deferred-prosecution agreement - Business Definition
A voluntary alternative to adjudication in which a prosecutor agrees to grand amnesty in return for the defendant abiding by certain requirements. For example, a case of corporate fraud may be settled using a deferred-prosecution agreement in which the defendant agrees to pay fines, enact corporate reforms, and fully cooperate with the investigation. Fulfilling the requirements will result in dismissal of the charges.Case Study In August 2005, accounting firm KPMG admitted that it had engaged in selling improper tax shelters that generated $11 billion in illegal tax losses and cost the U.S. government over $2.5 billion in lost tax revenues. The firm also admitted its employees took steps to conceal the existence of the shelters by failing to register them with the IRS. As part of an agreement with the U.S. Department of Justice, KPMG was required to pay a $456 million fine, terminate some its operations, implement a compliance and ethics program, install an independent monitor, and fully cooperate with a criminal investigation of the firm's practices. KPMG's agreement was part of a deferred-prosecution agreement in which the government's criminal charge was deferred until the end of the following year if the specified conditions were met. KPMG was desperate to avoid a criminal indictment that was likely to result in a business collapse similar to the one that befell Arthur Anderson in the wake of the Enron Corporation failure. A federal judge agreed in January 2007 to dismiss the deferred criminal charge against the company, although 17 of its former executives had been criminally charged. A federal judge dismissed charges against 13 former employees in July 2007 because the government had violated the defendants' rights by forcing KPMG into not paying their legal fees.