New Approaches to Regulatory Enforcement
New Horizons in Law and Economics series
Chapter 7: Corporate monitors: the emerging framework of deferred prosecution agreements
Recent corporate scandals have spurred the development of innovative enforcement mechanisms aimed at inducing corporate proactive compliance. One such mechanism is the newly emerged U.S. Federal enforcement policies of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs), which use corporate monitors as “watchdogs” that seek to ensure corporate compliance. Under such agreements, prosecutors agree to defer prosecution of culpable corporations, in return for these corporations’ obligation to undertake dictated structural reforms and to comply with certain standards of behavior. These agreements require in many cases that corporations appoint independent corporate monitors to ensure corporate compliance within the terms of the agreements. Third-party enforcers have been used widely in different contexts as an enforcement instrument aimed at preventing misconduct. Current DPA and NPA policies utilize this invaluable instrument to induce corporate proactive compliance. Such policies replace traditional criminal proceedings against detected misconduct in an attempt to secure future corporate compliance while economizing enforcement costs. In this chapter, I explore the emerging DPA and NPA policies, while paying close attention to the role played by corporate monitors in inducing corporate proactive compliance. The analysis in this chapter provides a necessary backdrop for the development of an efficient targeted monitoring system which is the key objective in the following chapter. This chapter is structured as follows. In order to put the discussion in context, I briefly survey in Section 7.2 the major prototypes of third-party enforcers identified in the law and economics literature.
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