The controversy around punishment and deterrence of corporate misconduct continues to swirl.  As fines increase against companies, it is important to ask the question whether the current enforcement scheme adequately punishes and deters corporations.

The issue was underscored by recent comments made by JP Morgan’s General Counsel three days after JP Morgan reached a record $13 billion settlement for its mortgage-backed securities activities, who suggested that corporate penalties were excessive and not necessarily serving their intended purpose.

SEC Chairperson Mary Jo White has argued that significant criminal fines and civil penalties are sufficient to punish and deter corporate actors.

Adding to this issue is the government’s reliance on Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) rather than requiring companies to plead guilty to specific criminal offenses.  The rationale for DPAs and NPAs continues to be the fear that criminal convictions would cause serious collateral harm to companies by restricting access to capital, jeopardize federal and state licenses to operate, and even threatening the existence of company.

Professor David Uhlmann from the University of The Michigan Law School (and former Chief of the Environmental Crime Section) has suggested that prosecutors need to re-examine these policies and resume criminal guilty pleas from companies as a real deterrent to corporate misconduct.  See Professor Uhlmann’s Article, Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability (October 1, 2013, Here).

The FCPA Professor, in various postings and articles, has made similar arguments for real enforcement so long as companies have a compliance defense to FCPA changes (similar to that under the UK Bribery Act).

The ongoing debate ignores one significant deterrent – reputational risk.  When surveyed, corporate leaders regularly cite the fear of reputational damage from government investigations and enforcement actions.  The reason underlying this concern is economic – reputational harm translates into reduced market share and revenues.

Policymakers continue to argue that individual prosecutions, whether criminal or civil, is the only effective deterrent against misconduct.  In the anti-bribery area, prosecutors have not yet fully developed an aggressive individual prosecution program.

In contrast, the antitrust criminal enforcement program already focuses on individual prosecutions.  On average, antitrust enforcers prosecute three individuals for each corporate settlement – that is a significant accomplishment.   DOJ is on its way to building a similar record in the anti-corruption area.

One thing is clear – the government’s use of DPAs and NPAs is a relatively recent practice; in the 1980s and 1990s, companies were required to plead guilty despite concerns about collateral consequences.

The Justice Department is not going to refrain from using DPAs and NPAs as a tool to impose proactive compliance remedies and monitoring of corporate conduct without risking serious economic harm to a company and the economy.

The wisdom of this strategy versus other alternatives will continue to be debated and will not change unless and until there is a good reason to do so – so far no one has pointed to any significant reason for the Department of Justice to change its practices.