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“Monitoring” Corporate Corruption: DOJ's Use of Deferred Prosecution Agreements in Health Care

Published online by Cambridge University Press:  06 January 2021

Kathleen M. Boozang  and
Simone Handler-Hutchinson
Kathleen M. Boozang
Affiliation:
The Center for Health & Pharmaceutical Law & Policy, Seton Hall University School of Law
Simone Handler-Hutchinson
Affiliation:
Health Care Compliance Certification Program and The Center for Health & Pharmaceutical Law & Policy, Seton Hall University School of Law
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Extract

It has become a truism to cite Enron as the new millennium’s watershed impetus for government assertion of power to improve corporate governance. While indictment of corrupt corporations and their executive leadership seems an obvious corrective to corporate norms that have gone astray, the unsuccessful prosecution and demise of Arthur Andersen proved a stunning backfire of such a blunt weapon. The public accounting industry shrunk even further, to the detriment of clients, and thousands lost their jobs. Arthur Andersen taught that an indictment itself may be sufficiently damaging to close the doors of a public corporation.

Type
Article
Information
American Journal of Law & Medicine , Volume 35 , Issue 1 , March 2009 , pp. 89 - 124
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 2009

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References

1 In direct response to Enron, President George W. Bush established a Corporate Fraud Task Force in 2002, with a goal of restoring confidence in the market and eliminating corporate corruption. Press Release, Fact Sheet: President's Corporate Fraud Task Force Marks Five Years of Ensuring Corporate Integrity (July 17, 2007), available at http://www.usdoj.gov/opa/pr/2007/July/07_odag_507.html.

2 Arthur Andersen L.L.P. v. United States, 544 U.S. 696 (2005).

3 See generally P.J. Meitl, Who's the Boss? Prosecutorial Involvement in Corporate America, 34 N. Ky. L. Rev. 1, 15-16 (2007).

4 This lesson may explain why the overwhelming majority of corporate indictments are against closely held companies. John R. Steer, Changing Organizational Behavior - The Federal Sentencing Guidelines Experiment Begins to Bear Fruit (Apr. 26, 2001) (unpublished paper presented at the Twenty-Ninth Annual Conference on Value Inquiry, Tulsa, Oklahoma).

5 42 U.S.C. § 1320a-7 (2003).

6 Major pharmaceutical companies epitomize the “too big to fail” situation. See generally Cristie Ford & David Hess, Can Corporate Monitorships Improve Corporate Compliance, J. Corp. L. (forthcoming 2009), http://SSRN.com/abstract=1322558.

7 Press Release, United States Department of Justice, Bristol-Myers Squibb Charged with Conspiring to Commit Securities Fraud; Prosecution Deferred for Two Years (June 15, 2005), available at http://www.usdoj.gov/usao/nj/press/files/bms0615_r.htm (last viewed March 27, 2009). “Throughout 2000 and 2001 BMS concealed from the investing public its persistent use of an earnings management technique commonly known as ‘channel stuffing.’ BMS's channel stuffing consisted of enticing its wholesalers through use of financial incentives to buy and hold greater quantities of prescription drugs than was warranted by the demand for those products.” Id.

8 United States Attorney's Office for the District of New Jersey & The University of Medicine and Dentistry of New Jersey, Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/UMDNJFINALDPA.pdf.

9 The five companies include Stryker Orthopedics, Inc., Zimmer, Inc., Depuy Orthopaedics, Inc., Biomet Inc. and Smith & Nephew, Inc. Press Release, United States Department of Justice, Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring (Sept. 27, 2007), available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf (last visited Oct. 2, 2008).

10 Peter Spivack, & Sujit Raman, , Regulating the ‘New Regulators’: Current Trends in Deferred Prosecution Agreements, 45 Am. Crim. L. Rev. 159, 161 (2008)Google Scholar. The authors further observe: DOJ officials appear to believe that the principal role of corporate criminal enforcement is to reform corrupt corporate cultures – that is, to effect widespread structural reform – rather than to indict, to prosecute, and to punish. By focusing more on prospective questions of corporate governance and compliance, and less on the retrospective question of the entity's criminal liability, federal prosecutors have fashioned a new role for themselves in policing, and supervising, corporate America. They have become the New Regulators. Id.

11 A deferred prosecution agreement is entered into and filed simultaneous with the filing of a formal charging document by the U.S. Attorney; in contrast, formal charges are not filed for a non-prosecution agreement, and the agreement is retained by the parties, as opposed to being filed with a court. Craig S. Morford, Memorandum for Heads of Department Components, United States Attorneys, in United States Department of Justice, U.S. Attorneys’ Criminal Resource Manual §163, available at http://www.usdoj.gov/dag/morforduseofmonitorsmemo-03072008.pdf [hereinafter Morford Memo].

12 Court-appointed overseers are familiar in a number of contexts – trustees in RICO and bankruptcy cases are but two examples. See generally Vikramaditya Khanna & Timothy L. Dickinson, The Corporate Monitor: The New Corporate Czar?, 105 Mich. L. Rev. 1713, 1716- 17 (2007). The SEC's use of corporate monitors has raised concerns similar to those discussed here. See generally Jennifer O’Hare, The Use of the Corporate Monitor in SEC Enforcement Actions, 1 Brook. J. Corp. Fin. & Com. L., available at http://ssrn.com/abstract=1088815. In SEC cases, however, there is at least judicial approval of the monitor, and her role is contextualized – she is an “officer of the court”. Id. at 26.

13 Krawiec, Kimberly D., Cosmetic Compliance and the Failure of Negotiated Governance, 81 Wash U. L.Q. 487, 519 (2003).Google Scholar

14 See Eugene Illovsky, Corporate Deferred Prosecution Agreements: The Brewing Debate, Crim. Justice, Summer 2006, at 36, available at http://www.abanet.org/crimjust/cjmag/21-2/corporatedeferred.pdf.

15 The Deferred Prosecution Agreement between U.S. Attorney Chris Christie and The University of Medicine and Dentistry of New Jersey is an example of such an agreement. United States Attorney's Office for the District of New Jersey & The University of Medicine and Dentistry of New Jersey, Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/UMDNJFINALDPA.pdf.

16 Press Release, United States Department of Justice, Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring (Sept. 27, 2007), available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf.

17 Id.; see generally Lisa K. Griffin, , Compelled Cooperation and the New Corporate Criminal Procedure, 82 N.Y.U. L. Rev. 311 (2007)Google Scholar; Miriam H. Baer, Insuring Corporate Crime, 83 Ind. L.J. 1035, 1056 (2008) (discussing the lack of specific guidance from the government regarding the assessment of compliance programs).

18 United States Department of Justice, United States Attorneys’ Criminal Resource Manual § 9-28.200, available at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/28mcrm.htm#9-28.200.

19 Memorandum from Paul J. McNulty, Deputy Attorney General, to United States Attorneys, Regarding Principles of Federal Prosecutions of Business Organizations (Dec. 12, 2006), available at http://www.usdoj.gov/dag/speeches/2006/mcnulty_memo.pdf [hereinafter McNulty Memo]. The evolution of the Department of Justice's (“DOJ”) Principles of Federal Prosecution of Business Organizations began in June 1999 with the issuance of guidance to Heads of Department Components and United States Attorneys by then-Deputy Attorney General Eric H. Holder, Jr. Memorandum from Eric H. Holder, Deputy Attorney General, to All Component Heads and United States Attorneys, Bringing Criminal Charges against Corporations (June 16, 1999), available at http://www.usdoj.gov/criminal/fraud/docs/reports/1999/chargingcorps.html. The “Holder Memo” provided guidance in the form of eight discretionary factors a prosecutor should consider in deciding whether to charge a corporation. Id. In January 2003, new guidance by then-Deputy Attorney General Larry D. Thompson displaced the Holder Memo. Memorandum from Larry D. Thompson, Deputy Attorney General, to Heads of Department Components, United States Attorneys, Principles of Federal Prosecutions of Business Organizations (Jan. 20, 2003), available at http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm. The “Thompson Memo” listed nine factors that federal prosecutors must consider in determining whether to bring criminal charges against a corporation. Id. In the wake of the decision in United States v. Stein, 435 F. Supp.2d 330 (S.D.N.Y. 2006), aff’d 541 F.3d 130 (2d Cir. 2008), which held that the Thompson Memo violated the substantive due process rights of defendants by coercing their employer into denying them the advancement of attorney's fees, then-Deputy Attorney General Paul McNulty issued new guidance replacing the Thompson Memo. McNulty Memo, supra note 19. The McNulty Memo added new approval requirements before federal prosecutors could request waivers of attorney-client privilege and work product protections from corporations in criminal investigations, and instructed prosecutors not to consider a corporation's advancement of attorney's fees to employers when making a charging decision. Id. In March 2008, then-Acting Deputy Attorney General Craig Morford issued a memo addressing the “Selection and Use of Monitors in Deferred Prosecution Agreements and Non- Prosecution Agreements with Corporations,” an area not previously covered by the Holder, Thompson, or McNulty memos. Morford Memo, supra note 11. The Morford Memo addresses federal corporate monitors, their scope of duties, communications, and reporting requirements. Id. The Morford Memo has since been incorporated in the DOJ's Criminal Resource Manual. Id. Finally, in August 2008, DOJ announced material revisions to its Principles of Federal Prosecution of Business Organizations. United States Department of Justice, United States Attorneys’ Criminal Resource Manual § 9-28.200, available at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/28mcrm.htm#9-28.200. This guidance was immediately incorporated into the United States Attorney's Manual, which is binding on all federal prosecutors, and supersedes the McNulty Memo. Id. The new Principles instruct prosecutors not to consider a corporation's advancement of attorneys’ fees to employees when evaluating cooperativeness; make clear that the mere participation in a joint defense agreement will not render a corporation ineligible for cooperation credit; and provide that prosecutors may not consider whether a corporation has sanctioned or retained culpable employees in evaluating whether to assign cooperation credit to the corporation. Id.

20 McNulty Memo, supra note 19.

21 Morford Memo, supra note 11, at 5.

22 Khanna and Dickinson suggest that monitors with broader powers are becoming more common. Khanna & Dickinson, supra note 12, at 1723.

23 See Kathleen M. Boozang, Does an Independent Board Improve Nonprofit Corporate Board Governance?, 75 Tenn L. Rev. 83, 90-98 (2007).

24 Sue Reisinger, Federal Monitors: Someone to Watch over Me, Corp. Counsel Mag., Oct. 2007, available at http://www.bakerlaw.com/PublicDocs/News/Quotes-Press/Corporate%20Counsel%20Stambouldis%2010-2007.pdf. More to the point, Judge Lacey was ubiquitous during his tenure as MBS monitor. He made his presence felt throughout the company – in addition to his involvement at the board and executive level, he attended myriad business and sales meetings. The WorldCom monitor, whose responsibilities were initially limited to preventing excessive executive compensation and destruction of evidence, eventually became responsible for governance, and was said to be involved in every “important corporate decision” by the end of his term. See generally O’Hare, supra note 12.

25 Prosecutors have been subject to intense criticism regarding the practice by some U.S. Attorneys of requiring waiver of the attorney-client privilege as a condition of receiving the opportunity of pre-trial diversion. In 2004 the Sentencing Commission amended the commentary to the Federal Sentencing Guidelines to suggest that the cooperation necessary to receive sentencing credit might include waiver of the privilege; the Sentencing Commission deleted this statement in 2006. See generally Spivack and Raman, supra note 10, at 167.

26 Val Brickates, Bristol-Myers Squibb Ousts Embattled CEO, Wall St. J., Sept. 12, 2006, available at http://www.marketwatch.com/News/Story/Story.aspx?siteid=mktw&guid;﹛44C3FDBB-57D0-4B6D-961C-CD5174969375﹜&.

27 See generally Khanna and Dickinson, supra note 12, at 1724.

28 See generally Boozang, supra note 23, at 90-98. O’Hare describes this phenomenon of scope creep as “de facto expansion of the corporate monitor's powers.” O’Hare, supra note 12, at 102-03.

29 O’Hare's description of the relationship between WorldCom and its monitor illustrates how the monitor is able to accomplish this: [The monitor’s] de facto power also increased because WorldCom was unlikely to challenge his role at the company. To recover from the tremendous scandal, it was vitally important for WorldCom to convince the investing public that the company was fully committed to reform. Any conflict with the Corporate Monitor – no matter how justified – would lead to the conclusion that WorldCom was dragging its feet on its promise to become a good corporate citizen. O’Hare, supra note 12, at 103.

30 Such legal interpretations are supposed to be limited to the terms of the DPA, rather than anti-fraud laws, for example. However, there exist a number of gray areas subject to policy/legal interpretation. One illustration in the medical device industry is whether, for example, group purchasing organizations run afoul of the Anti-Kickback law, when a distribution entity owned by surgeons buys implants at a discount and then resells them at marked-up prices, to hospitals, thus encouraging use of implants products. There appears to be no explicit guidance or statement in any statute or regulation addressing this scenario and as a result, there is need for interpretation. This particular issue is currently under review by HHS/OIG and will likely be the subject of a future clarifying directive. In the meantime however, counsel, in consultation with the government, has weighed in with advice.

31 Press Release, United States Department of Justice, Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring (Sept. 27, 2007), available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf.

32 Again, this seems in contradiction of the Morford Memo which states that the monitor is not the corporation's attorney and may not give legal advice to the company. Morford Memo, supra note 11, at 4-5.

33 Discussion at Seton Hall University School of Law's Center for Health & Pharmaceutical Law, A Critical Analysis of Deferred Prosecution Agreements & Federal Monitors in the Healthcare Industry: Are They Working? (May 14, 2008).

34 Khanna and Dickinson suggest the creation of fiduciary duties for monitors: Given that market forces may not induce influential monitors to focus on maximizing profits, there appears to be a role for some supplementary measures such as fiduciary duties (footnote omitted). There are a number of options one might consider. First, one could develop fiduciary duties for monitors. Second, one could draft DPAs more carefully--specifying what the monitor's duties and powers are. Third, the appointing agency could have some supervisory role over monitors. Khanna & Dickinson, supra note 12, at 1737.

35 There are a host of issues that require further consideration, however, including the fact that monitors appointed by U.S. Attorneys are unaccountable to either judicial oversight or the companies’ shareholders. Their exercise of certain powers, such as the demand that certain officers and directors be replaced, arguably interferes with the board's exercise of its fiduciary duties, as well as the state's authority over corporate entities. See generally O’Hare, supra note 12, at 105-07.

36 McNulty Memo, supra note 19.

37 It should be noted that the use of monitors is not limited to the Department of Justice; the SEC and IRS also use federal monitors, particularly with respect to violations of the Foreign Corrupt Practices Act. Khanna & Dickinson, supra note 12, at 1722. These authors observe that “[a]lthough the use of monitors has not reached endemic proportions just yet, it may be likely in the future.” Id. at 1722.

38 Id. at 1721.

39 See generally Ford & Hess, supra note 6, at 24.

40 42 U.S.C. § 1320a–7 (2000).

41 42 U.S.C. § 1320a-7(b)(15) (2000).

42 See generally Baer, supra note 17, at 1046-47.

43 Marie McKendall, Beverly DeMarr & Catherine Jones-Rikkers, Ethical Compliance Programs and Corporate Illegality: Testing the Assumptions of the Corporate Sentencing Guidelines, 37 J. Bus. Ethics 367, 368 (2002).

44 See generally GOVERNMENT ACCOUNTABILITY OFFICE, GAO-08-835, FDA's OVERSIGHT OF THE PROMOTION OF DRUGS FOR OFF-LABEL USES (2008), available at http://www.gao.gov/new.items/d08835.pdf.

45 See, e.g., Katherine A. Helm, Note, Protecting Public Health from Outside the Physician's Office: A Century of FDA Regulation from Drug Safety Labeling to Off-Label Drug Promotion, 18 Fordham Intell. Prop. Media & Ent. L.J. 117, 165 (2007).

46 GAO Report, supra note 44 (noting DOJ's enforcement efforts). The States have been equally aggressive prosecuting health care fraud. See News & Press – The National Association of Medicaid Fraud Control Units, http://www.namfcu.net/press/press-releases (last visited Mar. 27, 2009) (listing press releases which document coordinated multi-state settlements against various health care companies).

47 Obviously, hospitals’ pursuit of their charitable mission, ability to advance technologically, and overall financial health and stability depends upon their ability to generate a margin. The distinction is that they are mission-oriented rather than driven by the need to provide returns on shareholders’ investments. See generally Thomas L. Greaney, Mission, Margin & Trust in the Nonprofit Healthcare Enterprise, 5 Yale J. Health Pol’y, L. & Ethics 1 (2005).

48 Helm, supra note 45, at 148-49.

49 McKendall, supra note 43, at 368.

50 Id. at 369. One of the most significant types of reorganization that companies undergo is the centralization or decentralization of compliance functions.

51 See Baer, supra note 17, at 1069 (“To date, the benefits and drawbacks of using federal monitors to report on and supervise corporate compliance with federal laws and civil and criminal settlements have not been studied in depth.”).

52 Some might challenge whether this is possible. See Joshua A. Newberg, Corporate Codes of Ethics, Mandatory Disclosure, and the Market for Ethical Conduct, 29 Vt. L. Rev. 253, 266-69 (2007) (suggesting that while empirical studies might not be able to establish that corporate codes “work,” there may be other benefits that derive from such codes such as fostering a culture of honesty and accountability, re-enforcing employees’ predispositions to follow the law, inspiring excellence and integrity, and enhancing standing with external stakeholders).

53 While this paper does not attempt to identify these goals and attendant metrics, previous studies might aid in beginning this process. Weaver and Trevino, in their 1999 study, used the following criteria to determine compliance program impact: “increased employee awareness of ethical issues, commitment to the organization, employee integrity, willingness to communicate openly about problems, willingness to report an ethics violation to management, improved decision making, willingness to seek advice about ethical issues, and reduced unethical conduct.” Gary R. Weaver & Linda K. Trevino, Compliance and Values Oriented Ethics Programs: Influences on Employees Attitudes and Behavior, 9 Bus. Ethics Q. 315, 319 (1999).

54 See generally Donald C. Langevoort, Monitoring: The Behavioral Economics of Corporate Compliance with the Law, 2002 Colum. Bus. L. Rev. 71 (hypothesizing that while costs of monitoring compliance are likely impossible to determine, a legal bias towards excessive monitoring is likely to create significant costs that outweigh the benefits, unless the industry involved creates significant social harm). This set of questions is not significantly unlike the ongoing debate about whether the costs of adherence to Sarbanes Oxley justifies its benefits; particularly controversial is section 404 which requires the inclusion in the company's annual report a management report attested to by the external auditor assessing the reliability of the issuer's internal financial controls and procedures. See generally Robert Prentice, Sarbanes-Oxley: The Evidence Regarding the Impact of Sox 404, 29 Cardozo L. Rev. 703, 706 (2007); see also Thuy-Nga T. Vo, Lifting The Curse of the Sox through Employee Assessments of the Internal Control Environment, 56 U. Kan. L. Rev. 1, 12-13 (2007) (noting that while financial statements are more accurate, the implementation costs of section 404 are much higher than had been anticipated). Similarly, commentators have concluded that the Foreign Corrupt Practices Act (“FCPA”) has not been particularly effective in curbing bribery by international corporations of foreign officials, because of a fear of competitive disadvantage, which may be ameliorated by the OECD agreement to level the playing field by the enactment of OECD signatories of legislation similar to the FCPA. See generally Tor Krever, Curbing Corruption? The Efficacy of the Foreign Corrupt Practices Act, 33 N.C. J. Int'l L. & Com. Reg. 83, 92 (2007) (presenting evidence that the FCPA has had little chilling effect on foreign bribery by U.S. companies, but also noting more recent increase in enforcement activity).

55 Reisinger, supra note 24; see also Eric Lichtblau, In Justice Shift, Corporate Deals Replace Trials, N.Y. Times, Apr. 9, 2008, available at http://www.nytimes.com/2008/04/09/washington/09justice.html?_r=1&hp&oref=slogin.

56 See generally Baer supra note 17, at 1054 (observing that DOJ policy fails to “consider the point at which social costs of corporate ‘self-regulation’ outweigh the benefits of fraud reduction.”).

57 The compensation agreements between federal monitors and subject companies are rarely made public, but anticipated costs are sometimes disclosed in SEC filings. See Zimmer Holdings, Inc., Form 8-K (2007), available at http://investor.zimmer.com/secfiling.cfm?filingID=950137-07-16322 [hereinafter ZIMMER 8-K] (setting forth monitor and fee agreements worth between $28-52 million).

58 Reisinger, supra note 24, at 3. O’Hare notes that no incentive exists for monitors to control their costs. O’Hare, supra note 12, at 106.

59 See, e.g., Zimmer 8-K, supra note 57 (setting forth monitor and fee agreements worth between $28-52 million). Recent settlements in excess of a billion dollars suggest these numbers will continue to escalate. See Press Release, United States Department of Justice, Eli Lilly and Company Agrees to Pay $1.415 Billion to Resolve Allegations of Off-label Promotion of Zyprexa (Jan. 15, 2009), available at http://www.usdoj.gov/opa/pr/2009/January/09-civ-038.html; Sarah Rubenstein, Pfizer Takes $2.3 Billion Charge Linked to Bextra Probe, Jan. 26, 2009, Wall St. J. Health Blog, http://blogs.wsj.com/health/2009/01/26/pfizer-takes-23-billion-charge-linked-to-bextra-probe/#more-4952.

60 Other attendant costs of DPAs and the Federal Sentencing Guidelines requirements of cooperation not discussed include the impact on the rights of individual employees who may feel coerced into cooperation by a company seeking favorable prosecutorial treatment. See generally Griffin, supra note 17.

61 This process itself costs businesses millions of dollars. See generally Mark S. Schwartz, , The Nature of the Relationship between Corporate Codes and Ethics and Behaviour, 32 J. Bus. Ethics 247, 248 (2001)Google Scholar.

62 Nor is such encouragement limited to the United States. The United Nations, European Union, Organization for Economic Cooperation and Development, as well as such organizations as the International Chamber of Commerce have all urged companies’ adoption of business codes. See generally Muel Kaptein, Business Codes of Multinational Firms: What Do They Say?, 50 J. Bus. Ethics 13, 13-15 (2004).

63 See generally Harvey L. Pitt, & Karl A. Groskaufmanis, , Minimizing Corporate Civil and Criminal Liability: A Second Look at Corporate Codes of Conduct, 78 Geo. L.J. 1559, 1578, 1581 (1990).Google Scholar

64 Id. at 1583.

65 15 U.S.C. § 78dd (2006).

66 Pitt & Groskaufmanis, supra note 63, at 1585 n.157.

67 Id. at 1591 (discussing the newly enacted Insider Trading and Securities Fraud Enforcement Act of 1988, which “makes the failure to implement an effective code of conduct a potential source of liability.”).

68 The Packard Commission was created by the Reagan Administration to recommend management reform and encourage the advancement of President Reagan's aggressive defense budget expansion. The idea of such a Commission backfired, however, as the report bluntly criticized the way in which President Reagan's defense budget was shaped. See Evan Thomas, Barrett Seaman & Bruce Van Voorst, Defensive About Defense, Time (Mar. 10, 1986), available at http://www.time.com/time/magazine/article.

69 Pitt & Groskaufmanis, supra note 63, at 1593-94.

70 Id. at 1595.

71 Id. at 1598, 1598 n.238.

72 Caution is important in extrapolating from studies on the effectiveness of corporate codes, as their subject matter can be vast, ranging from protection of the environment to affirmative action to conflicts of interest to being a good corporate citizen to adhering to federal laws. See generally Betsy Stevens, Corporate Ethical Codes: Effective Instruments for Influencing Behavior, 78 J. Bus. Ethics 601, 602 (2008).

73 Likewise, Enron also had a clear code of conduct, from which the board granted waivers, during the period of its greatest legal and accounting abuses. Mark B. Baker, Promises and Platitudes: Toward a New 21st Century Paradigm for Corporate Codes of Conduct?, 23 Conn. J. Int’l L. 123, 136 (2007); see also Newberg, supra note 52, at 253 (noting that most large U.S. public corporations had compliance programs prior to the enactment of Sarbanes Oxley and the adoption of the corporate accountability amendments to the New York Stock Exchange Listing Standards).

74 The Federal Sentencing Guidelines place significant emphasis on companies’ sponsorship of corporate compliance programs and training. Specifically, a company with a strong culture of corporate compliance can receive a fine reduction of up to 95%. U.S. Sentencing Guidelines Manual § 8B2.1 (2007), available at http://www.ussc.gov/2007guid/8b2_1.html; see generally Paul Fiorelli, Will U.S. Sentencing Commission Amendments Encourage a New Ethical Culture within Organizations?, 39 Wake Forest L. Rev. 565 (2004); Diana Murphy, The Federal Sentencing Guidelines for Organizations: A Decade of Promoting Compliance and Ethics, 87 Iowa L. Rev. 697 (2002).

75 Steer, supra note 4, at 9.

76 Richard Bednar et al., Report of the Ad Hoc Advisory Group on the Organizational Sentencing Guidelines 35 (2003), available at http://www.ussc.gov/corp/advgrprpt/AG_FINAL.pdf.

77 The growing terminology for codes of corporate ethics and compliance includes: codes of ethics, “codes of conduct, codes of practice, corporate credos, mission statements, or value statements.” Mark S. Schwartz, Effective Corporate Codes of Ethics: Perceptions of Users, 55 J. Bus. Ethics 323, 324 (2004); see also Newberg, supra note 52, at 257 (surveying the different monikers and orientations of corporate codes).

78 Id. at 10 (citing Ethics Officer Association, 1997 Member Survey 9 (2000), available at www.eoa.org & United States Sentencing Commission, Corporate Crime in America: Strengthening the “Good Citizen” Corporation 123-91 (1995)).

79 Krawiec, supra note 10, at 511. But see Newberg, supra note 52 (suggesting that while empirical studies might not be able to establish that corporate codes “work” there be other unmeasurable benefits that derive from such codes).

80 Krawiec, supra note 103, at 513. Pitt and Groskaufmanis hypothesized: “corporations appear to adopt codes with the unstated premise that the document may later be invoked for legal protection.” Pitt & Groskaufmanis, supra note 63, at 1605. One study suggested that U.S. codes also seemed to be more concerned with conduct against the company. Kaptein, supra note 62, at 24, 26; see also Betsy Stevens, An Analysis of Corporate Ethical Code Studies: “Where Do We Go from Here?”, 13 J. Bus. Ethics 63, 70 (1994) (firms strongly focused on self-protection, self-defense and law enforcement).

81 Frank O. Bowman, , Drifting Down The Dnieper with Prince Potemkin: Some Skeptical Reflections about the Place of Compliance Programs in Federal Criminal Sentencing, 39 Wake F. L. Rev. 671, 688 (2004).Google Scholar

82 McKendall, supra note 43, at 379. But see Mark J. Somers, Ethical Codes of Conduct and Organizational Context: A Study of the Relationship between Codes of Conduct, Employee Behavior and Organizational Values, 30 J. Bus. Ethics 185, 193 (2001) (advancing general proposition, supported by research, that employees of organizations with codes of conducts observe less wrongdoing than employees of entities without such codes. However, the presence of codes of conduct has no effect on willingness to report observed violations.).

83 McKendall, supra note 43, at 379.

84 Id.

85 Professor Betsy Stevens provides a brief historic overview of the various phases codes have undergone in the last thirty years. Stevens, supra note 72, at 601. Weaver and Trevino believe that employees perceive rule-based compliance programs as based upon behavior monitoring and discipline, which makes them less effective. Weaver & Trevino, supra note 53, at 323.

86 A traditional conception of a code of conduct and compliance programs is very ruleoriented in seeking to ensure that “(1) employees act lawfully and in ways consistent with the values and rules embodied in the code; (2) employees report behavior that is inconsistent with the code; and (3) the company takes actions to prevent the non-compliant behavior from occurring again.” David Hess, A Business Ethics Perspective on Sarbanes-Oxley and the Organizational Sentencing Guidelines, 105 Mich. L. Rev. 1781, 1789 (2007).

87 Reisinger, supra note 55.

88 Linda K. Trevino et al., Managing Ethics and Legal Compliance: What Works and What Hurts, Cal. Mgmt. Rev., Winter 1999, at 143.

89 Lynn S. Paine, Managing for Integrity, Harv. Bus. Rev., Mar-Apr. 1994, at 111; see also Stevens, supra note 72, at 603 (embedding a code in the culture of the organization “means defining and prioritizing responsibilities with strategies and policies in the organization such that the code is not a separate entity.”).

90 Trevino et al., supra note 88, at 138; Weaver & Trevino, supra note 53, at 329-31; see also Paine, supra note 89, at 109 (“Managers would be mistaken, however, to regard legal compliance as an adequate means for addressing the full range of ethical issues that arise every day.”); Stevens, supra note 72, at 603.

91 Trevino et al., supra note 88, at 138; see also Weaver & Trevino, supra note 53, at 315-35 (also noting that an ethics policy can integrate values with rules, accountability and discipline).

92 See, e.g., John C. Lere and Bruce R. Gaumnitz, The Impact of Codes of Ethics on Decision-making: Some Insights from Information Economics, 48 J. Bus. Ethics 365, 370 (2003) (vague code statements, such as behavior that is discreditable to the profession, have a low probability of changing employee behavior); see also Weaver & Trevino, supra note 53, at 329 (study results suggest that explicit rules make decision-making easier).

93 Schwartz, supra note 77, at 329.

94 Schwartz, supra note 77, at 329-30.

95 Schwartz, supra note 61, at 255.

96 See generally Stevens, supra note 72, at 604.

97 See generally James Weber, Influences upon Organizational Ethical Subclimates: A Multi-Departmental Analysis of a Single Firm, 6 Org. Sci. 509 (1995).

98 Somers, supra note 82, at 187.

99 See generally Thomas R. Wotruba, A Comprehensive Framework for the Analysis of Ethical Behavior, with a Focus on Sales Organizations, J. Pers. Selling & Sales Mgmt., Spring 1990, at 29.

100 See generally Krawiec, supra note 13, at 528-32.

101 The Pharmaceutical Research and Manufacturers of America – Code on Interactions with Healthcare Professionals, http://www.phrma.org/code_on_interactions_with_healthcare_professionals/ (last visited Mar. 9, 2009); Advanced Medical Technology Association – Code of Ethics on Interactions with Health Care Professionals, http://www.advamed.org/NR/rdonlyres/D96644D9-7FA9-4DCC-B944-F00A8351FE57/0/AdvaMedCodeofEthicswithFAQ.pdf (last visited Mar. 9, 2009).

102 See generally Krawiec, supra note 13, at 536-37. Recent CIA provisions that impose a certification of compliance requirement on the Chief Compliance Officer may be effective in creating a counter-balance to company loyalty. See Office of Inspector General, Department of Health and Human Services & Cephalon, Inc., Corporate Integrity Agreement 35 (2008), Cephalon Corporate Integrity Agreement].

103 Krawiec, supra note 13, at 522-23.

104 See Gary R. Spratling, United States Deputy Assistant Attorney General, Antitrust Division, Address at the Fordham Corporate Law Institute 26th Annual Conference on International Antitrust Law & Policy: Transparency in Enforcement Maximizes Cooperation from Antitrust Offenders (Oct. 15, 1999), http://www.usdoj.gov/atr/public/speeches/3952.htm.

105 Christopher A. Wray, & Robert K. Hur, , The Power of the Corporate Charging Decision over Corporate Conduct, 116 Yale L.J. Pocket Part 306, 309 (2007)Google Scholar; see also supra text accompanying note 19.

106 United States Department of Justice, United States Attorneys’ Criminal Resource Manual § 9-28.300, available at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/28mcrm.htm#9-28.300.

107 Id.

108 Id.

109 From 1993 through 2001, only .04% of organizations received culpability credit for having effective compliance programs. See Practising Law Institute, Corporate Counsel Forum 2005: What You Need to Know about Corporate Liability & Government Enforcement (2005), 1492 PLI/Corp 1085. Currently, companies and their attorneys are beginning to doubt whether self-disclosure to and cooperation with a U.S. Attorney is truly beneficial when it comes time to determining a remedy, causing some attorneys to recommend against self-disclosure to the government.

110 Email from Lynn Shapiro Snyder, Member, Epstein Becker & Green, to Kathleen M. Boozang, Associate Dean, Seton Hall University School of Law (Mar. 30, 2009) (on file with author).

111 See generally Brandon L. Garrett, Chart of McNulty Memo Deferred Prosecution and Non-prosecution Agreements (Jan. 2008) (unpublished memo, on file with University of Virginia School of Law Associate Professor Brandon Garrett) [hereinafter Garrett Memo].

112 Compare Office of Inspector General & Medtronic Spine, L.L.C. Corporate Integrity Agreement (2008), available at http://www.oig.hhs.gov/fraud/cia/agreements/kyphon_cia_executed.pdf with United States Attorney's Office, District of New Jersey & Zimmer, Inc., Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Deferred%20pros%20agreementZimmerfinal.pdf.

113 See F. Joseph Warin & Andre S. Boutros, Deferred Prosecution Agreements: A View from the Trenches and a Proposal for Reform, 93 Va. L. Rev. In Brief, 121, 122-123 (2007).

114 This essay provides a first-hand look into the process by which the U.S. Attorney for the District of New Jersey resolved fraud allegations against Bristol-Myers Squibb. While the ultimate resolution (a DPA and 24-month federal monitor) was characterized as “the best outcome for all concerned,” the article illustrates the broad level of prosecutorial discretion that resides with the U.S. Attorney in fashioning remedies and confirms the lack of clear guidance on the use of DPAs and federal monitors. Robert M. Hanna & Christopher J. Christie, A Push Down the Road of Good Corporate Citizenship: The Deferred Prosecution Agreement between the U.S. Attorney for the District of New Jersey and Bristol-Myers Squibb Co., 43 Amer. Crim. L. Rev. 1043 (2006).

115 42 U.S.C. § 1320a-7c (1996).

116 See, e.g., The Department of Health and Human Services & The Department of Justice, Health Care Fraud and Abuse Control Program: Annual Report for FY 2007, available at http://www.oig.hhs.gov/publications/docs/hcfac/hcfacreport2007.pdf.

117 Of course, many attorneys advise their clients to achieve simultaneous settlements with these agencies to avoid the situation of being subjected to serial investigations.

118 F. Joseph Warin and Andre S. Boutros, supra note 113, at 126.

119 See Amended Complaint and Jury Demand at 1, Stryker Corp. v. U.S. Dept. of Justice, et al., No. 08-4111 (D.N.J. Sept. 11, 2008); U.S. v. Stryker Corp., No. 1:08-MC-92 (W. D. Mich. 2008). Stryker's New Jersey action was dismissed by order on January 23, 2009, and the United States’ petition for summary enforcement of the Inspector General's Subpoena was granted by order on January 28, 2009.

120 See generally Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines: Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 110th Cong. (2008) (statement of David Nahmias, United States Attorney, Northern District of Georgia) (citing the advantages of appointing a corporate monitor).

121 Hanna and Christie, supra note 114, at 1054-56.

122 Id. at 1054.

123 See, e.g., Letter from Michael J. Garcia, United States Attorney, Southern District of New York, to Charles M. Carberry, Counsel to Chevron Corp. (Nov. 8, 2007), available at http://www.foley.com/files/ChevronDOJNonPros.pdf (setting forth the terms of a nonprosecution agreement); U.S. Attorney's Office for the Eastern District of New York & Jazz Pharmaceuticals, Inc., Non-Prosecution Agreement, (2007), available at http://www.secinfo.com/d14D5a.u4XU3.c.htm#1stPage.

124 Morford Memo, supra note 11 (emphasis added).

125 Press Release, United States Department of Justice, Bristol-Myers Squibb Charged with Conspiring to Commit Securities Fraud; Prosecution Deferred for Two Years (June 15, 2005), available at http://www.usdoj.gov/usao/nj/press/files/bms0615_r.htm; Press Release, United States Department of Justice, UMDNJ Accepts Federal Monitor of Operations; Health Care Fraud Prosecution Deferred (Dec. 29, 2005), available at http://www.usdoj.gov/usao/nj/press/files/umdnj1229_r.htm.

126 See generally David Kocieniewski, Usually on Attack, U.S. Attorney in Newark Finds Himself on the Defensive, N.Y. Times, Feb. 13, 2008, at B1.

127 Press Release, United States Representative Bill Pascrell, Pascrell Calls on House Judiciary Committee to Examine Deferred Prosecution Agreements (Nov. 26, 2007), available at http://www.pascrell.house.gov/list/press/nj08_pascrell/Pascrell_Calls_On_House_Judiciary_Committee_To_Examine_Deferred_Prosecution_Agreements.shtml.

128 Morford Memo, supra note 11.

129 See Deferred Prosecution Agreement, United States v. Willbros Group, Inc., No. H-08-287 (S.D. Tex. May 14, 2008), available at http://www.corporatecrimereporter.com/documents/willbrosdpa.pdf; Willbros Gets Bribery Prosecution Deferred, Corp. Crime Rep., May 14, 2008, at 20.

130 Id.

131 See Deferred Prosecution Agreement at Attachment A, 2-7, United States v. AGA Medical Corp., (D. Minn. June 3, 2008), available at http://www.whitecase.com/alert_whitecollar_060508/.

132 See Deferred Prosecution Agreement, United States v. AGA Medical Corp (D. Minn. June 3, 2008), available at http://www.whitecase.com/alert_whitecollar_060508/.

133 See Letter from Steven A. Tyrell, Chief, Fraud Section, United States Department of Justice, to Gregory S. Bruch, Counsel to Faro Technologies, Inc., Appendix A, 1-6 (June 3, 2008), available at http://www.whitecase.com/alert_whitecollar_061208/.

134 See Letter from Steven A. Tyrell, Chief, Fraud Section, United States Department of Justice, to Gregory S. Bruch, Counsel to Faro Technologies, Inc. (June 3, 2008), available at http://www.whitecase.com/alert_whitecollar_061208/ (providing that the Department of Justice will not criminally prosecute Faro Technologies).

135 Id.; see also Press Release, United States Department of Justice, Willbros Group Inc. Enters Deferred Prosecution Agreement and Agrees to Pay $22 Million Penalty for FCPA Violations (May 14, 2008), available at http://www.usdoj.gov/opa/pr/2008/May/08_crm_417.html.

136 Id.

137 Curiously, recent CIAs acknowledge the existence of prior or on-going relationships between the company subject to the CIA and an IRO: “Each IRO shall assess, along with Cephalon, whether it can perform the engagement in a professionally independent and objective fashion, as appropriate to the nature of the review, taking into account any other business relationships or other engagements that may exist.” Cephalon Corporate Integrity Agreement, supra note 102, at 16. Furthermore, the IRO must include in its OIG reports a certification that it has “evaluated its professional independence and objectivity” and that its work product is “independent and objective.” Id. at 19.

138 Memorandum from John F. Savarese and David B. Anders, Wachtell, Lipton, Rosen, and Katz, DOJ Establishes Guidelines for Corporate Monitors; Congress Remains Skeptical (Mar. 31, 2008), http://blogs.law.harvard.edu/corpgov/files/2008/04/doj-establishesguidelines-for-corporate-monitors-congress-remains-skeptical.pdf.

139 Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidance? Hearing Before the Subcomm. on Commercial and Administrative Law, 110th Cong. (2008) (written statement of Brandon L. Garrett, Associate Professor, University of Virginia School of Law) [hereinafter Garrett Written Statement].

140 Discussion at Seton Hall University School of Law's Center for Health & Pharmaceutical Law, A Critical Analysis of Deferred Prosecution Agreements & Federal Monitors in the Healthcare Industry: Are They Working? (May 14, 2008).

141 As observed by one commentator, “regulations by prosecution are subject to none of the checks and balances that ordinarily accompany agency regulations, such as expert analysis, notice and comment periods, and political accountability for final rules. In sum, there is no mechanism that assures accountability for the informal regulation that is wrought by an individual prosecution.” Baer, supra note 17, at 1065-66.

142 Savarese and Anders, supra note 138.

143 Accountability in Deferred Prosecution Act of 2008, H.R. 6492, 110th Cong. §4(b) (2008).

144 Id.

145 Corporate Integrity Agreements – Office of Inspector General, http://www.oig.hhs.gov/fraud/cia/cia_list.asp (last visited Apr. 1, 2009).

146 See generally Press Release, United States Department of Justice, Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring (Sept. 27, 2007), available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf; see also United States Attorney's Office for the District of New Jersey & Biomet, Inc., Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Deferred%20pros%20agreementBiometfinal.pdf; United States Attorney's Office for the District of New Jersey & Depuy Orthopaedics, Inc., Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Deferred%20pros%20agreementDePuyfinal.pdf; United States Attorney's Office for the District of New Jersey & Smith & Nephew, Inc., Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Deferred%20pros%20agreementSNfinal.pdf; United State's Attorney's Office for the District of New Jersey & Zimmer, Inc. Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Deferred%20pros%20agreementZimmerfinal.pdf; United States Attorney's Office for the District of New Jersey & Stryker Orthopedics, Non-Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/Non%20pros%20agreementfinal.pdf.

147 See e.g., CAL. HEALTH & SAFETY CODE § 119402 (2005); D.C. CODE § 48-833 (2004); ME. REV. STAT. ANN. tit. 22, § 2698-A (2004); MINN. STAT. § 151.47 (1993); VT. STAT. ANN. tit. 33, § 2005 (2002); W.VA. CODE ANN. §5A-3C-13 (2004).

148 Physician Payments Sunshine Act of 2009, S. 301, 111th Cong. (2009) (read twice and referred to the Committee on Finance, Jan. 22, 2009).

149 For example, Faro Technologies, AGA Medical and DOJ each issued a press release regarding the non-prosecution agreement; however, neither company nor the DOJ posted a copy of the NPA on its website. See Garrett Written Statement, supra note 139 (arguing that these pre-trial diversion agreements should be made publicly available on DOJ Corporate Crime Task Force website).

150 Accountability in Deferred Prosecution Act of 2008, supra note 143.

151 Morford Memo, supra note 11.

152 Accountability in Deferred Prosecution Act of 2008, supra note 143, at § 5(d).

153 See Warin and Boutros, supra note 113, at 122.

154 Accountability in Deferred Prosecution Act of 2008, supra note 143, at § 4(b).

155 Garrett Memo, supra note 111, at 919-31.

156 Warin and Boutros, supra note 113, at 128 (citing as examples the pre-trial diversion agreements of United States v. BDO Seidman L.L.P., No. 3:02-cr-30040 (S.D. Ill. Apr. 12, 2002), & United States v. Sears Automotive Marketing Servs., No. 3:01-cr-30184 (S.D. Ill. Dec. 27, 2001).

157 See Office of Inspector General, Department of Health and Human Services & Bayer HealthCare L.L.C., Corporate Integrity Agreement 41 (2008), available at http://www.oig.hhs.gov/fraud/cia/agreements/fully_executed_bayer_cia_112508.pdf [hereinafter Bayer Corporate Integrity Agreement]. Such reviews are required to comply with 42 C.F.R. §§ 1005.2-1005.21 (2005). Notably, the Bayer Corporate Integrity Agreement also limits any review to two questions: “(a) whether Bayer was in full and timely compliance with the obligations of this CIA for which OIG demands payment and (b) the period of noncompliance.” Id.

158 See, e.g., Scott Reeves, Bristol-Myers CEO Quits, Forbes.Com, Sept. 12, 2006, http://www.forbes.com/2006/09/12/bristol-myers-resign-business-cx_sr_0912resign.html; Brooke A. Masters, Bristol-Myers Ousts Its Chief at Monitor's Urging, Wash. Post.Com, Sept. 13, 2006, http://www.washingtonpost.com/wpdyn/content/article/2006/09/12/AR2006091200578.html.

159 United States Attorney's Office for the District of New Jersey & Bristol-Myers Squibb, Deferred Prosecution Agreement, available at http://www.usdoj.gov/usao/nj/press/files/pdffiles/deferredpros.pdf.

160 Id. at 7.

161 See Garrett Memo, supra note 111, at 897. Monitor reports have not been made public, with the exception of the reports submitted by former Judge Stern about UMDNJ, which is a state entity.

162 17 C.F.R. § 249.308 (2008); see also S.E.C. Form 8-K, http://www.sec.gov/answers/form8k.htmandhttp://www.sec.gov/about/forms/form8-k.pdf (last visited Mar. 11, 2009).

163 See S.E.C. Form 8-K, supra note 162, at 4.

164 Id.

165 See Boozang, supra note 28, at 91-98.

166 Independent Review Organizations (“IRO”) are often required by Corporate Integrity Agreements. They serve to provide for the independent review of new claims submitted to Federal health care programs. The OIG has issued guidance on assessing the independence of such IROs that conduct CIA review. See Frequently Asked Questions to IRO Independence, http://www.oig.hhs.gov/fraud/cia/docs/ciafaqiro.pdf (last visited Apr. 1, 2009).

167 See Bayer Corporate Integrity Agreement, supra note 157, at 34; see also 5 U.S.C. § 552(b) (2007).

168 See generally Ford & Hess, supra note 6, at 39-40.

169 One observer suggests that there has been a recent decrease in shareholder suits, which he attributes to the increased presence and accomplishments of federal monitors. See Reisinger, supra note 55, at 5 (quoting comments by Kenneth Handel, who was hired to represent an entity subject to a DPA and monitor).

170 Morford Memo, supra note 11.

171 Bayer Corporate Integrity Agreement, supra note 157, at 10.

172 Id. at 11.

173 Cephalon Corporate Integrity Agreement, supra note 102, at 11.

174 See generally Langevoort, supra note 54, at 80.