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U.S. Deferred Prosecutions Boost Compliance, Breuer Says

The chief of the U.S. Justice Department’s criminal division, Lanny Breuer, defended the increased use of deferred-prosecution agreements, saying they had “a transformative effect on particular companies and, more generally, on corporate culture across the globe.”

The agreements have “become a mainstay of white-collar criminal law enforcement,” Breuer, 54, said in a speech before the New York City Bar Association yesterday, according to a copy of his prepared remarks. “The result has been, unequivocally, far greater accountability for corporate wrongdoing -- and a sea change in corporate compliance efforts.”

Before deferred prosecution emerged as a useful tool in the 1990s, “prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct -- either indict, or walk away,” said Breuer, who was co-chairman of the white-collar defense and investigations practice group at Covington & Burling LLP before joining the Justice Department.

Avoiding indictment doesn’t mean a company escapes accountability, he said. Companies also must prove they are “serious about compliance,” if they want to avoid pleading guilty or having charges brought.

The agreements give prosecutors flexibility when differentiating between the actions of a “rogue employee and a rotten corporation,” he said.

Morgan Stanley

Breuer cited the case of Garth Peterson, a former managing director at Morgan Stanley who pleaded guilty to conspiring to evade the bank’s internal Foreign Corrupt Practices Act controls, and was sentenced to prison last month. The FCPA is a U.S. anti-bribery statute.

The Justice Department decided against charging the company, because New York-based Morgan Stanley cooperated with the investigation and maintained a robust compliance program, Breuer said.

“That is smart, and responsible enforcement,” he said.

Siemens AG, on the other hand, was an example of a company “rife with corruption from top to bottom,” Breuer said.

Because of the widespread nature of the wrongdoing at the Munich-based manufacturer, including at the managerial level, the Justice Department required Siemens and three of its subsidiaries to plead guilty to FCPA-related charges and pay $450 million in fines in the U.S., and more than $1 billion on top of that in civil penalties and fines in Germany.

Breuer said the decision of whether to indict a corporation, defer prosecution or decline to prosecute altogether isn’t one he takes lightly.

In large multinationals, thousands of jobs may be at stake, or even the health of an industry or the markets, he said

“When the only tool we had to use in cases of corporate misconduct was a criminal indictment, prosecutors sometimes had to use a sledgehammer to crack a nut,” according to Breuer.

More often, they just walked away, he said.

“In the world we live in now, though, prosecutors have much greater ability to hold companies accountable for misconduct than we used to -- and the result has been a transformation in the culture of corporate compliance.”

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