Corporate Crime Without Conviction: The Debate Over DPAs and NPAs

In 2012, one of the world’s largest banks, HSBC, allowed hundreds of millions of dollars to be laundered through drug cartels and countless transactions to occur in sanctioned jurisdictions like Iran. Instead of facing criminal prosecution, HSBC paid about $1.9 billion in fines and agreed to compliance reforms under a Deferred Prosecution Agreement. None of the senior executives were charged and the DOJ formally dropped all charges against the corporation in 2017. 

As corporations grow larger and more influential in the global economy, Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) have been increasingly used to resolve corporate crime misconduct. Regulators such as the U.S. Department of Justice and the U.S. Securities and Exchange Commission rely heavily on these agreements – particularly in complex cases where evidence is difficult to obtain and full prosecution can be financially demanding. By analyzing their benefits, such as increased corporate transparency and regulatory efficiency, alongside concerns that they may weaken deterrence and corporate accountability, this article will evaluate whether NPAs and DPAs ultimately serve the broader goals of justice and public trust in markets.

What are NPAs and DPAs?

Non-Prosecution Agreements and Deferred Prosecution Agreements are important regulatory tools used by prosecutors to ensure that corporate activity is conducted legally. In the last few decades, DPAs and NPAs have been on the rise, seeing a 3200% increase between 2000 and 2010. 

With an NPA, prosecutors agree not to file charges against misconduct in exchange for the corporate company resolving the violation within an agreed-upon timeline. With a DPA, the corporate company has to admit liability to a violation in federal court, and upon judicial approval, the prosecutor will defer the charge if the company complies with various conditions such as paying fines, cooperation with investigators, and improving compliance programs. If the obligations are satisfied, the charges will be dismissed; if not, the prosecution can resume.

Why are NPAs and DPAs used?

First, corporate companies play a crucial role in our economy – they provide jobs, drive industry, and encourage innovation. The government relies on for-profit companies, and thus does not often aggressively prosecute them to preserve economic stability. A prime example of this is the collapse of Arthur Andersen LLP, an American “Big Five” accounting firm. Arthur Andersen was the auditor of Enron, which used questionable methods to hide client debt, leading to its criminal conviction in 2002.

Its prosecution led to the accounting industry’s condensation from the “Big Five” to the “Big Four” as Arthur Andersen never recovered, contributing to the loss of thousands of jobs. Experiences like this have made the DOJ cautious, encouraging the use of NPAs and DPAs as alternatives to punish misconduct through reform and oversight, rather than necessarily destroying the entire company and harming employees who were not directly involved in the wrongdoing.

Second, prosecutors employ DPAs and NPAs because many corporate crime cases are extremely difficult and resource-consuming to complete. Cases involving insider trading, foreign corruption, or complex financial fraud often involve large amounts of evidence that can be difficult for prosecutors to obtain without the cooperation of the companies themselves. As a result, these alternative agreements encourage corporations to be more transparent and share information with the investigators in exchange for reduced penalties. Additionally, DPAs and NPAs allow prosecutors to regulate and discipline a greater number of financial misconducts without exhausting the significant time and resources required for full trials. Greater transparency and cooperation can also benefit society overall by discouraging misconduct and making it harder for individuals within corporations to engage in illegal activities. 

Criticisms of NPA and DPA usage

The case of Santa Clara County v. Southern Pacific Railroad Co. (1886) set the precedent for  corporations to be treated as “persons” under the Equal Protection Clause of the XIV Amendment. The railroad company argued that the tax system in Santa Clara unconstitutionally treated railroad corporations differently than individual property owners. The Supreme Court ruled that the county could not tax railroad property in a particular way, establishing the principle that corporations could claim rights similar to those of individuals. 

Because corporations are granted some of the same constitutional protections as individuals, this raises the question of whether they should also be subject to the same methods of criminal prosecution. Critics argue that if corporations benefit from legal rights similar to those of individual people, they should face comparable accountability when they violate the law. 

However, in practice, the use of tools like DPAs and NPAs reduces this accountability, by forgoing a typical trial to avoid the economic impact and practical difficulties involved in prosecuting large corporations. When individuals face harsh penalties while corporations evade full prosecution, critics argue that it can create the perception that powerful companies are treated more leniently than ordinary individuals. This may undermine public trust in the fairness of the legal system and raise concerns about hypocrisy in enforcement. Without consistent consequences, critics worry that the justice system risks appearing illegitimate or ineffective. 

Criminal law is intended to deter wrongdoing by creating the threat of punishment – individuals or organizations will avoid illegal behavior because they fear serious consequences if they are caught. When large corporations are able to resolve cases through DPAs or NPAs, critics argue that this threat is weakened. If companies expect that violations will result in negotiated settlements or compliance reforms rather than criminal convictions, the perceived risk of engaging in illegal activity is reduced. 

Another criticism of DPAs and NPAs is that they may not effectively deter future corporate misconduct. A study in Contemporary Accounting Research found that companies granted these alternative agreements were 13.2% more likely to face another violation in the future, compared to companies who faced full prosecution. This suggests that the penalties imposed through these agreements (fines, compliance reforms, etc.) are not strong enough to change corporate behavior permanently. If companies believe they can avoid the consequences of criminal prosecution, they may treat these agreements as a manageable cost of business rather than a meaningful deterrent. 

There are various alternatives to DPAs and NPAs, but each comes with their own set of costs and benefits. The central challenge now is to determine whether the advantages of these agreements outweigh the detrimental consequences. As corporate influence in the global economy continues to grow, the effectiveness and fairness of these tools will remain an important question for policymakers, legal scholars, and the public in evaluating whether the justice system is truly capable of holding powerful institutions accountable.

Image source: Heyman Law