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Corporate Crime: Preliminary Observations on DOJ's Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements

GAO-09-636T Published: Jun 25, 2009. Publicly Released: Jun 25, 2009.
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Recent cases of corporate fraud and mismanagement heighten the Department of Justice's (DOJ) need to appropriately punish and deter corporate crime. Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution, and may also require companies to hire an independent monitor to oversee compliance. This testimony provides preliminary observations on (1) factors DOJ considers when deciding whether to enter into a DPA or NPA and setting the terms of the agreements, (2) methods DOJ uses to oversee companies' compliance, (3) processes by which monitors are selected, and (4) companies' perspectives regarding the costs and role of the monitor. It also includes the results of GAO's recently completed work on DOJ's efforts to document the monitor selection process (discussed in objective 3). GAO reviewed DOJ guidance and 57 of the 140 agreements negotiated from 1993 (when the first 2 were signed) through May 2009; and interviewed DOJ officials, officials from 17 companies, and 6 monitors. While not generalizable, these results provide insight into decisions about DPAs and NPAs.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Justice To enhance DOJ's ability to ensure that monitors are selected according to DOJ's guidelines, the Deputy Attorney General should adopt internal procedures to document both the process used and reasons for monitor selection decisions.
Closed – Implemented
We found that some companies who entered into Deferred Prosecution Agreements (DPA) or Nonprosecution Agreements (NPA) with the Department of Justice (DOJ) raised general concerns about potential impediments to independence or impartiality if the monitor had previously worked for DOJ or had associations with DOJ officials. We reported that DOJ had acknowledged concerns about perceived favoritism in the selection of monitors, and DOJ issued guidance in March 2008, known as the Morford Memo, to help ensure that the monitor selection process is collaborative and merit-based. We found that following issuance of the Morford Memo, prosecutors adhered to the guidance; however, we also found that DOJ was not fully documenting the steps they took to select monitors. We recommended that the Office of the Deputy Attorney General (ODAG) adopt internal procedures to document both the process used and reasons for monitor selection decisions to enhance DOJ's ability to ensure that monitors are selected according to DOJ's guidelines, as well as to avoid the appearance of favoritism and instill public confidence in monitor selection. In response, DOJ implemented a set of procedures to ensure that the review and selection of corporate monitors is documented. These procedures, established in August 2009, require all litigating components entering into a DPA or NPA that includes monitor requirements to submit documentation of this decision to ODAG that outlines the process for selecting the monitor and the reasons why a monitor is being proposed. ODAG will then review the completed documentation and recommend to the litigating component whether or not the proposed monitor should be approved, and whether additional documentation is needed, and documentation of this process will be preserved at ODAG. As a result, DOJ now documents the monitor selection process, including the reasons for why a certain monitor was selected. This process is consistent with our recommendation.

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