unfortunately the Saena Tech DPA falls short—providing a rehabilitative model for the company itself, but then effectively excusing rather than rehabilitating its CEO. Perhaps for a small, closely-held company like Saena Tech, the DOJ had good reasons for this approach. Perhaps the agreement achieved the rehabilitative and deterrent goals of the DOJ, while avoiding collateral personal costs. But shielding a CEO still leaves open questions, especially when these types of deals are largely reserved to a select corner of the criminal justice system.
Looking forward, full transition to a Yates Memo era may take some time. Different corporate forms may merit different settlement terms. The DOJ may also be hindered by old habits and procedures, and defendant corporations will certainly be resistant to turning over information that incriminates executives. At the same time, prosecuting every individual involved in wrongdoing risks over-deterrence and wasting resources for defendants and prosecutors alike. Moreover, prosecutors have real incentives to maintain productive working relationships with corporate defendants and their lawyers. Companies are critical partners in anticorruption enforcement, by training, supervising, and penalizing their own employees. At a certain point, increasingly aggressive prosecution risks alienating companies or paralyzing them with endless due diligence. Given all of this, the unusual settlement with Saena Tech suggests the DOJ may be testing out different prosecution stances to balance these concerns. Perhaps prosecutors across the criminal justice system can extend some of the same creativity.
GAB | The Global Anticorruption Blog 
This is a truly fascinating post, Danielle. I hadn’t realized that the legacy of DPA’s was rehabilitation; I’d always thought of them as a stalling tactic for prosecutors who are trying to decide whether to bring a case by aren’t sure whether they have the resources. I really like the idea of using them more frequently in both corruption and non-corruption offenses as a way of allowing people to make positive changes. In general I support greater room for forgiveness in the justice system. Since so much of this blog focuses on anticorruption efforts in other countries, I’m curious what you think of bringing this tool to other countries. For instance, I know DPAs were introduced in the UK only a few years ago, but largely as a way of combatting economic crime specifically.
I agree, this is a fascinating look at an incredibly common practice. There is certainly plenty of room for creativity, as you note, but I wonder how it would be possible to ever evaluate the impact of different types of settlements. It seems like the counsel for the parties can have the most hope of changing the outcome for their client where there is something they can offer in return. This would be quite different between types of prosecution agreements, notably the willingness of a corporation to agree to multi-million dollar fines, while other types of defendants might only be able to offer a willingness to turn on co-conspirators. Where the DOJ is reluctant to enter lengthy, expensive litigation, NPAs and DPAs for corporations offer a quick approach to bumping the government’s bottom line while giving some appearance of punishment. It seems likely the client, in turn, will push against any individual liability if indeed one small group of individuals works with the counsel to reach the agreement on behalf of the corporation. Perhaps one approach to aiming for some personal rehabilitative effect for corporate actors would be to look outside of the agreement itself. You could, for example, allow shareholders to challenge officers’ or directors’ actions in agreeing to a large settlement that avoids liability as self-dealing or some other corporate law offense. That seems particularly appropriate in the case of bribery where one bad actor can be pinpointed. While such a challenge would be unlikely to succeed, the threat could add some small amount of counterweight to the personal impetus to avoid criminal liability.
Very interesting, Dani. As much as I think individual prosecutions would have highly beneficial deterrent effects, I’m skeptical we’ll ever see full transition to the Yates Memo. For proponents of the Memo’s directives, the DOJ’s failure to act against individuals is concerning – after all, the document is supposed to be an expression of the DOJ’s own policies. If a motivation for the Yates Memo was to respond to public demands for individual accountability, I don’t think Judge Sullivan’s rehabilitative approach cuts it. Maybe the failure to prosecute individuals is due to an abatement of public pressure, maybe the Memo has had a detrimental impact on internal investigations, maybe it simply reflects the difficulty in proving the requisite mens rea in these complex cases – maybe it’s a combination thereof or something else entirely.
As you mention, it’s going to be hard for judges to force full adoption of the Yates Memo by rejecting settlement agreements, given agencies’ wide discretion in resolving cases (recently reiterated in the Second Circuit in SEC v. Citigroup).
Your account of the history of DPAs is informative and I would really like to see more cases in other parts of the criminal justice system resolved this way. As it is, though, it seems like the DOJ’s apparent creativity may just be an inability/unwillingness to prosecute individuals for corporate wrongdoing. I’d be curious to know more about what rehabilitative treatment in DPAs might look like, in order to gauge whether the DOJ takes this path in the future.
One very important component to the Yates Memo might be that the Judges are more active in the cases. Asking questions, assessing the evidence verifying the investigations. Making sure there is no conflict of interest and no outside Influence. If attorney’s see something say something!