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The government is on a let’s-make-a-deal spree with corporate America. In the first six months of this year, the U.S. Department of Justice completed at least 12 deferred prosecution or nonprosecution agreements with companies. By contrast, only eight such deals were signed in all of last year, which was already a record high. The sharp rise in prosecution pacts showed up in a Corporate Counsel review of the Web sites of the Justice Department and major U.S. Attorney’s Offices. Most of the businesses that settled with the government this year were accused of financial and securities fraud. Other companies have been faulted for money laundering, trade secret theft and environmental violations. A federal indictment is widely credited with destroying Arthur Andersen, the giant accounting firm, four years ago. Ever since, companies accused of wrongdoing have sought to avoid the same fate by striking a deal with the Justice Department. In a deferred prosecution agreement, the government files criminal charges against a defendant in court but doesn’t take the case to trial. Under a nonprosecution agreement, no charges are filed. These pacts come at at price, however. For one thing, businesses must cooperate with prosecutors through the length of the agreement, which typically lasts from 12 months to three years. Cooperation, as defined by the government, has forced some companies to take extreme actions, such as waiving attorney-client privilege, or cutting off the legal fees of indicted employees. Also, a prosecution deal generally requires a business to admit its wrongdoing and accept a statement of facts describing the illegal behavior. Private plaintiffs often use this admission against the company in later litigation. Plus, there’s the collateral damage, as companies take steps that not even the government has demanded. At six of the companies that have reached a deferred or nonprosecution agreement in the past 12 months, the general counsel stepped down. In most instances the GC wasn’t even implicated in the wrongdoing — management just felt a new hire would show the government that they were serious about tackling their problems. Though the number of deferred and nonprosecution agreements is soaring, the country isn’t necessarily experiencing a resurgent corporate crime wave. Lawrence Finder, a former U.S. Attorney in Houston who is now a partner at Haynes and Boone, cites two factors behind the increase. One is that the government is trying to exert more pressure on companies, yet wants to avoid being blamed for causing another collapse like Andersen’s. The other reason for the boom in deferred and nonprosecution agreements, Finder says, is that “prosecutors are simply becoming more comfortable with them.” Susan Hackett, the GC of the Association of Corporate Counsel, thinks the number of prosecution pacts is rising because they’re the easiest option for both sides. “It works for everybody,” Hackett says. “Prosecutors get a notch on their belt,” without actually having to take a company to court. Meanwhile, businesses avoid indictment as well as the hefty costs of defending themselves at trial. And both prosecutors and defendants skip the risk of a courtroom loss. The Justice Department isn’t saying much about why it’s completed so many agreements this year. A spokesperson would only note that the agency “uses a variety of approaches to ensure compliance with the law while protecting shareholder value.” Law professor Stuart Green, who recently published “Lying, Cheating, and Stealing: A Moral Theory of White-Collar Crime,” suspects more complex reasons for the rise of prosecution agreements. Green, who teaches at Louisiana State University, says it’s hard to measure whether there’s actually more business crime today. But he maintains that corporate America “is blurring the lines between aggressive business [conduct] and criminality. The more we as a society accept aggressive business behavior, the more we find the lines crossed.” Whatever the cause, ACC’s Hackett doesn’t see any relief in sight for GCs or their companies. In her view, “Companies are now in the mode of doing whatever they can to avoid indictment.”

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