Just before its annual meeting this week, the World Bank announced that an African railroad company would be barred for two years from any new loans from the bank because of a corrupt act. Why only two years? The company had admitted its guilt and agreed to work with the bank in beefing up the integrity of its workers.
This is the latest example of a legal trend in many countries, from Argentina to Singapore, as well as at the World Bank. Simply put, the concept is this: If a firm confesses early to a crime and then reforms itself under official guidance, it will receive mercy in enforcement, such as no trial, low fines, and no jail time for employees.
The assumption is that companies have enough people willing to spot wrongs, admit them to authorities, and then push for honesty, transparency, and accountability in their work culture. Another assumption is that such a deal, called a deferred prosecution agreement (DPA), will provide incentives for companies to self-report misconduct.
The idea took off 15 years ago in the United States after the Justice Department realized that prosecuting big firms might lead to their total collapse, damaging an industry and putting thousands of employees out of work. According to one Justice official, the practice has had a transformative effect on corporate culture across the globe. France, for example, obtained its first DPA in January.
“When a company discovers misconduct, quickly raises its hand and tells us about it, that says something,” said John Cronan, acting assistant attorney general of the Justice Department’s criminal division. “It shows the company is taking misconduct seriously and not willing to tolerate it and we are rewarding those good decisions.”
At the World Bank meeting, a special panel on corruption focused on one topic in particular: a need for greater trust between law enforcement and companies. “Private business does not want to pay bribes. We need help on this,” said Peter Solmssen, former general counsel of Siemens AG.
The practice, which is different than a plea bargain, does have its critics. Might prosecutors be too lenient? Should an agreement be approved by a judge? Do DPAs work in cultures that must first achieve more convictions for white-collar crimes in order to show the consequences of not admitting a crime?
At the least, it shifts law enforcement away from a traditional binary approach: prosecute or don’t prosecute. It aims to balance mercy and justice in ways that allow individuals to recognize for themselves that such values as honesty and accountability should be part of corporate dealings.
Firms that confront their wrongdoing and then fix it deserve some forgiveness. They might also become a model to others.