On September 17, 2014, Attorney General Eric Holder and Deputy
Assistant Attorney General Marshall L. Miller both made speeches
emphasizing the U.S. Department of Justice’s (“DOJ”) aggressive
approach to seeking individual criminal convictions in high-profile
white collar cases, particularly in the financial services industry.
Holder expressed frustration with DOJ’s inability to hold financial
services executives criminally liable for alleged misconduct. He
proposed several ways to make it easier for DOJ to do so. In addition
to increasing financial incentives for whistleblowers to come forward
with evidence of fraud––a proposal aimed at improving the odds
that DOJ discovers financial crimes––Holder proposed extending the
Responsible Corporate Officer doctrine to the financial services
industry. Under this doctrine, often called Park liability, an
individual may be prosecuted criminally under the Food, Drug, and
Cosmetic Act (“FDCA”) even absent any culpable intent or
knowledge of wrongdoing if he or she was in a position to have
prevented the wrongdoing and failed to do so.
Holder’s proposal to import Park liability to financial crimes would
require legislative action and is unlikely to gain traction for other
reasons. Nevertheless, his statements––together with Miller’s
emphasis on conditioning “cooperation credit” on companies’ efforts
to provide DOJ with evidence of individual wrongdoing––
demonstrate DOJ’s intensifying focus on individual prosecutions in
corporate criminal cases.
Bruce E. Yannett
Mary Beth Hogan
Helen V Cantwell
Matthew E. Fishbein
Mark P. Goodman
James E. Johnson
Andrew M. Levine
Kristin D. Kiehn
Jacob W. Stahl
Jonathan R. Tuttle
HOLDER’S PROPOSAL FOR A “RESPONSIBLE CORPORATE OFFICER” DOCTRINE IN
FINANCIAL FRAUD PROSECUTIONS
Holder’s speech focused on the financial services industry, expressing concern that:
“in an age when corporations are structured to blur lines of authority and prevent
responsibility for individual business decisions from residing with a single person
. . . at some institutions that engaged in inappropriate conduct before, and may yet
again, the buck still stops nowhere.”
Consequently, Holder questioned “whether the law provides an adequate means to hold
the decision-makers at these firms properly accountable.”
Holder cited three laws designed to ensure that “the buck needs to stop somewhere where
corporate misconduct is concerned”: (1) “Park” liability; (2) the Sarbanes-Oxley (“SOX”)
requirement that senior executives certify financial statements; and (3) regulatory reforms
in the United Kingdom (“U.K.”) that will require senior bank executives to file a
“statement of responsibilities” with regulators.
Holder suggested considering these approaches and modifying laws “where appropriate.”
Although Holder said that “[i]t would be going too far to suggest reversing the
presumption of innocence for any executive, even one atop the most poorly-run
institution,” he emphasized that “we need not tolerate a system that permits top
executives to enjoy all of the rewards of excessively-risky activity while bearing none of
PARK LIABILITY FOR FINANCIAL EXECUTIVES WOULD REQUIRE LEGISLATIVE ACTION
The Park Doctrine
So-called Park liability arises out of Section 333 of the FDCA, which criminalizes the
distribution of adulterated or misbranded food, drugs, and medical devices in interstate
commerce. 21 U.S.C. § 333. A misdemeanor violation under Section 333(a)(1) requires no
evidence of intent to defraud or mislead.
In United States v. Park, the case for which the Park doctrine is named, the U.S. Supreme
Court upheld a misdemeanor conviction under Section 333(a)(1) of the President and CEO
of a national retail food chain that distributed adulterated products. 421 U.S. 658 (1975).
The Court concluded that the FDCA “imposes not only a positive duty to seek out and
remedy violations when they occur but also, and primarily, a duty to implement measures
that will insure that violations will not occur.” Accordingly, guilt can be imputed to
anyone who, by reason of his or her position, has the “authority and responsibility” to
prevent or correct violations, and fails to do so, even if he or she did not participate in and
had no knowledge of the wrongdoing. The only defense to liability recognized by the
Court is when a corporate agent was “’powerless’ to prevent or correct the violation.”
The articulated policy rationale underlying this rare use of strict criminal liability is to
deter actions or conditions that may endanger public safety by imposing a high standard
of care on those responsible for distributing products for personal use and consumption.
Critically, the Park doctrine is applicable solely to the FDCA and does not apply to
industries not regulated by the Food and Drug Administration.
Financial Fraud Statutes Require Evidence of Knowledge or Intent
The criminal statutes available to DOJ to prosecute financial and white collar crimes each
require some form of knowledge or intent by the individual to engage in wrongdoing.
These statutes include mail fraud (18 U.S.C. § 1341); wire fraud (18 U.S.C. § 1343); false
statements (18 U.S.C. § 1001); bank fraud (18 U.S.C. § 1344); securities and commodities
fraud (18 U.S.C. § 1348); securities fraud (15 U.S.C. § 78ff(a)); and the Racketeer Influenced
and Corrupt Organizations Act (“RICO”) (18 U.S.C. § 1963). Even liability under the
Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), which is a civil
statute used by DOJ to bring multiple cases arising from the financial crisis, is predicated
on criminal acts requiring some form of knowledge or wrongful intent (12 U.S.C. § 1833a).1
As a result, Park liability cannot easily be imported to the criminal laws applicable to
financial fraud or even FIRREA. Imposing strict criminal liability would require legislative
action to amend these laws or enact a new statute. It is unlikely that Congress will soon
create a new category of strict liability crimes, as such crimes raise significant due process
concerns and run contrary to the fundamental principle that criminal justice is reserved for
intentional wrongdoing. Furthermore, the policy rationale for applying strict liability in
the food and drug context––where death can result from improperly stored or
manufactured products––is unlikely to carry comparable sway for financial crimes.
Holder mentioned two other laws as potential models for holding executives criminally
accountable, SOX liability and the U.K. reforms. However, neither law creates strict
criminal liability. Criminal offenses relating to false SOX certifications require evidence of
wrongful intent by the executive. Similarly, the only criminal offense introduced by the
1 We note that the Fifth Circuit decision in Harrison v. U.S., 279 F.2d 19 (5th Cir. 1960), holding that parts of 18
U.S.C. § 1005 have no intent requirement has not been followed by other courts (see, e.g., U.S. v. Pollack, 503 F.2d 19 (9th
Cir. 1974)), and has been questioned by the Fifth Circuit itself (U.S. v.Malone, 837 F.2d 670, 672 (5th Cir. 1988)).
U.K. reforms is limited to executives who make a reckless decision resulting in a bank’s
insolvency (and requires that the executive be aware that the decision could cause
insolvency). Neither law, therefore, provides a roadmap for applying strict liability to
financial fraud crimes.
ALTHOUGH PARK LIABILITY IS UNLIKELY TO BE APPLIED TO FINANCIAL CRIMES,
DOJ’S EMPHASIS SHOWS THAT SENIOR EXECUTIVES REMAIN UNDER SPOTLIGHT
Although it seems unlikely that strict criminal liability will be applied to financial crimes,
it is significant that the Attorney General considers such liability for financial executives to
be desirable. His comments suggest that because DOJ has found little evidence that senior
executives were complicit in criminal activity surrounding the financial crisis, the standard
should be lowered to make it easier to charge executives who have no knowledge of
misconduct, much less intent to commit such misconduct.
Holder’s comments assume even more significance when considered alongside Deputy
Assistant Attorney General Miller’s comments on the same day.
Miller outlined the lengths to which companies must go to obtain full cooperation credit
from DOJ under the so-called “Filip factors,” which guide the exercise of prosecutorial
discretion about whether to criminally charge a company. Miller stated, “[i]f you want full
cooperation credit, make your extensive efforts to secure evidence of individual culpability
the first thing you talk about when you walk in the door to make your presentation.”
Miller urged companies cooperating with DOJ criminal investigations to “make securing
evidence of individual culpability the focus of your investigative efforts so that you have a
strong record on which to rely.” Together, Holder’s and Miller’s statements reflect an
increasing focus on holding senior corporate executives accountable for misconduct within
their companies, a focus that will likely continue unabated for the foreseeable future.
Lessons can be drawn from the use of Park liability in the health care industry. Park
prosecutions in fact have been fairly uncommon, and typically defendants have had at
least some level of knowledge of wrongdoing, although there are exceptions. Industry has
called for the government to be judicious in its use of this powerful weapon, and even the
Supreme Court has recognized the role of prosecutorial discretion in preventing abuses.
The practical effect of the threat of Park liability has been that many health care companies
have strengthened their compliance programs and involved their Boards of Directors more
closely in oversight of regulatory and legal issues. Undoubtedly, that is a key motivation
behind Holder’s comments—to spur companies and executives in the financial services
industry to undertake measures to build more robust compliance systems, ensure a free
flow of information to senior executives, and involve executives more intimately in
overseeing operations at their companies that raise regulatory and legal risks. There are
actions that financial companies and executives can take now, even in the absence of
statutory change, which should help prevent wrongdoing and also protect executives
against DOJ scrutiny if issues occur on their watch.
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September 22, 2014