Corporations cry uncle and their employees cry foul: rethinking prosecutorial pressure on corporate defendants.

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Corporations cry uncle and their employees cry foul: rethinking prosecutorial pressure on corporate defendants.

ABSTRACT

Judge Kaplan's sharp criticism of the government's tactics in the July 2006 KPMG decision, United States v. Stein, highlighted the federal prosecutorial policy, embodied in the so-called Thompson Memorandum, of pressuring corporations to cooperate with investigations against their employees. While this decision has been hailed as placing overdue checks on runaway prosecutorial power, this Article suggests that such views misdiagnose the problem. The source of prosecutorial leverage stems not from abuse of power, but from a century of expansion of corporate criminal liability. Corporations are exposed to almost certain conviction for the misconduct of even one rogue employee under the doctrine of criminal respondeat superior. Discussion of the problem to date focuses narrowly on either perceived prosecutorial excesses or the proper scope of corporate criminal liability. This Article fills the gap in the literature and joins these two debates by suggesting that it is precisely court-created liability rules that embolden the prosecutor and cow the corporation. There is little sustained and serious examination of the likelihood and desirability of reining in prosecutorial power through a tightening of the standards for corporate criminal liability.

This Article traces the development of the broad rule of vicarious corporate liability; outlines features of current prosecutorial guidelines that exploit the broad liability rule; and argues that the best way to rein in prosecutorial power is through tightening the standards for corporate criminal liability. The Article concludes with a look at various liability-narrowing alternatives that should be analyzed further for their potential impact on the prosecutor-corporation negotiation dynamic.

INTRODUCTION

In the recent and much-heralded corporate crime case, United States v. Stein, (1) a federal judge sharply rebuked the government for, among other things, coercing accounting giant KPMG into interfering with its employees' Sixth Amendment right to counsel and Fifth Amendment right against self-incrimination. In a June 2006 opinion, the court wrote that the government, by virtue of the threat of prosecution, had "held the proverbial gun to [KPMG's] head." (2)

The focus of Judge Kaplan's ire was a set of written prosecutorial guidelines promulgated by the Department of Justice, known as the Thompson Memorandum. (3) In the view of the Stein court--and that of many recent critics--those (now superseded) guidelines encouraged prosecutors to employ indiscriminate and unjustifiably heavy-handed tactics in compelling corporations to cooperate in criminal investigations. (4) Such tactics included conditioning lenient treatment on a corporation's willingness to eschew joint defense agreements, waive attorney-client and work product privileges, fire uncooperative employees, and discontinue the payment of legal fees of employees with criminal exposure. Critics have attacked such policies as extortionate, (5) arrogant, (6) exploitative, (7) and more. Debate over these tactics reached a crescendo in the Stein case.

This Article attempts to place the current debate in better jurisprudential perspective and proposes that, notwithstanding the KPMG case, efforts to reduce the risk of prosecutorial excess are, in the long run, better directed at the source of prosecutors' leverage rather than at their conduct. Thus, this Article explains that the "proverbial gun"--though wielded by prosecutors--was licensed and loaded by a century of Supreme Court jurisprudence that has encouraged prosecutors to take dead aim, not just at the individual miscreants responsible for corporate crime, but at the business organizations that employed and arguably enabled them. The courts have obligingly stocked the federal prosecutor's arsenal with legal doctrines whose effect has been to expose business organizations to maximum criminal liability. During the same period, courts have depleted the corporation's available defenses, so that today a business entity faces indictment and almost certain conviction if there is so much as one low-level criminal actor in the organization. This legal state of affairs has been decried by virtually every commentator who has thought to study it. (8)

The literature to date, therefore, reflects two separate but related ongoing debates. One, gaining steam for the better part of only the last decade and culminating in Stein, focuses narrowly on perceived prosecutorial excesses in obtaining cooperation from corporations as allegedly encouraged by coercive Justice Department guidelines. The other debate, raging for the better part of the last century, centers more generally on the proper scope of corporate criminal liability. (9)

Participants in the first debate direct virtually all of their attention to the use (and perceived misuse) of prosecutorial discretion, with little discussion of the salutary effect a narrower liability rule might have on th...

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