White Collar Crime Prof Blog

Departure of Eric Holder - From a White Collar Crime Perspective

Yesterday's announcement that Attorney General Eric Holder will be stepping down from his position makes one think back about all that he accomplished while in office.

Many have been critical of his handling of white collar cases, but few have focused on the enormous number and amount of fines given to entities during his term. There has been a growing list of deferred and non-prosecution agreements entered into between entities and the DOJ (see here).  Internal investigations are becoming routine by companies and hopefully corporations are realizing the cost-benefit of monitoring employees to adhere to the law.

Although discovery issues have not been resolved, there is certainly more focus by this Office on the importance of making sure that favorable evidence is given to defense counsel. With more time, emphasis and some new legislation this issue could move even further ahead.  

Most recently we see that DOJ is taking the ethical position in rethinking its position on waivers with guilty pleas. (see here)  Some districts, unfortunately, were asking for plea waivers on ineffective assistance and prosecutorial misconduct claims.  This practice, used by only some offices, suffered from ethics problems causing some states, like Florida, to have to issue an ethics opinion prohibiting this practice.  It is nice to see DOJ stepping to the plate to stop this conduct.  

And recently we have also seen that AG Holder has been at the forefront of enforcing the Sixth Amendment Right to Counsel. A good number of state attorney generals stood up to take this position in Gideon v. Wainwright, filing an amicus brief in support of the right to counsel for indigent defendants.  AG Holder's stance on this has been admirable.

Clearly our criminal justice system needs a good bit more work, but it is promising to see what one Attorney General has accomplished. Let's hope his successor continues advocating as a "minister of justice."

(esp) 

Criminalizing the American Company – The Economist

The Economist has an excellent article examining the criminalizing of American companies.  The piece, entitled “A Mammoth Guilt Trip,” covers a lot of ground, including many of the most pressing issues in the field of corporate criminal liability today.  The article begins by examining some of the incredible financial settlements we’ve seen this year.  As the piece notes, while the $5.5 billion the DOJ collected in direct payments in 2013 was impressive, it will certainly be “dwarfed by this year’s tally.”  Also examined in the article are issues such as the questionable and opaque ways the government spends settlement funds, the growth in regulatory crimes, the often prohibitive costs of corporate compliance, the inability of many companies to risk proceeding to trial, and, of course, the lack of individual prosecutions following the 2008 financial collapse.  Finally, the article contains some great data from Professor Brandon Garrett at the University of Virginia Law School.  Professor Garrett maintains a list of government actions against corporations since 2000.  In total, the list contains information regarding 2,163 corporate convictions and guilty pleas, along with 313 deferred and non-prosecution agreements.  It all makes for a fascinating read.

(LED)

Credit Suisse Conviction Does Not Demonstrate Substantial Change In Department Of Justice Enforcement

The Department of Justice (DOJ) and Attorney General Eric Holder were strutting last week over the criminal conviction by plea of guilty of Credit Suisse, a major financial institution.  "This case shows that no financial institution, no matter its size or global reach, is above the law," declared the Attorney General.  Recent prosecutions of major financial institutions had resulted in lesser results,  "deferred prosecutions," a somewhat deceptive term for "delayed dismissals," or a guilty plea by a minor affiliate.

The Credit Suisse guilty plea does not represent a sea change in the attitude of DOJ toward major financial institutions; rather, it appears to be a small ratcheting-up of the baseline penalty for serious criminal financial acts by such institutions.  Credit Suisse, despite paying a hefty $2.6 billion fine, will not suffer the severe collateral consequences that ordinary individual defendants do upon a criminal conviction.  (See here, NACDL's report "Collateral Damage:  America's Failure to Forgive or Forget in the War on Crime -- A Roadmap to Restore Rights and Status After Arrest or Conviction," released today, Thursday, May 29, 2014.)  It will still be able to act as an investment advisor, due to waivers agreed to by federal and New York State governmental agencies.  Thus, its conviction, according to its chief executive Brady Dougan, will not have "any material impact on our operational or business capabilities."  In other words, for Credit Suisse, it will be business as usual. 

I hold no sympathy for Credit Suisse.  Its crimes, continuous and notorious, have enabled American citizens and citizens of other countries to launder and evade tax payments on billions of dollars.  In effect, Credit Suisse (not alone among Swiss banks) (see here) was a criminal enterprise, for many years making huge profits from extraordinary fees for its knowing and willful provision of a presumably safe haven for untaxed income, ill-gotten or otherwise.  Mr. Dougan had stated to a Senate hearing in February that the tax evasion scheme was the work of a small group of private bankers that was hidden from senior management.  That hard-to-believe claim was challenged in a statement by Schweitzerisher Bankpersonalverband, the organization representing the bank's employees:  "It was common knowledge that tax evasion was the strategy, a business model pursued by many banks for a long time."  See here. 

To be sure, Credit Suisse's crimes did not cause the vast hardship to tens of millions of Americans that the wrongs -- criminal or not -- of other major financial institutions did in the last several years.  And, further, its acts -- while subject to the long-arm jurisdiction of American courts -- were apparently legal under Swiss law, and seemingly condoned by the Swiss government.

Some commentators have suggested that there is considerable unfairness in prosecuting corporations for acts of low- or mid-level employees without knowledge of corporate leaders (see here), a position with which I generally agree.  The demi-prosecution of Credit Suisse, however, does not appear to fit within that category, despite Mr. Dougan's claim.  I see no unfairness in the government's requiring Credit Suisse to plead guilty.

I do, however, wonder about the effectiveness of the insistence on a guilty plea if the collateral consequences are waived.  The conviction of a major financial institution with a considerable financial penalty but a waiver of regulatory bars is to me little different from a civil finding of wrongdoing with such a penalty.  Other than its current status as a convicted felon, Credit Suisse today is essentially in the same position it was two weeks ago.

Given the legitimate (but probably exaggerated) fear that a felony conviction of a major financial institution without regulatory waivers will have on its existence and thus on the economy and societal well-being, it may well be that guilty pleas (and trial convictions too) of such corporations should be accompanied by limited collateral consequences.  Such prosecutions, however, will then serve little more than a symbolic purpose (which I accept as a legitimate purpose).  Overall, DOJ's prosecution to conviction of Credit Suisse is a positive step, albeit a small one.

The resolution here suggests again that the criminal process is inadequate to prosecute large financial institutions.  Society looks to the criminal law to solve far more problems than the criminal law is capable of solving.  Meaningful reform of a flawed financial system will not come from criminal prosecutions of corporations, but, if at all, from strong, substantial regulatory rulemaking and non-criminal legislation.

 (goldman)

 

Too Big To Jail: Do Guilty Pleas Matter?

Here is an unusually sophisticated article about a white collar topic in today's NYTimes. The piece, by Floyd Norris, probes what are essentially debarment waivers obtained by many financial and brokerage institutions as part of their global deals with DOJ and SEC. A guilty plea or deferred prosecution agreement with DOJ, accompanied by an SEC fine and censure, in the past may have been a company's death knell. Now it is just another cost of doing business. Naturally, guilty pleas still look bad and companies want to avoid them. But there's a rather large difference between a short-term public relations nightmare (or even a long-term and expensive monitoring agreement) and a firm's demise. So when government officials say that no companies are too big to jail or too big to fail, it is important to understand the context of the particular global agreement in question. Because a company can't be jailed, and if the company is big and important enough, it won't be allowed to fail.

(wisenberg)

 

DOJ Transparency in Deferred Prosecution Agreements

Check out Mike Scarcella's BLT Blog item, Justice Dept. Sued Over Access to Non-Prosecution Agreement.  It is hard to believe that someone would have to file a lawsuit to obtain information about a non-prosecution agreement of a corporation.  One can understand the need to protect individuals from the sting of criminality when an agreement is reached to defer a prosecution or when an individual is being spared a prosecution as an alternative method to rehabilitate that individual.  But corporations are not afforded the same rights as individuals. The government is quick to note that corporations do not have the same rights as individuals when they are trying to obtain corporate documents. 

(esp)

Judicial Oversight of Corporate Pleas -Protection of the Public Interest

United States v. Orthofix, Inc was an important decision for several reasons. First, the Memorandum  Opinion issued by Judge Young (D. Mass), on July 26, 2013, takes a turn in what typically happens when there is a corporate plea arrangement.   Second, the judge explains at length policy considerations for sentencing corporations.  The case also raises questions for the future of corporate plea agreements.  

This decision involves two cases involving corporate pleas where the court rejected the pleas.  The court notes the importance of considering the "public interest" in accepting pleas. Hon. Young states:

"Just as the Court must take account of the public interest when it exercises its discretion to fashion its own sentence, so too the Court must take account of the public interest when called upon to review a sentencing recommendation attached to a plea bargain."

The court considers the history behind plea bargains and contract law and notes the problem of considering it as a prosecution-defense relationship as opposed to a triadic relationship. Hon. Young states, that "this Court makes no attempt to question the policy choices of executive administrative agencies; it merely seeks to ensure that the sentence imposed upon Orthofix fosters (1) the protection of the public, (2) specific and general deterence, and (3) respect for the law."

The court states that "[o]rganizational criminals pose greater concerns than natural persons for two important reasons."  One of the concerns raised in the case of Orthofix, by the court, was that the plea of five years failed to impose the Corporate Integrity Agreement as part of the probation.

This Memorandum decision raises other interesting questions that were not discussed here, and perhaps not relevant to these matters. But one has to wonder whether courts should also be examining plea agreements that place undue pressure on corporations and individuals to plea because the risk of going to trial is too severe? In a post-Arthur Andersen world do corporations have the choice of risking a trial or is the necessity  of entering a plea too great to avoid the repercussions of an indictment and possible conviction? Should oversight of pleas go beyond the sentencing aspect to also scrutinze the bargaining position of the parties and the fairness of the general bargain?

See also Doug Berman's Sentencing Law & Policy Blog here, Jef Feeley & Janelle Lawrence, Bloomberg's,  Orthofix’s Settlement of Medicare Probe Rejected by Judge

(esp)

DOJ Should Be Commended for Requiring a Conviction by UBS

by: Lawrence S. Goldman

It is not often that I praise the Department of Justice ("DOJ"), especially for bringing a prosecution.  However, I commend the decision to prosecute -- really prosecute, and not just indict and offer a deferred prosecution -- a UBS subsidiary for its role in manipulating the benchmark LIBOR interest rate.  See here.

To be sure, UBS was allowed to offer as the defendant in this case a Japanese subsidiary (UBS Securities Japan Co. Ltd.), for which a conviction would bring considerably less collateral damage than it would upon the parent company.  Substituting others for prosecution, whether corporations or individuals, of course, is not a common benefit offered to criminal targets.  Nonetheless, for DOJ, bringing a prosecution against a major financial institution, even a subsidiary, is a considerable and commendable step.

Generally, I believe that prosecutions should not be brought against large institutions because of a few rogue employees, unless at least one is a director or "a high managerial agent acting within the scope of his employment and in behalf of the corporation."  New York Penal Law Section 20.20(2)(b).  See also Model Penal Code Section 2.07.  UBS, however, is a serial offender with a history (not alone among Swiss and other banks) as an eager accomplice of money launderers and tax evaders throughout the world.  Although UBS' belated and commendable efforts to clean up its act and cooperate deserve credit, in this case DOJ apparently felt it did not make up for its past conduct enough to deserve non-prosecution, and appropriately broke its usual pattern of allowing major financial institutions to avoid criminal convictions.

As a practical matter, one may ask what the difference is between an indictment/deferred prosecution (as occurred in the case of the parent, UBS AG of Zurich) and indictment/conviction if both ultimate results carry huge financial penalties and other requirements, such as monitoring.  Aside from the collateral consequences -- which can, as in the obvious case of Arthur Andersen, be fatal to a major financial institution (although I agree to an extent with Gabriel Markoff (see here) that such a fear is exaggerated) -- the conviction here has importance as a symbol, and perhaps also a deterrent in both the specific and general aspects.

Although the huge UBS fines will be borne by current UBS shareholders (not necessarily the same stockholders who benefited from the LIBOR bid-rigging), one would hope that UBS makes an effort to recoup the substantial financial gains through bonuses and other compensation geared to profits that those in leadership and supervisory roles made as a result of UBS' now-admitted criminality even if those leaders were uninvolved or unaware of the wrongdoing.  I suspect that there will be no such serious effort, or at least little or no success if there is one. 

(goldman) 

HSBC Settlement: The Unanswered Questions

by: Solomon L. Wisenberg

You can debate all day whether the government should allow any financial institution to get too big to fail. You can also debate whether such an institution, if it is too big to fail, should be too big to prosecute, even when it engages in blatantly criminal conduct over a lengthy period of time. However, you cannot seriously debate whether to prosecute senior bank officials of an international mega-bank who knowingly directed the criminal enterprise in question. Corporations only act through agents. Those agents are human beings.

We are not talking about technical matters here. This is not a question of whether each party to a complex transaction understood the fine print which revealed, or obscured, that an investment bank was betting against the deal it was pushing.  According to the published reports and press statements, obvious narcotics-related money laundering was repeatedly facilitated by the bank, despite multiple regulatory warnings. The sources of funds connected to outlaw regimes were intentionally and repeatedly hidden. If this stuff happened, people did it. And they were no doubt high-ranking people.

No credible person will contend that the prosecution of corrupt bank officers can ever endanger the financial community. No matter how important the institution or high-ranking the officer, employees are fungible. The global financial impact of prosecuting these officers, no matter how important they think they are, will always be negligible.

Assistant AG Lanny Breuer said at his press conference that individual prosecutions were not being ruled out. (Similar statements were made at the time of the robo-signing settlement press conference, and we all know what an avalanche of individual DOJ prosecutions followed in the wake of that!) But other comments Breuer made, discussing how hard it supposedly is to prosecute the individuals involved, appear to be window-dressing rehearsals for future DOJ declinations.

Reporters should not let this issue slide into oblivion. The DOJ does not typically comment upon pending investigations of individuals. (Of course this does not stop some FBI and IRS agents from telling all of a target's friends that he is being criminally investigated, thereby ruining the target's life.) Here is an occasion where the policy should be ignored, particularly since the DOJ can comment on a pending investigation without revealing the names of the subjects and targets. 

The question every self-respecting reporter should be asking AG Holder and Assistant AG Breuer is not whether individual indictments have been ruled in or out. The questions to be asked at every opportunity in the coming weeks and months are:

"What is the status of the investigation?"

"Is there really any investigation?"

"Are you treating this investigation like you treat the investigation of other individuals suspected of facilitating murder and drug crimes?"

Here is an account by Rolling Stone's Matt Taibbi of his appearance on Eliot Spitzer's Viewpoint program discussing the HSBC settlement. Taibbi's account contains a link to the Spitzer interview. Hat tip to Jack Darby of Austin's Krimelabb. com for alerting me to this posting. Taibbi also has an interesting opinion piece about the HSBC settlement on his Rolling Stone TAIBBLOG.

(wisenberg)

New Article - Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents

Professor Bruce Green (Fordham) and I have a new article coming out in Boston Colleg Law Review, titled Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents.  You can download the article here. The SSRN abstract states:

This Article focuses on the relationship between corporations and their employee constituents in the context of corporate internal investigations, an unregulated multi-million dollar business. The classic approach provided in the 1981 Supreme Court opinion, Upjohn v. United States, is contrasted with the reality of modern-day internal investigations that may exploit individuals to achieve a corporate benefit with the government. Attorney-client privilege becomes an issue as corporate constituents perceive that corporate counsel is representing their interests, when in fact these internal investigators are obtaining information for the corporation to barter with the government. Legal precedent and ethics rules provide little relief to these corporate employees. This Article suggests that courts need to move beyond the Upjohn decision and recognize this new landscape. It advocates for corporate fair dealing and provides a multi-faceted approach to achieve this aim. Ultimately this Article considers how best to level the playing field between corporations and their employees in matters related to the corporate internal investigation.

(esp)

NPA, DPA, Guilty Plea or Trial - Tyco & Subsidiaries

It is always interesting to see who will get a non-prosecution agreement, a deferred prosecution, or be placed in the position of pleading guilty. There are few who go to trial, but occasionally it happens. The risk of trial is enormous especially if the company is in the defense procurement area, accounting, health care, or dealing with possible collateral consequences.

According to a DOJ press release, "Tyco International Ltd - together with a subsidiary that pleaded guilty" to a criminal charge of conspiracy to violate the FCPA agreed to pay more than $26 million for the DOJ resolution and for charges from the SEC.

It seems that "an indirect, wholly owned subsidiary of Tyco" is the one pleading guilty, but near the bottom of this same press release one finds that Tyco received a non-prosecution agreement.

To what extent does the collateral consequences of the process drive the different resolutions?

(esp)

Deferred Prosecution Agreements - Definitely A Plus

On September 13th Assistant Attorney General Lanny A. Breuer spoke to the New York City Bar extolling the virtues of DOJ's strategy for corporate prosecutions (see here). Former co-blogger Peter Henning here, also authored an article which focuses on the use of deferred prosecution agreements by the government.

One clearly has to credit the government with raising the bar in the corporate world to comply with legal mandates. Corporations throughout the world now have strong compliance programs and conduct internal investigations when questionable activities are reported to them.  Likewise, post-Arthur Andersen, LLP, corporations are shy to go to trial - although there are some who have done so successfully (e.g. Lindsey Manufacturing- see here).

When the government first started using deferred and non-prosecution agreements, in a prior administration, there were government practices that were questionable.  For example, allowing for huge sums to money to go to a former attorney general as a monitor, giving a chair to a law school that happened to be the same school the US Attorney graduated from, and negotiating for continuing work with the government as part of the agreement. (see Zierdt & Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing-here)  Without doubt there were terms within the agreements that needed revision. Some terms that give complete control to prosecutors in deciding who can determine breaches of agreements present problems. But many of the questionable practices are not seen in recent deferred prosecution agreements, and this is good. 

Agreements that still provide an imbalance between corporate misbehavior and individual miscoduct is creates an imbalance, but much of this is created by the fact that corporations have greater resources and can control the discussion with DOJ, to the detriment of the individual. Clearly there needs to be a better recognition of corporate constituents during the internal investigations, the subject of a forthcoming article that I author with Professor Bruce Green (Fordham) titled, Unregulated Internal Investigations: Achieving Fairness for Corporate Constituents.  But this issue may not be one strictly for DOJ to resolve.

What is particularly impressive about the DOJ use of deferred prosecution agreements today is that it uses an educative model to reform corporate misconduct. One can't put a corporation in prison, so with fines as the best alternative it is important to focus on motivating good conduct.  Corporate deferred and non-prosecution agreements are an important step in achieving this positive result.  So, it is important to credit today's DOJ with how it is tackling the problem of corporate misbehavior.

(esp)  

Serious Financial Allegations Deserve Criminal Investigation

My learned and astute co-editor, Solomon Wisenberg, bridled at the thought of a criminal investigation of the Libor bank scandal (see here), which he believes will be a waste of time, and of the JP Morgan Chase trading loss (see here), which he believes lacks evidence of criminality.  While I do not know enough about these matters to dispute his reasons, I nonetheless strongly believe a criminal investigation is warranted in both instances.

Financial manipulations which cost shareholders and customers of large institutions millions (or billions) of dollars require criminal investigation, and, if identifiable provable criminal wrongdoing is found, criminal prosecution.  It has become clear that those institutions and their employees are incapable or unwilling to police themselves, and, as Mr. Wisenberg points out, the responsible regulatory agencies have often been asleep at the switch or even compliant.

That is not to say that every massive financial loss involves criminality or that weak or questionable criminal prosecutions should be brought to soothe the popular thirst for criminal punishment.  It is not to say that genuine defenses, such as estoppel due to government approval or acquiescence, should not prevent prosecution.  But for the huge financial institutions, even a penalty of almost a half billion dollars, as in the Barclays Bank "deferred prosecution" deal (effectively a "non-prosecution" deal), is merely a cost of doing business passed on to shareholders.  And for many of the traders and manipulators, who always weigh risk but rarely morality, only the risk of a criminal prosecution (which for them involves potential prison sentences) will have any serious deterrent effect.

To be sure, criminal investigations, even without prosecutions, may deter innovation and creativity in financial vehicles and dealings (although I am not so sure that is a bad thing).  Additionally, investigations themselves cause mental distress, potential loss of reputation, and considerable legal fees.  Criminal investigations, therefore, should not be started without careful consideration by law enforcement or prosecutorial agencies.  But massive losses of other people's money should almost always require an examination beyond a regulatory or civil one by our historically inept financial regulatory agencies.

Every death by other than natural causes, every fire of any proportion, and every serious automobile accident is reviewed by authorities for possible criminal prosecution.  Is there any reason an unusual massive financial loss of other people's money should be exempt from scrutiny for possible criminality?  I think not.

(goldman)

Barclays Bank to Pay - $160 Million - as Part of Non-Prosecution Agreement

A DOJ Press Release reports, Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty

Some highlights of the press release -

• "Barclays Bank PLC, a financial institution headquartered in London, has entered
  into an agreement with the Department of Justice to pay a $160 million penalty
  to resolve violations arising from Barclays’s submissions for the London
  InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR),
  which are benchmark interest rates used in financial markets around the world..."
• "To the bank’s credit, Barclays also took a significant step toward accepting
  responsibility for its conduct by being the first institution to provide
  extensive and meaningful cooperation to the government."
• "Barclays’s cooperation has been extensive, in terms of the quality and type of
  information and assistance provided, and has been of substantial value in
  furthering the department’s ongoing criminal investigation." 
• "The agreement requires Barclays to continue cooperating with the department in
  its ongoing investigation."
• "As a result of Barclays’s admission of its misconduct, its extraordinary
  cooperation, its remediation efforts and certain mitigating and other factors,
  the department agreed not to prosecute Barclays for providing false LIBOR and
  EURIBOR contributions, provided that Barclays satisfies its ongoing obligations
  under the agreement for a period of two years.  The non-prosecution agreement
  applies only to Barclays and not to any employees or officers of Barclays or any
  other individuals."

Commentary - As a non-prosecution agreement it does not go through the courts and DOJ has the power to enforce or proceed should it believe there is a violation of the agreement. It also sounds like the white collar defense bar may have some new clients as the government has secured the cooperation of the company to go after individuals.

See also Jenna Greene, BLT Blog, Barclays Agrees to Pay $360M to Settle with CFTC, DOJ
over Interest Rate Manipulation

(esp)

Corporate Sentencing Statistics With Commentary

Some have been claiming that corporate prosecutions are down in numbers.  It certainly has not seemed that way, so I was glad to see the numbers, which demonstrate that corporate sentencings have been average over the past few years.

Lisa Rich, Director of the Office of Legislative and Policy Affairs at the United States Sentencing Commission provided the following corporate statistics for the recent Federal Sentencing Conference (although I have reworded some of what she provided): In FY 2011, there were 160 organizational cases and 151 pled guilty and 9 were convicted after jury trials. Probation was ordered in 111 cases and 31 had court ordered compliance/ethics programs. Three cases received credit for self-reporting and 44 received credit for cooperating with the government. But of the approximately 74 cases in FY2011 for which the Commission had Chapter 8 culpability information, there were no entities receiving full credit for having an effective compliance program. Not one of the 74 cases received credit under subsection (f).

These statistics do not reach the full corporate efforts by DOJ since they fail to include non-prosecution agreements or deferred prosecution agreements that have not gone through chapter 8.  So some bottom line observations: 1) if the government decides to prosecute a corporation - it has an incredibly high chance of success; 2) more emphasis needs to be put into teaching corporations how to operate an effective compliance program; 3) studies need to examine whether by using deferred and non-prosecution agreements the government is increasing prosecutions against corporate individuals (it certainly seems likely that this would be the case).

(esp)  

Ninth Circuit Looks at Selective Waiver

In In re: Pacific Pictures the Ninth Circuit looks at "whether a party waives attorney-client privilege forever by voluntarily disclosing privileged documents to the federal government." The court starts with the principle that "voluntarily disclosing privileged documents to third parties will generally destroy the privilege."  The court rejects the petitioners argument that disclosing documents to the government is different from disclosing them to civil litigants and that a selective waiver should apply. The court notes that legislative attempts to change the evidence rules to allow for selective waiver have failed so far.

The court also does not enforce a confidentiality letter between the corporation and the government. The court states:

"The only justification behind enforcing such agreements would be to encourage cooperation with the government.  But Congress has declined to adopt even this limited form of selective waiver."

The court rejected a claim that "adopting such a rule will drastically impair law enforcement attempts to investigate espionage against 'attorneys, financial institutions, medical providers, national security agencies, judges, large corporations, or law firms.'"

Entities provide significant materials to the government as part of deferred and non-prosecution agreements. Not having a privilege needs to be considered by corporate counsel in deciding what to give to the government.

(esp)

Should Wal-Mart Be Prosecuted, Really Prosecuted?

I expect that any day now one of my non-white-collar criminal clients will come to my office and ask me to incorporate him to protect him from future criminal liability.  Of course, incorporation does not immunize an individual from criminal liability.  Nor, generally, does it protect small corporations from prosecution.

However, it appears that just as massive corporations are "too big to fail," they are too big to prosecute.  In the wake of the government's destruction of Arthur Andersen because of an ill-conceived, aggressive and ultimately unsuccessful indictment which caused the loss of thousands of jobs, DOJ has been highly reluctant to aggressively prosecute major corporations.

Although there are occasionally indictments of major corporations, most often these are disposed of by "deferred prosecutions," which are essentially delayed dismissals with financial penalties in numbers that are large in absolute terms but meager in comparison to the profits and assets of the corporation.  To be sure, even when prosecuted to conviction, corporations do not go to jail and thus there may be little practical difference between a conviction of a corporation and a deferred prosecution.  However, to the extent a goal of the criminal justice system is to achieve apparent fairness and equality, there is a genuine, if symbolic, reason for the prosecution of the large and powerful, whether they be individuals or corporations.

According to a thorough account in the New York Times this past Saturday, April 21, see here, Wal-Mart in Mexico, where the company has, according to the Times, one-fifth of its stores, engaged in a systemic countrywide scheme in which it spent millions of dollars to bribe hundreds of Mexican officials to gain favorable and expedited treatment and a competitive advantage.  According to the Times, this conspiracy was not, as is often the case in corporate wrongdoing, the act of a rogue individual or group.  Rather, it was orchestrated from the very top of the Wal-Mart Mexican hierarchy.  Additionally, again according to the Times, when reports of this corruption reached Wal-Mart's U.S. headquarters, top executives took great pains to cover up the wrongdoing.

The alleged conspiracy, if the Times report is accurate, appears to be the kind of corporate crime, therefore, that deserves aggressive prosecution (not just an indictment and a deferred prosecution), especially if the government wants the Federal Corrupt Practices Act ("FCPA") to be taken seriously.  Of course, there may be statute of limitations or other fact-finding or evidentiary problems involved in putting together a case involving facts from 2005, the year, according to the article, the bribe payments were made.  It is far easier to write an article reporting corruption than to prove it under the rules of evidence beyond a reasonable doubt.  It will be interesting to see what, if anything, DOJ does with respect to this matter.

(goldman)

Another Deferred Prosecution - "NYCity Payroll Project Scandal" Company

See Benjamin Weiner & Colin Moynihan, NYTimes, Company in New York City Payroll Project Scandal to Pay $500 Million

(esp)

Federal Organizational Plea Agreements Website

Professors Brandon Garrett and Jon Ashley have an incredible new website that is a library of 1495 federal corporate plea agreements in which an organization was convicted. They intend to update this collection of agreements. The site has the agreements by date, U.S. Attorney Office district and name. The site also provides links to other helpful data concerning corporate convictions.  This is an amazing website that provides a wealth of information.

(esp) 

Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) Gets DPA

A DOJ Press Release here reports that "Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) has agreed to pay the United States $13 million to resolve criminal and civil allegations that the company paid kickbacks to a Kellogg Brown & Root Inc. (KBR) employee and illegal gratuities to a former U.S. Army sergeant, in connection with contracts in support of the Army’s operations in Iraq and Kuwait."  The press release states:

"Under the terms of that agreement, TAFGA will pay the United States $5.6 million as part of a deferred prosecution and institute a strict compliance program to ensure that the company and its employees will abide by the legal and ethical standards required for government contracts.  If TAFGA meets its obligations under the agreement without violation for 18 months, the United States will dismiss the criminal charges."

(esp)

"Wall Street & Prosecution" - There Are Benefits to Deferred Prosecutions

The NYTimes has a main story today, titled, As Wall St. Polices Itself, Prosecutors Use Softer Approach.  Contributing blogger Sol Wisenberg offers an important perspective to the discussion - the problem of cooperation when the enterprise itself is tainted. 

But the article itself misses some key aspects in its criticism of deferred prosecutions. It fails to look at the net result of a prosecution with and without a deferred prosecution agreement.  With a deferred prosecution agreement you have the company admitting to culpability, you have change in the company assured, you usually have monitors added to the organization to avoid future problems, and you obtain the entity's cooperation.  Does the company suffer?  Most definitely yes - they pay huge fines.  For example, Seimens - 800 million; Daimler - 185 million; SnamprogettiNetherlands BV - 240 million. And the cost for this prosecution or threat of prosecution is low  because the company is agreeing to pay the fine.  On the other hand, if the case had gone to trial there is the risk of a not guilty verdict (e.g., WR Grace; Xcel Energy, Inc.).  Even if the company is convicted it will have cost the US taxpayer a significant amount of money for the prosecution, and the net result will be - payment of a fine by the company.  The reality that is missed in this NYTimes article is that corporations cannot be put in jail. And if you put the company out of business - like Arthur Andersen LLP then you are putting many innocent workers out of a job that they were doing honestly. And maybe it's OK if it's a civil matter, like Bank of America just paying 8.5 billion to settle its problem with the money going to investors.

Deferred prosecutions do have their problems.  For example, many of the terms in the agreement are one-sided, the company often has no choice but to agree, and corporate executives can get thrown under the bus to save the company.  (See my co-authored article here). 

But calling the use of deferred prosecutions a "softer approach" is missing what gets achieved with deferred prosecutions.

(esp)