Corporate Compliance
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Corporate Compliance

New Approaches to Regulatory Enforcement

Sharon Oded

This book considers how a regulatory enforcement policy should be designed to efficiently induce proactive corporate compliance. It first explores two major schools of thought regarding law enforcement, both the deterrence and cooperative approaches, and shows that neither of these represents an optimal regulatory enforcement paradigm from a social welfare perspective. It provides a critical analysis of recent developments in US Federal corporate liability regimes, and proposes a generic framework that better tailors sanction schemes and monitoring systems to regulatee performance. The proposed framework efficiently induces corporate proactive compliance, while maintaining an optimal level of deterrence.
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Chapter 7: Corporate monitors: the emerging framework of deferred prosecution agreements

New Approaches to Regulatory Enforcement

Sharon Oded


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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