Corporate Crime: DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness
Published: 2009-12-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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. In June and November 2009, GAO testified on DOJ's use and oversight of DPAs and NPAs, and this report discusses additional findings, including (1) the extent to which DOJ has used DPAs and NPAs to address corporate misconduct and tracks use of these agreements, (2) the extent to which DOJ measures the effectiveness of DPAs and NPAs, and (3) the role of the court in the DPA and NPA process. GAO examined 152 DPAs and NPAs negotiated from 1993 through September 2009 and analyzed DOJ data on corporate prosecutions in fiscal years 2004 through 2009. GAO also interviewed DOJ officials, prosecutors from 13 DOJ offices, 20 company representatives, 11 monitors who oversee company compliance, and 12 federal judges. While not generalizable, these results provide insight into decisions about DPAs and NPAs.
section_title: What GAO Found
paragraphs: Since fiscal year 2004, the number of DPAs and NPAs has generally been less than the number of corporate prosecutions, and in 2009, DOJ began tracking its use of these agreements. DOJ has made more frequent use of DPAs and NPAs in recent years, entering into four agreements in fiscal year 2003 compared to a high of 38 agreements in fiscal year 2007, although use declined in fiscal years 2008 and 2009 when DOJ entered into 24 and 23 agreements, respectively. The U.S. Attorneys Offices (USAO) and DOJ's Criminal Division entered into the vast majority of agreements. From fiscal years 2004 to 2009, for USAOs, the number of DPAs and NPAs was less than the number of corporate prosecutions, whereas for the Criminal Division, the number of DPAs and NPAs was comparable to the number of corporate prosecutions. Prior to 2009, DOJ did not have a mechanism to centrally track its use of DPAs and NPAs, which inhibited its ability to accurately report the number and terms of the agreements to the Congress and the public. However, in response to GAO's requests for information, DOJ has recently taken steps to better track its use of DPAs and NPAs, steps that will allow it to more accurately report on the number and terms of DPAs and NPAs to Congress and the public and identify best practices and ensure consistency across agreements. DOJ lacks performance measures to assess how DPAs and NPAs contribute to its efforts to combat corporate crime. Two possible measures of DPA and NPA effectiveness could be (1) whether the company repeats the criminal behavior either during or after its agreement; or (2) whether the company successfully implements the terms of the agreement; implementation could be a proxy measure for whether the company reformed because DPAs and NPAs often require companies to make improvements in internal controls, compliance programs, or training to detect and prevent future wrongdoing. By developing performance measures to evaluate DPAs and NPAs, DOJ will be better positioned to gauge whether they are effective tools in deterring and combating corporate crime. The Speedy Trial Act allows judges to approve the deferral of prosecution pursuant to a written agreement between the government and the defendant, for the purpose of allowing the defendant to demonstrate its good conduct; however, the law does not otherwise specify judicial involvement in the DPA process. GAO obtained responses from 12 U.S. district and magistrate judges who handled cases involving a DPA, and these judges reported they were generally not involved in the DPA process. Prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement--such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement--than advantages to such involvement--such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor.

section_title: Letter
paragraphs: According to the Department of Justice (DOJ), one of its chief missions is  to ensure the integrity of the nation’s business organizations and protect  the public from corporate corruption. In light of this goal, DOJ has  prosecuted company executives and employees, as well as companies  themselves, for crimes such as tax evasion, securities fraud, health care  fraud, and bribery of foreign officials, among other illegal activities.  However, over the past decade, DOJ has recognized the potentially  harmful effects that criminally prosecuting a company can have on  investors, employees, pensioners, and customers who were uninvolved in  the company’s criminal behavior. In particular, the failure of the  accounting firm Arthur Andersen, and the associated loss of thousands of  jobs following its indictment and conviction for obstruction of justice for  destroying Enron-related records, has been offered as a prime example of  the potentially harmful effects of criminally prosecuting a company. To  avoid serious harm to innocent third parties and as an alternative to  criminal prosecution or declining to prosecute, DOJ guidance allows  prosecutors to negotiate agreements—referred to as deferred prosecution  (DPA) and non-prosecution (NPA) agreements. These agreements may  require companies to institute or reform corporate ethics and compliance  programs, pay restitution to victims, and cooperate with ongoing  investigations of individuals in exchange for prosecutors’ deferring the  decision to prosecute. As part of DPAs and NPAs, prosecutors may also  require a company to hire, at its own expense, an independent monitor to  oversee the company’s compliance with the agreement. DOJ and  companies have generally worked together to select monitors, but DOJ  leaves it up to the company to enter into a contract with a monitor that  specifies the monitor’s fees, among other things.
DOJ views DPAs and NPAs as appropriate tools to use in cases where the  goals of punishing and deterring criminal behavior, providing restitution to  victims, and reforming otherwise law-abiding companies can be achieved  without criminal prosecution. The use of these agreements and the  associated monitors, however, is not without debate. Some commentators  view the use of DPAs and NPAs as encouraging disrespect for the law and  failing to deter corporate crime, and others have suggested a need to  evaluate the effectiveness of DPAs and NPAs as a tool to combat such  crime. Further, commentators have acknowledged monitors’ value in  ensuring company compliance with the terms of DPAs and NPAs and in  instituting corporate reform, but have also pointed to challenges  associated with monitorships, such as concerns regarding potential  favoritism in the monitor selection process and questions about monitor  accountability, oversight, and costs. In addition, members of Congress  have expressed interest in understanding the role of courts in selecting  monitors and other aspects of DPAs and NPAs.
Given the discussion surrounding these agreements, the Subcommittee on  Commercial and Administrative Law, Committee on the Judiciary, House  of Representatives, asked us to testify in June 2009 on DOJ’s use and  oversight of DPAs and NPAs, and in November 2009 on issues related to  the selection and use of independent monitors in DPAs and NPAs. We  reported that DOJ determined whether or not to use DPAs and NPAs, and  what the terms of these agreements should be, based on DOJ’s Principles  of Federal Prosecution of Business Organizations, as well as other factors  such as the Federal Sentencing Guidelines and negotiations with  companies. In addition, we reported that DOJ employed several oversight  mechanisms to ensure that companies were complying with the  agreements, including the use of independent monitors, where monitors  were typically required to file written reports with prosecutors on the  companies’ progress in complying with the terms of their DPAs or NPAs.  Also, we reported that DOJ generally took the lead in selecting monitors  and varied in the extent to which it involved companies in monitor  selection decisions. In cases where DOJ officials identified monitor  candidates, they generally did so based on their personal knowledge of  individuals whose reputations suggested they would be effective monitors,  or through recommendations from colleagues or professional associates  who were familiar with the requirements of a monitorship. We reported  that for all 46 DPAs and NPAs where DOJ required independent monitors  and the monitors had been selected, companies hired a total of 42 different  individuals to oversee the agreements; 23 of the 42 monitors had previous  experience working for DOJ—which some companies valued in a monitor  choice—and those without prior DOJ experience had worked in other  federal, state, or local government agencies, the private sector, or  academia.
While most of the companies we interviewed did not express concerns  about monitors having prior DOJ experience, some companies 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 the cost to companies of hiring a monitor and perceived  favoritism in the selection of monitors, and thus the need to instill public  confidence in the monitor selection process, and that DOJ had made  efforts to allay these concerns by issuing 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 prosecutors had adhered  to the Morford Memo guidance in selecting monitors required under  agreements entered into between March 2008 and September 2009.  However, we also found that prosecutors or the Office of the Deputy  Attorney General (ODAG) were not fully documenting the steps they took  to select monitors, and we recommended that the Deputy Attorney  General adopt internal procedures to document both the process used and  reasons for monitor selection decisions to avoid the appearance of  favoritism and instill public confidence in monitor selection. In August  2009, DOJ established such procedures.
Lastly, we reported that companies we spoke with identified concerns  about the monitor’s cost, scope, and amount of work completed, and that  DOJ had not clearly communicated to companies its role in addressing  such concerns. Given that DOJ relies on monitors to assess companies’  compliance with DPAs and NPAs, clearly communicating to companies the  role DOJ will play in addressing companies’ disputes with monitors would  help increase awareness among companies and better position DOJ to be  notified of potential issues related to monitor performance. We  recommended in our November 2009 testimony that the Attorney General  direct all litigating components and U.S. Attorneys Offices to explain in  each corporate DPA or NPA what role DOJ could play in resolving such  disputes, given the facts and circumstances of the case.
In this report, we discuss additional findings since our testimonies on  aspects related to DOJ’s use and oversight of DPAs and NPAs and the role  of the judiciary, including: (1) the extent to which DOJ has used DPAs and  NPAs to address corporate misconduct and tracks its use of these  agreements, (2) whether and how DOJ measures the extent to which DPAs  and NPAs have contributed to DOJ’s efforts to combat corporate crime,  and (3) the role the court has played in the DPA and NPA process, and the  role select prosecutors, companies, monitors, and representatives from  the judiciary believe the courts should play.
To address all 3 objectives, we identified 152 DPAs and NPAs that DOJ  prosecutors had negotiated from 1993 (when the first two were signed)  through September 2009 (which was the end of our review period), and  reviewed copies of all but one of the agreements. Because DOJ did not  begin to centrally track all DPAs and NPAs until 2009, we used four  sources to identify all of the agreements. First, in May 2008, DOJ provided  the House Judiciary Committee, at its request, copies of DPAs or NPAs  that DOJ divisions or the U.S. Attorneys Offices entered into with  corporations. Second, we reviewed recent published academic papers on  DPAs and NPAs and three Web sites that included a list of DPAs and NPAs  compiled from publicly available data sources. Third, in November 2008,  we requested from DOJ’s Criminal Division and the Executive Office for  United States Attorneys (EOUSA) copies of DPAs and NPAs entered into  after DOJ’s May 2008 response to the House Judiciary Committee. Lastly,  we identified additional DPAs and NPAs through DOJ press releases and  our own Web searches. Through the course of our audit work, we  confirmed that our list of DPAs and NPAs was consistent with information  maintained by DOJ. We interviewed prosecutors from DOJ’s Criminal  Division and 12 U.S. Attorneys Offices (USAO) that had negotiated most  (119) of the 152 agreements. We selected the Criminal Division because it  had negotiated the vast majority of agreements entered into by  prosecutors at DOJ headquarters, and we selected 12 specific USAOs  because they were the only offices that had negotiated at least two  agreements, of which at least one had been completed as of September 30,  2008. During our interviews we discussed 57 agreements. Of these 57, 25  were completed agreements that required companies to institute an ethics  or compliance program. In addition, 15 of the 25 companies were required  to hire an independent monitor; we interviewed or obtained written  responses from legal representatives or compliance officials for 20 of  these 25 companies who had knowledge of the DPA and NPA process,  and interviewed 11 of these monitors. In addition, we reviewed DOJ  guidance regarding the prosecution of business entities and spoke to DOJ  headquarters officials including Senior Counsel to the Office of the Deputy  Attorney General, Associate Deputy Attorney General, Deputy Assistant  Attorney General for the Criminal Division, Senior Counsel to the  Assistant Attorney General for the Criminal Division, Criminal Division  Fraud Section Chief, and White Collar Crime Coordinator for EOUSA  regarding policies and procedures related to the use and oversight of DPAs  and NPAs. Since we selected a nonprobability sample of DOJ officials,  company representatives, and monitors to interview, the information we  obtained is not generalizable to all DOJ litigating components, U.S.  Attorneys Offices, companies, and monitors involved in DPAs and NPAs.  However, the interviews provided insights into the negotiation and  implementation of DPAs and NPAs.
To assess the extent to which DOJ has used DPAs and NPAs to address  corporate misconduct and tracks its use of these agreements, we  compared the number of DPAs and NPAs entered into by the USAOs and  DOJ’s Criminal Division with the number of corporate criminal cases  prosecuted by these offices from fiscal years 2004 through 2009. We  chose to compare DPAs and NPAs with prosecutions in the USAOs and the  Criminal Division because these offices had entered into 128 of the 130  agreements entered into between fiscal years 2004 and 2009. As discussed  above, we identified the DPAs and NPAs entered into during this time  period from DOJ data, academic papers, and Web site searches. We  obtained data on the number of cases filed against business entities by  USAOs and the Criminal Division from EOUSA’s Legal Information Office  Network System (LIONS), and the Division’s Automated Case Tracking  System (ACTS). The data on the number of cases filed against business  entities that we obtained from these databases included both corporate  criminal prosecutions and DPAs entered into by the USAOs and the  Criminal Division. For each fiscal year, we computed the number of  corporate criminal prosecutions by subtracting our counts of the number  of DPAs entered into by all the USAOs and the Criminal Division from  LIONS and ACTS data on the number of cases filed against business  entities. We confirmed with EOUSA and the Criminal Division that our  computations were accurate. We also reviewed documentation for LIONS  and ACTS, and spoke with data specialists in EOUSA and the Criminal  Division regarding how cases involving corporate entities are recorded in  each system. We determined that the data were sufficiently reliable for our  purposes. We also reviewed documentation on, and spoke to information  technology specialists in, DOJ’s Justice Management Division regarding  DOJ’s plans for tracking DPAs and NPAs in a case management system  currently under development for DOJ’s litigating components, including all  the USAOs. We compared DOJ’s tracking procedures with criteria in  standards for internal control in the federal government.
To assess how DOJ measures the extent to which DPAs and NPAs have  contributed to DOJ’s efforts to combat corporate crime, we reviewed  DOJ’s 2007-2012 Strategic Plan and the corresponding Performance and  Accountability Reports for fiscal years 2007 through 2009 and Activities  Reports for DOJ’s Criminal Division Fraud Section for fiscal years 2007  and 2008. We also spoke with Senior Counsel to the ODAG regarding the  status of DOJ’s efforts to measure the effectiveness of DPAs and NPAs,  and with the same selected company representatives and monitors we  contacted to address all our objectives regarding their perspectives on  how the effectiveness of these tools might best be measured. We  compared DOJ’s current measurement practices with the requirements of  the Government Performance and Results Act of 1993, which stipulates  federal agencies are to prepare annual performance plans that articulate  performance goals and indicators that are aligned with the agencies’ long- term strategic goals, and with criteria in standards for internal control in  the federal government.
To assess what role the courts have played in the DPA process, we  obtained written responses to structured interview questions from 12 of  the 14 judges who had overseen DPAs in federal courts, where the DPA  had been completed as of March 2009, and where the judge had overseen a  DPA for one of the 25 companies we had selected for our interviews. The  Chair of the Judicial Conference’s Committee on Criminal Law agreed to  conduct, for GAO, telephone interviews of the judges who had overseen  DPAs in order to protect the confidentiality of individual judges’ answers.  Officials from the Administrative Office of the U.S. Courts (AOUSC)  assisted the Chair in carrying out the interviews. The information we  obtained is not generalizable to all judges who have overseen DPAs;  however, it provides insights into the range of judges’ activities in  overseeing DPAs. To obtain the perspectives of select prosecutors,  companies, monitors, and the judiciary on the role the courts should play  in the DPA and NPA process, we interviewed the same prosecutors,  company representatives, and monitors we contacted to address all our  objectives, as well as one of the two retired U.S. magistrate judges who  had overseen DPAs and the Chair of the Judicial Conference Committee  on Criminal Law.
We conducted this performance audit from September 2008 to December  2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our objectives.
subsections: section_title: Background
subsections: section_title: Factors Considered When Using and Setting the Terms of DPAs and NPAs
paragraphs: As part of its mission to defend the interests of the United States, DOJ  controls all criminal prosecutions in which the United States has an  interest, including those against corporations. Prosecutors’ decisions on  investigating, charging, and negotiating a plea or other agreement with  respect to corporate crimes are guided by DOJ’s Principles of Federal  Prosecution of Business Organizations, which instruct prosecutors to  consider nine factors when determining how to treat a corporation  suspected of criminal misconduct and provide guidance on when the nine  factors most appropriately apply. The principles also provide a number of  actions prosecutors may take regarding a corporation, including declining  to prosecute, entering into a DPA or NPA, or criminally prosecuting the  corporation. According to the principles, DPAs and NPAs are an important  alternative to declining prosecution against a corporation and obtaining  the conviction of a company through prosecution. The nine factors, and  examples of the manner in which they influence the prosecutors’ choices  of action, are shown in figure 1 below.
As part of DPAs and NPAs, companies are generally required to comply  with a set of terms for a specified duration in exchange for prosecutors  deferring the decision to prosecute or deciding not to prosecute. These  terms have included:    monetary payments—such as restitution to victims of the crime, forfeiture  of the proceeds of the crime, and monetary penalties imposed by DOJ;  requirements that the company improve or enhance its compliance  program;  requirements that the company hire, at its own expense, an independent  monitor to assist the company in establishing a compliance program,  review the effectiveness of a company’s internal control measures, and  determine whether the company has otherwise met the terms of the  agreements (The agreements typically require monitors to periodically  submit written reports to track the company’s progress in complying with  the terms of the DPA or NPA.); and    extraordinary restitution provisions, which are payments or services to  organizations or individuals not directly affected by the crime. (DOJ issued  guidance in May 2008—which was incorporated into the United States  Attorneys’ Manual—prohibiting the use of terms requiring payments to  charitable, educational, community, or other organizations or individuals  that are not the victims of the criminal activity or are not providing  services to redress the harm caused by the criminal conduct. According  to DOJ, the use of such terms could create actual or perceived conflicts of  interest or other ethical issues.)
section_title: Judicial Approval of Deferred Prosecutions
paragraphs: NPAs typically are not filed with the court, but instead are maintained by  DOJ and the corporation. On the other hand, DPAs are typically filed with  the court, along with a document that identifies the charges that the  prosecution has brought against the corporation. The Speedy Trial Act sets  time limits for the various phases of the criminal justice process—for  example, a defendant’s trial must begin within 70 days of charges being  filed or the date when the defendant appeared before the court —and  violations of these time limits may result in the dismissal of the case.  However, the Speedy Trial Act also includes provisions that allow for  certain delays that do not count towards the act’s time limits. Under one of  these provisions, courts have the authority to approve the deferral of a  prosecution pursuant to a written agreement between the government and  the defendant.
section_title: The Number of DPAs and NPAs Has Generally Been Less Than the Number of Corporate Prosecutions, and DOJ Recently Began Tracking Its Use of These Agreements
subsections: section_title: DOJ’s Use of DPAs and NPAs Peaked in Fiscal Year 2007, Then Declined, and USAOs Have Used Fewer DPAs and NPAs Than Corporate Prosecutions While the Criminal Division Has Used about the Same Number of Each
paragraphs: DOJ has made more frequent use of DPAs and NPAs in recent years,  entering into four agreements in fiscal year 2003 compared to a high of 38  agreements in fiscal year 2007, although use declined in fiscal years 2008  and 2009 when DOJ entered into 24 and 23 agreements, respectively.  According to DOJ officials, the decrease in the use of DPAs and NPAs  cannot be attributed to any specific reason because DOJ is a reactive  agency and experiences fluctuations in the types of cases that occur each  year. However, the officials noted that fiscal year 2007 appeared to be an  aberration because the use of DPAs and NPAs in fiscal year 2007 was  significantly higher than in any other fiscal year. Figure 2 below depicts  the number of DPAs and NPAs by fiscal year.
From 1993—when the first DPA or NPA was reached—to September 2009,  38 of the 94 USAOs have entered into at least one DPA or NPA, with the  total number of agreements per office ranging from 1 agreement entered  into by 21 of these USAOs, to 23 agreements entered into by the USAO for  the Southern District of New York. In addition, during this same time  period, of the seven litigating components based in DOJ headquarters, five  have entered into DPAs or NPAs, with the total number of agreements per  division ranging from one agreement entered into by the National Security  Division to 49 entered into by the Criminal Division. See appendix II for  the number of DPAs and NPAs entered into by the USAOs and Divisions.
As shown in table 1, the number of DPAs and NPAs entered into by the  USAOs is small compared to the number of corporate prosecutions they  pursued, but the number of DPAs and NPAs entered into by the Criminal  Division is similar to—and in some fiscal years, more than—the number of  corporate prosecutions it pursued. For example, USAOs pursued almost  18 times more corporate prosecutions than DPAs and NPAs from fiscal  years 2004 to 2009. For the same time period, the Criminal Division  pursued 0.9 times more prosecutions than DPAs and NPAs, or rather 1.2  times more DPAs and NPAs than prosecutions. According to Criminal  Division officials, unlike the USAOs, the number of DPAs and NPAs the  division has entered into was similar to the number of corporate  prosecutions it carried out for two reasons. First, the Criminal Division  more often handles cases against larger multinational corporations—many  of which may have federal contracts—than the USAOs do. Prosecution of  such companies may have significant collateral consequences, such as the  inability to contract with the federal government—a factor prosecutors are  to consider based on the Principles of Federal Prosecution of Business  Organizations when determining whether to enter into a DPA or NPA  versus prosecute. Second, the Criminal Division handles all cases  involving violations of the Foreign Corrupt Practices Act, for which cases  have increased since fiscal year 2007 and for which the Criminal Division  has entered into DPAs to improve companies’ compliance.
section_title: DOJ Has Improved Its Ability to Centrally Track Its Use of DPAs and NPAs
paragraphs: Prior to 2009, DOJ did not have a mechanism to centrally track its use of  DPAs and NPAs, which inhibited its ability to accurately report the  number and terms of the agreements to the Congress and the public.  However, in response to our requests for information, DOJ has recently  taken steps to better track its use of DPAs and NPAs, steps that will allow  it to more accurately report on the number and terms of DPAs and NPAs  to Congress and the public, and identify best practices and ensure  consistency across agreements.
In January 2008, as part of its oversight of DOJ’s efforts to combat  corporate crime, the House Judiciary Committee requested that DOJ  disclose all of the DPAs and NPAs that DOJ had entered into since January  20, 2003. On May 15, 2008, DOJ submitted a total of 76 agreements  entered into during this 5-year time frame, but acknowledged that the  DPAs and NPAs it provided to the committee did not represent all  agreements entered into during the requested time period. According to  DOJ, to respond to the committee’s request, it had to ask the USAOs and  litigating divisions to submit all DPAs and NPAs entered into by their  respective offices. However, it appears that the USAOs and divisions did  not provide all the DPAs and NPAs they had entered into because, in  conducting our audit work, we found that DOJ had actually entered into 99  agreements during that time period. According to standards for internal  control in the federal government, information—which could include  entering into a DPA or NPA—should be recorded and communicated to  management in a form and within a time frame that enables it to carry out  its internal control and other responsibilities. Subsequently, in response to  our inquiries, DOJ has taken several steps to better track its use of DPAs  and NPAs, steps that will better position DOJ to more accurately report to  Congress and the public on the number of existing DPAs and NPAs, the  outcome of the cases, and the terms of the agreements. According to the  Senior Counsel to the ODAG, DOJ wants to track the agreements  internally to help identify best practices and ensure consistency across  agreements, with the recognition that the agreements will need to vary  based on the facts of each case. The new tracking efforts include:  In April 2009, EOUSA—which provides administrative and operational  support to the USAOs—updated the case management system USAOs use  to maintain workload information, the Legal Information Office Network  System (LIONS), and issued guidance to prosecutors on the procedure for  tracking their use of DPAs and NPAs in LIONS. According to an EOUSA  data official, instructing all USAOs to enter data on DPAs and NPAs in  LIONS will provide EOUSA with the capability to centrally track the use of  these agreements across the USAOs.
Similarly, in May 2009, the Criminal Division updated its case management  system, the Automated Case Tracking System (ACTS), and issued  guidance to prosecutors on the procedure for tracking DPAs and NPAs in  this system. According to a Criminal Division data official, prosecutors  were already tracking their use of DPAs and NPAs largely in the manner  described in the guidance, but the updates to the system allowed the  Criminal Division to centrally track DPAs and NPAs separately, a process  that it could not do previously. Doing so will provide the Criminal  Division with the capability to centrally maintain data on the use and  characteristics of both types of agreements.
DOJ is currently in the process of developing a new case management  system—the Litigation Case Management System (LCMS)—that seven of  DOJ’s litigating components are to eventually use, including the USAOs  and four of the five headquarters-based components that have entered into  DPAs and NPAs. According to officials from DOJ’s Justice Management  Division (JMD) responsible for the implementation of LCMS, the system is  to enable prosecutors to centrally track their use of DPAs and NPAs as it is  implemented throughout the USAOs and litigating components. This in  turn will provide DOJ with the ability to centrally collect data on its use of  DPAs and NPAs across all DOJ components.
According to the Senior Counsel to the ODAG, centrally tracking its use of  DPAs and NPAs will provide DOJ with the capability to internally monitor  the circumstances in which the agreements are being used by prosecutors,  including whether the agreement requires a monitor. Further, centrally  tracking DPAs and NPAs in these databases will allow DOJ to assure itself  that it has a reliable count of the universe of DPAs and NPAs in order to be  responsive to requests from Congress.
In addition to tracking DPAs and NPAs in DOJ data systems, the March  2008 Morford Memo required, among other things, that prosecutors submit  copies of DPAs and NPAs involving the use of a monitor to the Assistant  Attorney General for the Criminal Division in order for DOJ to capture  data on agreements that required monitors. As such, on January 15, 2009,  DOJ issued guidance outlining the process by which prosecutors were to  submit DPAs and NPAs to the Criminal Division, and requiring that all  DPAs and NPAs—not only those involving the use of monitors—be  submitted, along with a reporting form detailing certain information about  the agreement, including whether it required a monitor and whether it was  filed in court. Since the issuance of the January 2009 guidance, DOJ has  entered into 13 agreements, and the Criminal Division has received copies  of the agreements and the associated reporting forms for all of these  agreements. As a result, according to the Senior Counsel, DOJ is in a  position to review and analyze the characteristics of these agreements— for instance, DOJ can determine whether there is variation among the  DPAs and NPAs and whether any such variation is appropriate given the  facts and circumstances of the case.
section_title: DOJ Lacks Performance Measures to Evaluate How DPAs and NPAs Contribute to Its Strategic Objective to Combat Corporate Crime
paragraphs: According to DOJ, along with prosecution, DPAs and NPAs are invaluable  tools in achieving its strategic objective to combat public and corporate  corruption, fraud, economic crime, and cybercrime, although the public,  as well as the Congress, have called into question the effectiveness of  these agreements. However, DOJ cannot evaluate and demonstrate the  extent to which DPAs and NPAs—in addition to other tools, such as  prosecution—contribute to the department’s efforts to combat corporate  crime because it has no measures to assess their effectiveness.  Specifically, DOJ intends for these agreements to promote corporate  reform; however, DOJ does not have performance measures in place to  assess whether this goal has been met. Therefore, it could be difficult for  DOJ to justify its increasing use of these tools.
The Government Performance and Results Act of 1993 requires that  federal agencies prepare annual performance plans that articulate  performance goals and indicators that are aligned with their long-term  strategic goals in order to generate information congressional and  executive branch decision-makers need in considering measures to  improve government performance and reduce costs. In addition, standards  for internal controls in the federal government state that activities need to  be established to monitor performance measures and indicators, and that  controls aimed at both organizational and individual performance need to  be implemented. Performance measures are established in order to  assess whether a program has achieved its objectives and are expressed as  measurable, quantifiable indicators. Outcome-oriented performance  measures, in particular, assess a program activity by comparing it to its  intended purpose or targets. Although DOJ has a strategic objective to  combat public and corporate corruption, fraud, economic crime, and  cybercrime, which includes the use of DPAs and NPAs, it has not  determined how it will measure the extent to which these agreements  have helped it to achieve this strategic objective to demonstrate the  effectiveness of these tools, despite its increased use of these tools in  recent years.
DOJ has mechanisms to assess how litigating divisions achieve favorable  results in criminal cases in general, but not for corporate criminal cases in  particular, including the use of DPAs and NPAs to resolve these cases.  Specifically, DOJ measures the performance of its litigating divisions in  meeting the strategic goal of preventing crime, enforcing federal laws, and  representing the rights and interests of the American people by measuring  the percent of cases in which prosecutors achieve a favorable resolution.  DOJ’s fiscal year 2009 Performance and Accountability Report stated that  92 percent of criminal cases were favorably resolved. However, this  performance measure does not specifically address corporate criminal  cases or litigating division efforts to achieve the strategic objective of  combating public and corporate corruption, fraud, economic crime, and  cybercrime. Further, while one of the measures the Fraud Section uses to  report its annual accomplishments is counting and reporting on the  number of DPAs or NPA it initiates, among other things, this measure  does not provide an evaluation of the effectiveness of DPAs or NPAs.
DOJ officials acknowledged that one of DOJ’s goals in using DPAs and  NPAs is to help reform the company. In our discussions with the Senior  Counsel to the ODAG as well as the five monitors and seven companies  that provided opinions on how DOJ could measure the effectiveness of  DPAs and NPAs, these officials suggested two possible models for  measuring effectiveness by considering (1) a company’s recidivist  behavior—or the extent to which the company re-engages in criminal  misconduct—after the agreement is complete or during the term of the  DPA or NPA, or (2) whether the company successfully met the terms of  the agreement, which often include requirements to establish or enhance  compliance programs as a means to reform the company.
While half of the company officials and monitors with whom we spoke  who discussed the use of recidivism as a measure did not have concerns  with using such a metric, an equal number did express concerns about  using this as the sole metric. One consideration is that DOJ would have to  define the types of criminal misconduct engaged in by the company and  the organizational level of employees engaging in the misconduct that  would constitute recidivism. For example, according to the Senior Counsel  to the Assistant Attorney General for the Criminal Division, DPAs and  NPAs are tailored to address the violations of a specific law based on  specific misconduct. Therefore, if the company entered into a DPA or NPA  because it violated the Commodity Exchange Act, for example, it could be  problematic to consider subsequent violations of the Foreign Corrupt  Practices Act as recidivism. In addition, DOJ may have to consider  whether criminal misconduct committed by an individual employee should  be considered recidivism—for instance, one company official said that, at  a large international company, it is possible that individual employees may  engage in misconduct in violation of the company’s compliance program,  but this should not constitute recidivism on the part of the entire  company.
Another consideration regarding measuring recidivism after the  completion of the DPA or NPA, according to DOJ officials with whom we  spoke, is that DOJ does not have the resources to monitor a company’s  activities after the agreement has been completed over the long term, nor  is it the mission of DOJ to do so. DOJ officials further stated that criminal  misconduct committed after completion of the agreement is not  reasonably within DOJ’s control because, once the agreement has ended,  DOJ is not monitoring the company’s behavior, and any further  misconduct may be influenced by other factors—such as the  characteristics of the corporation—and not the effectiveness of the  agreement. Finally, according to the Senior Counsel to the Assistant  Attorney General for the Criminal Division, if the company re-engaged in  criminal misconduct, and the misconduct was reported to federal law  enforcement officials, the Principles of Federal Prosecution of Business  Organizations instruct prosecutors to consider the company’s recidivist  behavior in determining how to treat the company. However, the Senior  Counsel said that, because one of DOJ’s goals in entering into the DPA or  NPA is to reform the company, DOJ takes responsibility for monitoring  any recidivist behavior on the part of the company during the term of the  DPA or NPA.
In addition to recidivism—both after and during the agreement—whether  the company successfully met the terms of the DPA or NPA could be a  proxy measure—or indirect indicator—for whether the agreement was  effective at successfully reforming the company. As part of the DPA or  NPA, companies are often required to establish or enhance internal  controls or company compliance programs, or engage in training to detect  and prevent further wrongdoing. According to DOJ officials, if a company  meets all of these requirements, it is likely that the company has reformed.  Overall, five of the seven companies and three of the five monitors with  whom we discussed this issue reported that such a performance measure  would be a useful way to measure the effectiveness of DPAs and NPAs.  For instance, to show whether companies meet the objectives of their  agreements, DOJ could report the percentage of companies that  successfully meet the terms of their agreements, the percentage of  companies that violate the terms of their agreements and face prosecution,  and the percentage of agreements DOJ extends because the company has  not yet complied with the terms of the agreement. Of the 152 DPAs and  NPAs that DOJ had entered into as of October 2009, we are aware of at  least one company that was prosecuted because it violated the terms of its  DPA while the agreement was still ongoing and two companies for which  DOJ extended the agreement because the company had not yet complied  with the terms of the agreement.
However, it may be difficult to determine the extent to which the  agreement itself, rather than other factors, was responsible for corporate  reform. For example, according to one company official, companies can  commit to making necessary compliance changes even before entering  into a DPA or NPA, so the agreement did not cause the reforms. Yet,  because the Principles of Federal Prosecution of Business Organizations  instruct prosecutors to consider a company’s remedial actions—such as  its efforts to implement or enhance an effective compliance program— when determining how to treat the corporation, this factor may motivate a  company to institute reforms in order to influence DOJ’s decision as to  whether to use a DPA or NPA. The Senior Counsel to the ODAG also  believed that measuring whether companies successfully meet the terms  of their agreements would be valuable, and that the fact that companies do  not often violate their agreements and subsequently face prosecution was  an indicator that agreements have helped companies to successfully  reform.
Several factors would have to be considered in developing these—or any  other—measures, such as clearly defining what is meant by recidivism and  assessing the feasibility of tracking recidivism. However, by developing  measures to evaluate DPAs and NPAs, DOJ will be able to gauge whether  the agreements are effective tools in achieving its strategic objective and  reassure those with concerns about the appropriate use of these tools that  they are effective in deterring and combating corporate crime.
section_title: Courts Generally Had Limited Involvement in the DPA Process, and Prosecutors, Company Officials, Monitors, and Judges More Frequently Cited Disadvantages Than Advantages to Greater Court Involvement
subsections: section_title: Judges Reported Limited Involvement in the DPA Process
paragraphs: The Speedy Trial Act allows judges to approve the deferral of prosecution  pursuant to a written agreement between the government and the  defendant, for the purpose of allowing the defendant to demonstrate his  good conduct; however, the law does not otherwise specify judicial  involvement in the DPA process. We obtained responses from 12 U.S.  district and magistrate judges who handled cases involving a DPA, and  these judges reported they were generally not involved in the DPA  process. Specifically:    Nine of the 12 judges stated that they did not hold a hearing to review the  DPA or its terms, while the 3 remaining judges held hearings. One of these  judges did so in the context of a plea hearing. Another judge held a hearing  to arraign the company; at which time, the company and DOJ informed the  judge that they intended to enter into a DPA. The judge then had a second  hearing to approve the DPA. The third judge conducted a hearing to  arraign the company and verify that the company’s decision to enter into  the DPA was informed and voluntary. Ten of the 12 judges reported that  they relayed their decision approving the DPA through a written order.  One judge relayed the decisions orally at a hearing, and one judge did  both.
Ten of the 12 judges reported that they did not have a role in the selection  of a monitor required under the DPA, while the remaining 2 judges did. In  one of the 2 cases, the company identified the names of five monitor  candidates, the DOJ prosecutors in the case determined three of the five  candidates were acceptable, and the judge extensively interviewed the  three candidates before selecting one of the candidates to serve as  monitor. In the other case, the DOJ prosecutors interviewed and identified  monitor candidates, and the judge made a final selection from this group.
Ten of the 12 judges stated that the monitors did not report any  information to the court during the DPA, and the remaining 2 judges stated  they received information from the monitor. In one of these two cases, the  monitor filed quarterly reports with DOJ and the company’s board of  directors, and the court received a copy of the monitor’s final report. In  the other case, the court received a copy of the reports the monitor was  required to prepare as part of the DPA and also spoke with the monitor  occasionally. Similarly, 11 of the 12 judges did not receive any information  from DOJ regarding the monitor’s compliance with monitoring obligations  under the DPA. The remaining judge received calls from DOJ after the  monitor submitted bills to the court in order for DOJ to confirm to the  court that the monitor was in compliance with the monitoring obligations  in the DPA.
Eleven of the 12 judges reported that they played no role in determining  the terms of the monitor’s contract or setting the monitor’s fees. The  remaining judge set, reviewed, and approved the monitor’s fees. Ten of the  12 judges did not receive copies of the monitoring contracts, while 1 judge  received a copy and another judge was uncertain.
Ten of the 12 judges said that they dismissed the charges against the  company after receiving information or a court filing from DOJ or the  monitor reflecting compliance, but did not report taking actions to  independently assess the company’s compliance with the DPA. One  additional judge stated that he ensured the company understood the  agreement before dismissing the charges, and the final judge reported that  the court would review DOJ’s submission to determine whether dismissal  of the charges against the company was warranted.
section_title: Prosecutors, Company Officials, Monitors, and Judges with Whom We Spoke Identified More Disadvantages than Advantages to Greater Court Involvement in the DPA Process
paragraphs: Prosecutors from 7 of the 13 DOJ offices, officials from 9 of the 20  companies, and 6 of the 11 monitors with whom we spoke reported  disadvantages to a greater court role, while no prosecutors, 7 of 20  company officials, and 3 of 11 monitors described advantages to a greater  court role. Two company officials did not believe there were advantages  or disadvantages to greater court involvement, and another company  official said that the advantages and disadvantages would depend on the  judge involved in the case. We also spoke with 2 judges, and 1 cited  disadvantages to greater court involvement, while the other cited both  advantages and disadvantages.
The advantages cited most often included:  the court’s ability to act as an independent arbiter of disputes that  companies and DOJ identify, or to handle significant events in the DPA  process, such as the determination of a breach;    court involvement in monitor selection could decrease the appearance of  favoritism and add to the perception of fairness in the monitor’s selection;  and    court involvement could increase transparency in the DPA process by, for  example, making monitor reports filed in the case publicly available.
The disadvantages most frequently cited were:  the lack of time and resources available to judges to become more  involved in the DPA process or their willingness to do so. For instance,  three prosecutors, one monitor, one company official, and one judge noted  that, because of already high caseloads, judges may not have the time or  resources to thoroughly review the terms of a DPA, interview and select  appropriate monitor candidates, review monitor reports, or determine  whether a company is in compliance with the DPA;    concerns over the appropriateness of judges playing a larger role in the  DPA process. For example, two officials noted that judges are prohibited  from participating in plea bargaining between two parties in a case and  believed that negotiations over DPAs were similar to plea bargaining.  Others believed that decisions in the DPA process—such as whether to  enter into a DPA instead of prosecute, set the terms of the agreement, or  determine whether a company has complied with or breached an  agreement—were functions of the executive rather than the judicial  branch. For example, one judge noted that if a judge disagreed with the  prosecutor’s determination that a company had complied with the DPA,  the judge’s authority to refuse the prosecutor’s request to dismiss the  indictment and proceed with prosecution is unclear. Thus, greater court  involvement might create a problem related to the separation of powers  under the Constitution, as well as inhibit prosecutors’ discretion in their  cases. According to DOJ officials, DOJ does not have a position on  whether greater judicial involvement in the DPA process creates  separation of powers issues; however, DOJ believes that judicial  involvement in the NPA process would create concerns related to the  separation of powers because no judicial review is involved for NPAs, as  they typically do not involve court filings.  the additional time and processes associated with court involvement, such  as hearings, which may slow down the DPA process; and  judges’ lack of knowledge and expertise about the case or its subject  matter, such as the operation of an environmental management system at  a wastewater treatment plant, which prosecutors in the case may have  spent years developing.
section_title: Conclusions
paragraphs: According to DOJ, DPAs and NPAs can be invaluable tools for fighting  corporate corruption and helping to rehabilitate a company, although use  of these agreements has not been without controversy, including questions  about the effectiveness of these tools. DOJ has taken several steps to  better track its use of DPAs and NPAs, steps that will better position DOJ  to more accurately report to Congress and the public on the number of  existing DPAs and NPAs, the outcome of the cases, and the terms of the  agreements. However, while DOJ has stated that DPAs and NPAs are  useful tools for combating and deterring corporate crime, without  performance measures, it will be difficult for DOJ to demonstrate that  these agreements are effective at helping the department achieve this goal.  Models exist that would allow DOJ to create such measures, including  measuring whether a company reengages in misconduct over the long- term or during the course of the agreement or whether a company  successfully meets the terms of its DPA or NPA. By developing  performance measures to evaluate DPAs and NPAs, DOJ will be better  positioned to gauge whether they are effective tools in deterring and  combating corporate crime.
section_title: Recommendation for Executive Action
paragraphs: To assess its progress toward meeting its strategic objective of combating  public and corporate corruption, the Attorney General should develop  performance measures to evaluate the contribution of DPAs and NPAs  towards achieving this objective.
section_title: Agency Comments and Our Evaluation
paragraphs: On December 15, 2009, DOJ provided written comments on a draft of this  report, which we discussed with the Associate Deputy General Counsel for  ODAG and the White Collar Crime Coordinator for EOUSA on December  17, 2009. DOJ agreed with our recommendation. The full text of DOJ’s  written comments is included in appendix III.
In its letter, DOJ stated that the department uses a variety of tools to  achieve its mission of protecting the public from corporate corruption, and  in some cases, DPAs and NPAs are appropriate tools and offer a number of  benefits, such as the avoidance of negative collateral consequences of  prosecution and conviction to companies and innocent third parties.
DOJ agreed with our recommendation that the Attorney General develop  performance measures to evaluate the contribution of DPAs and NPAs  toward achieving its strategic objective of combating public and corporate  corruption, and recognizes the value of appropriate performance measures  in this area. DOJ did not think that the Government Performance and  Results Act of 1993 (GPRA) was a relevant a criterion for the development  of performance measures for DPAs and NPAs, stating that it requires  agencies to develop performance measures for broader program activities,  such as those set forth in agency budgets, and not for tools such as DPAs  and NPAs, which are used less frequently and are narrowly defined to  rectify specific wrongdoing. While we acknowledge that GPRA does not  require the department to develop performance measures at levels below  the program activities set forth in the agency’s budget, we also note that a  practice among leading organizations when implementing results-oriented  management practices consistent with GPRA has been to develop  performance measures for each organizational level, which could help  managers and staff understand how their daily activities contribute to  attaining organizationwide strategic goals.  Also, there are other criteria in  addition to GPRA that we cited in our draft report—specifically, the  standards for internal control in the federal government—which state that  agencies should establish activities to monitor performance measures and  indicators and implement controls aimed at organizational performance.  Additionally, with regard to DOJ’s comment that DPAs and NPAs are  relatively few in number, while that may be the case for the U.S. Attorneys’  Offices, as we stated in our report, the Criminal Division has entered into  about the same number of DPAs and NPAs as the number of prosecutions  it has pursued.
As to the specific types of performance measures DOJ could adopt, we  proposed in our draft report that DOJ might measure whether the  company successfully met the terms of the agreement or whether the  company re-offended, as two potential measures of the effectiveness of  DPAs and NPAs. In its comments, DOJ identified some of the same  limitations as we did in our report regarding the use of recidivism as a  performance measure. Specifically, DOJ stated that it would be difficult to  determine whether a company recidivated if the company’s subsequent  violation was different than the original violation that resulted in the DPA  or NPA. However, DOJ stated that the recent efforts under way by EOUSA  and the Criminal Division to track the department’s use of DPAs and NPAs  and monitor the disposition of these agreements will help DOJ know  whether the corporation has fulfilled all of the terms of the agreement,  knowledge that could be useful information for the department as it  develops its performance measures for DPAs and NPAs.
We also received written comments from the Administrative Office of the  U.S. Courts (AOUSC) on December 17, 2009, and the full text of the  Office’s written comments is included in appendix IV.
AOUSC in its comments emphasized concerns about greater judicial  involvement in the use of DPAs and NPAs, including concerns about  constitutional and other separation of powers issues contained in the  report, and suggested these be given greater emphasis.  We maintain that  we have accurately and objectively represented the views of prosecutors,  company officials, monitors, and judges as presented to us in the course of  our review and have reflected these issues in the report.
As agreed with your offices, we plan no further distribution of this report  until 24 days from its date, unless you publicly announce its contents  earlier. At that time, we will send copies of this report to the Attorney  General, the Director of AOUSC, selected congressional committees, and  other interested parties. The report will also be available at no charge on  the GAO Web site at http://www.gao.gov.
If you or your staff have any further questions about this report, please  contact me at (202) 512-8777 or larencee@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in app. V.
section_title: Appendix I: Terms of 57 DPAs and NPAs Reviewed and Discussed in June 2009 Testimony
paragraphs: The terms of the 57 DPAs and NPAs we previously reviewed for our June  2009 testimony included:     durations ranging from 3 months to 5 years (One of the 57 agreements we  reviewed did not specify the duration.);    monetary payments ranging from $30,000 to $615 million (Forty-five of the  57 DPAs and NPAs we reviewed required monetary payments, while 12 did  not.);  requirements that the company improve or enhance its compliance  program (Forty-five of the 57 DPAs and NPAs we reviewed included  compliance program requirements, while 12 did not.);  requirements that the company hire, at its own expense, an independent  monitor to assist the company in establishing a compliance program,  review the effectiveness of a company’s internal control measures, and  determine whether the company has otherwise met the terms of the  agreements (Twenty-six of the 57 DPAs and NPAs required companies to  hire independent monitors.); and    extraordinary restitution provisions, which are payments or services to  organizations or individuals not directly affected by the crime. (Four of the  57 DPAs and NPAs we reviewed included such terms. However, DOJ  issued guidance in May 2008 prohibiting the use of terms requiring  payments to charitable, educational, community, or other organizations or  individuals that are not the victims of the criminal activity or are not  providing services to redress the harm caused by the criminal conduct.)
section_title: Appendix II: Number of DPAs and NPAs by Each U.S. Attorney’s Office and DOJ Litigating Division
section_title: Appendix III: Comments from the Department of Justice
section_title: Appendix IV: Comments from the Administrative Office of the U.S. Courts
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Eileen R. Larence, (202) 512-8777 or larencee@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kristy N. Brown, Assistant  Director; Jill Evancho; Tom Jessor; Danielle Pakdaman; Sarah Kaczmarek;  Janet Temko; Amanda Miller; Katherine Davis; and Mandana Yousefi made  significant contributions to this report.