The government must be very sensitive about all the criticism it has been getting, from Congress, some judges and others, for not prosecuting more individuals for financial crimes. Perhaps in response, senior government officials have given a series of speeches since September declaring the commitment of the Justice Department to such prosecutions.
White-collar defense lawyers know that individuals are investigated and prosecuted all the time, so in some ways the recent speeches don’t tell us very much. But the speeches introduce a few ideas that raise concern that, perhaps, the government’s sensitivity is generating some questionable proposals.
In a September 17 speech at New York University School of Law, Attorney General Eric Holder emphasized the importance of identifying the company decision-makers who ought to be held criminally responsible because prosecution of such individuals “enhances accountability,” “promotes fairness,” and “has a powerful deterrent effect.” The Attorney General observed that “few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect of individual decision-makers being held accountable.”
The Attorney General then floated an idea for changing the law that raises serious questions. Out of a concern that corporate executives “enjoy all of the rewards of excessively-risky activity while bearing none of the responsibility,” he suggested extending the “responsible corporate officer doctrine” to the financial services industry. That doctrine, which grounds criminal liability in someone’s official position and responsibilities, not his or her culpable knowledge or conduct, is problematic enough where it now applies, in areas of food and drug safety primarily; it would become even more troubling where issues of knowledge, intent and willfulness are quite substantial. If the Justice Department believes more individuals should be prosecuted, is the right approach to lower the standard of criminal liability?
In a speech in September, Deputy Assistant Attorney General for the Criminal Division Marshall L. Miller, in the same vein, announced that the “prosecution of individuals – including corporate executives – for white collar crimes is at the very top of the Criminal Division’s priority list.” He said that how the Justice Department will treat corporations seeking leniency on the basis of cooperation will depend in part on whether that cooperation helps the government prosecute individuals. He emphasized that companies must not only voluntarily disclose the identification of culpable individuals; they also must provide the “facts and evidence at their disposal that implicate those individuals.” He advised companies to “make securing evidence of individual culpability the focus of your investigative efforts” and when seeking cooperation credit to “expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible.”
Assistant Attorney General for the Criminal Division Leslie R. Caldwell, in recent speeches, conveyed a similar message. In anOctober 1 speech to the Ethics and Compliance Officers Association, she announced that “[f]or a company to receive full cooperation credit following a self-report, it must root out the misconduct and identify the individuals responsible, even if they are senior executives.” Last week, at a program focusing on the Foreign Corrupt Practices Act, she reminded companies that timely disclosure allows the government “more avenues” to investigate culpable individuals . . . And, the more open you are with us about the facts you learned about that conduct during your investigation, the more credit you will receive for cooperation.” She warned that companies that “whitewash” facts about an individual’s involvement risk not receiving any credit for cooperation.
Of course, if a company wishes to get credit for cooperation with the government by reporting the fruits of an internal investigation, the investigation must be thorough, and the facts must be reported fairly and completely. But that is different from suggesting that a company’s cooperation will judged based on whether the company provides sufficient evidence to prosecute individuals. Concerns arise not in the easy cases – when individual wrongdoing can readily be established or ruled out – but in the hard cases, which are very common, when precisely what an individual knew and believed or did at different times is unclear. It is in such cases that government demands for evidence implicating individuals can lead to mistakes and shading of facts, and to the transformation of doubt and complexity into unwarranted certainty and simplification.
In the 2000s, a series of corporate scandals led, in the estimate of many observers, to overreaching by the government and undue demands for corporate cooperation that jeopardized the rights of individuals, perhaps most clearly reflected in Judge Kaplan’s decisions dismissing charges against 13 former KPMG partners and employees who were indicted in a major tax shelter prosecution. Judge Kaplan found that federal prosecutors, acting in accordance with Justice Department policy, pressured KPMG to withhold payment of legal fees and expenses from the indicted KPMG partners and employees. Judge Kaplan held that the government’s conduct violated the defendants’ Sixth Amendment rights to counsel and to present a complete defense.
We should take care that the present hue and cry over too few individuals being prosecuted does not lead to new excesses.