Criminal procedure within the firm.

Author:Buell, Samuel W.

INTRODUCTION I. THE DEBATE AND ITS THREE CHIEF ISSUES II. THE DISTINCTIVE SETTING OF THE FIRM A. Causation and Sanctioning of Criminal Wrongdoing 1. Causation and ex ante effects 2. Detection and ex post effects 3. Enterprise liability B. Slow Ripening of Substantive Liability C. Multiple Roles of Counsel III. PURSUIT OF INDIVIDUAL CRIME WITHIN FIRMS A. Statements and the Fifth Amendment 1. The Fifth Amendment a. Normative theories of self-incrimination b. Positive Fifth Amendment law 2. The firm context and prescriptions B. Selection and Funding of Counsel 1. The Sixth Amendment and indemnification 2. The firm context and prescriptions a. Effects of the firm b. Slow ripening of the criminal case c. Special roles of counsel d. Prescriptions IV. ADDITIONAL PROBLEMS A. Overbreadth of Enterprise Liability B. Institutional Roles and Competency C. Firms' Attorney-Client Privilege and Work-Product Claims CONCLUSION INTRODUCTION

The law and basic commitments of criminal procedure, though subject to unending contest at their margins, are reasonably mature. They have developed mostly in terms of a binary model of the individual's relationship to the state and its enforcement personnel. This model naturally leaves a gap. When the state investigates and prosecutes crime committed within legal organizations--that is, crime on the job--a third player, the legal entity, is present. The presence of a legal entity implies the need for a tripartite model and generates the intuition that existing theory and doctrine about criminal procedure might be incomplete or inadequate for this setting.

Insufficient attention has been paid to basic structural differences that distinguish the process by which the state pursues imposition of criminal sanctions on an individual who violates the law on the job from the process by which the state deals with crime "on the street." (1) Both the state and the individual face special problems when encountering each other within the setting of the firm. To determine what procedures are necessary for the state to accomplish regulatory objectives and for the individual to receive due protections, the nature and implications of this setting must be understood. Voluminous literatures grapple with the imposition of civil and criminal enterprise liability on firms and with the relationship between the individual and the state when the individual acts at large. Little has been written about the application of criminal procedure to the individual who acts within a legal organization.

The state is increasingly active in the pursuit of "corporate wrongdoing," a term that elides the distinction between wrongdoing by people within firms and wrongdoing by firms--or, more precisely, the attribution of individual wrongdoing to firms for sanctioning purposes. Given the increase in state activity and the lack of careful attention to the particular problem of criminal procedure within firms (as opposed to against them), (2) it should not be surprising that public controversy has erupted and that the ensuing discussion has, to date, been shallow and even shrill. (3)

In broad terms, business firms and the organized corporate bar are waging a sustained campaign of public criticism of the state (primarily, but not exclusively, the federal government), focused on the claim that criminal prosecutors and civil regulators have been overreaching in matters of procedure within firms by using their charging and settlement leverage to eliminate all manner of impediments to information gathering. The critics have not been precise about what they see as the problem with the state's current enforcement methodologies. Sometimes the charge seems to be that the state is doing violence to basic procedural protections for the individual--that is, treating the firm's agent unfairly, either generally or in relation to the actor on the street. At other times, the charge seems to be that the state is tilting the adversary process between itself and firms out of balance, by depriving firms of information control and bargaining power--presumably (though this is rarely specified) resulting in undesirable risk of errors in the legal system. (4)

With more clarity, the critics have described three specific procedural practices as objectionable and their complaints have triggered measures to change law and policy in those areas. The practices are state use of the fruits of employer coercion of employees to waive their rights to silence, state negotiation with firms over firms' indemnification of their agents for litigation costs, and state negotiation with firms over the scope of firms' assertions and waiver of their attorney-client privilege. The reform measures are two-fold at present. Senator Arlen Specter recently introduced a bill in Congress designed to prohibit the state from pursuing, encouraging, or making use of the fruits of any of these three practices. (5) Shortly thereafter, the Department of Justice (DOJ) issued new guidelines (known as the "McNulty Memo"), revising its practices for how federal prosecutors handle organizational criminal cases, in ways designed to reduce the incidence of two of the three practices (privilege waivers and negotiation over firms' indemnification of their agents). (6)

In this Article, I have two objectives. My first goal is to establish what I see as the most useful orientation for evaluating procedural practices involved in the state's pursuit of individual wrongdoing within firms. I will demonstrate that the firm setting for criminal procedure is analytically distinct for several reasons, including that the phenomenon of wrongdoing itself differs in how it occurs within firms; that the state faces unique obstacles to the detection and proof of wrongdoing when it occurs within firms; that the kinds of wrongdoing that typically occur within business firms take substantially longer for the legal system to sort out than "ordinary," or street, crime; and that a key actor in the legal process--counsel--has multiple and very different functions in the firm setting.

Taken together, these characteristics of legal violations within firms lead to the conclusion that any effort to equate "ordinary" criminal procedure with criminal procedure within firms, or to attempt to simply transpose the doctrine and practices associated with the street to the firm, is a mistake. Not only is the social setting distinctive but so is the legal landscape: the individual's relationship to the state in the criminal process is ordinarily thought to be mediated by the Constitution as well as by statutes and rules purposely directed at criminal procedure; in the firm context, the state's pursuit of criminal sanctioning is controlled by a wider array of rules, norms, and incentives, including privilege law, substantive and vicarious liability regimes, contractual arrangements, economic incentives, and the nature of the firm.

My second objective is to demonstrate how seeing these differences in context reduces worry about the state's current practices and leads to a response to the calls for reform that, at most, would modestly restrain the state in some respects. To accomplish this, I will examine the two points of controversy that most directly concern the position of the individual in the criminal process within firms: the treatment of statements and their Fifth Amendment implications, and firms' indemnification of their agents for litigation costs. In terms of law, my conclusions will be that efforts to prohibit state involvement in these matters, including Senator Specter's bill, are seriously misguided and that the DOJ's recent changes to its policy controlling corporate investigations are inadequate in some respects and overly reactive in others.

My discussion will proceed as follows. In Part I, I will describe in more detail the public debate and the three issues of doctrine and practice that most trouble firms and their advocates at present. In Part II, I will describe the distinctive landscape on which wrongdoing within firms occurs and is sanctioned, by examining the three most salient structural features distinguishing the firm setting: the causal influence of firms on the incidence and sanctioning of crime; the slow maturation of criminal cases involving sophisticated economic activity; and the multiple roles performed by lawyers, both ex ante and ex post, with regard to actual and potential misconduct within firms.

In Part III, I will closely examine two of the issues of law and policy involved in current debate. First, I will consider the treatment of individuals' statements, particularly those resulting from employer coercion of employees to waive the right to silence and the state's encouragement of, and use of the fruits of, such compulsion. Second, I will deal with the state's involvement in firms' funding and selection of individual counsel. In each case, I will derive conclusions about desirable law and policy from consideration of the structural features of investigating wrongdoing within firms developed in Part II.

In Part IV, I will briefly address three important issues that cannot, but also need not, receive full treatment in this Article: the overbreadth of the law of criminal enterprise liability; the question of which institutions should make legal policy in this context; and one issue of doctrine and practice that is at the center of current debate but does not directly involve the procedural position of the individual rather than the firm--that is, the state's encouragement of firms to waive attorney-client privilege and work-product claims.

  1. THE DEBATE AND ITS THREE CHIEF ISSUES

    Critics assert that the state, principally through the DOJ but also through the Securities and Exchange Commission (SEC) and other regulators, has routinized three practices in the investigation of wrongdoing within firms that are troubling enough to call for their being severely limited if not banned. All three...

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