Tuesday, November 30, 2004

Guidance on Charging Corporations

John Richter, the chief of staff for the Criminal Division in the U.S. Department of Justice, made remarks at an ABA conference sponsored by the Business Law Section on Nov. 19 about how federal prosecutors decide whether to charge a corporation with a criminal offense.  In January 2003, the so-called Thompson Memo (Principles of Federal Prosecution of Business Organizations), issued by former Deputy Attorney General Larry Thompson, set forth a series of broad principles for prosecutors to consider in deciding whether to charge a corporation with a federal offense.  The principles are quite broad, and Mr. Richter's comments shed a little additional light on the subject. A BNA report in U.S. Law Week (Vol. 73, No. 20, Nov. 30, 2004) summarized his comments:

Richter allowed that judging corporate culture is a "subjective assessment in some ways," but noted that "hard facts" exist in most cases. He said that because of the inherent timing of a prosecutor's interest in a company, much of a corporation's character reveals itself in how it deals with authorities during times of crisis.

A company's nature "really manifests itself in looking at the corporate response" to an investigation, Richter said. For instance, "corporations always tell us when they first realize they are under investigation that they will cooperate, and typically they'll publicly say so. But from our perspective, what we are looking at is: Are they actually cooperating? Is the cooperation authentic?"

"This cooperation, this self-reporting, this making facts available to us," he continued, "is part of what we take into account in exercising our prosecutorial discretion in making a determination [about] whether to focus on an individual wrongdoer, or whether the individual wrongdoer is actually an extension and reflection of the corporation that is potentially on a criminal liability hook for their conduct."

Richter said that his most important advice for corporate counsel is: "Don't just ask whether your client is complying with Sarbanes-Oxley or complying with applicable state law. Rather, ask your client whether its corporate culture is actually healthy." If wrongdoing occurs and is detected, Richter said, "does it get reported to the appropriate lawyers, both inside counsel and outside counsel? Does the board hear about it? And then how does the corporation respond to the information? Does it self-report, and thereafter what action does it take? Those are the key factors from a federal law enforcement standpoint and where we come from."

A corporation could pay a heavy price if it is perceived as uncooperative, although some types of conduct, such as paying the attorneys fees for counsel for individual officers and employees, is perfectly legal, yet may be considered a sign of a lack of cooperation.  This area is a minefield for corporate counsel, and Mr. Richter's comments do not make it any easier to determine what will--and more importantly, will not--constitute cooperation and avoid a criminal charge against the business organization. (ph)

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