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

Author:Bharara, Preet


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.


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 the exercise of that discretion. (10) It is, one supposes, easier to lament today's overreaching prosecutors than yesterday's rule-expanding judges. Meanwhile, participants in the second debate seldom consider how their proposals for change might affect the exercise of prosecutorial discretion and whether that effect further militates in favor of the particular proposal. Thus, while many scholars have suggested that the corporate criminal liability rules should be narrowed (or eliminated altogether), (11) none of these proposals is grounded on the premise that a narrower rule would serve as a more reasonable check on the risks of prosecutorial overreaching against corporations and interference with individual defendants' rights and privileges. Indeed, 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 rules.

This Article aims to join these two debates, for arguments about the proper scope of liability and the proper scope of prosecutorial power are, in the corporate crime context, inextricably intertwined. It is, after all, the court-created liability rules that embolden the prosecutor and cow the corporation.

Part of this disconnect in the literature is perhaps due to the defeatist view that because the courts and Congress will do little to rein in prosecutorial discretion, (12) efforts are best aimed at the prosecutors themselves. This Article disputes that view. It contends that courts, commentators, and practitioners should more seriously consider the connection between the overbroad corporate criminal liability rule and the risk of overreaching by prosecutors who use their legally--conferred blank check to ferret out corporate crime.

Directing efforts only towards prosecutorial conduct is inadequate. (13) Without fixing the underlying rule, any reform, even if effective, risks being temporary, insecure, and limited to the particular excess to which it is directed, and others may spring up in the place of the eliminated abuse. Changes to prosecutorial guidelines, which do not have the force of law, are always subject to the changing priorities, sensibilities, and political considerations of the next Administration. (14) Thus, commentators, courts, and Congress should spend more time thinking about reforming the source of the potential problem (overbroad rules) than attacking one of its possible symptoms (overreaching prosecutors).

Whether Stein assumes watershed status or that of a lonely bulwark against perceived governmental excess remains to be seen. Meanwhile, whether or not one believes that federal prosecutors in fact abused their discretion in dealing with KPMG or are doing so in other cases under the auspices of the DOJ guidelines, it is beyond dispute that the potential for excess will continue to loom large so long as prosecutors may persuasively (and legally) threaten to indict, and thus potentially destroy, any company, no matter how blameless, for the misdeeds of a single, low-level rogue employee.

This Article proceeds as follows. Part I traces the development of the broad rule of vicarious corporate liability. In particular, it notes the decidedly utilitarian streak in a series of Court decisions, which repeatedly sided with the government over corporations and individual defendants in disputes over claims of liability and privilege. Part II outlines the features of the most recent DOJ prosecution guidelines, with special attention to those documents' conscious, though seldom-mentioned, reliance on the legal authorities that render prosecutorial discretion so vast. This emphasis underscores that in the minds of prosecutors themselves, their bargaining power derives unmistakably and primarily from a series of deferential court decisions, suggesting that such leverage would naturally shrink to more reasonable proportions in the wake of Congressional or judicial narrowing of those same decisions. Part III describes the most persistent attacks on the practices condoned by the DOJ guidelines, in particular the charge that cooperation is unfairly extorted from corporations, to the detriment of individual defendants. This part also assesses the critique of the corporate cooperation model by comparing it to the traditional cooperation model in the non-white collar context. Part III ends with a discussion of the extent to which the KPMG case in fact vindicates the criticisms of the harshest Thompson Memorandum critics, concluding that those critics have no reason to be sanguine, as the scope, reach, and influence of that case may not be as sweeping as they hope. Part III's conclusion further supports the thesis that the risk of governmental overreach is best curbed, not by challenging particular practices, but more fundamentally by reforming the underlying legal rules that have created outsized prosecutorial discretion. The Article concludes, finally, with a look at...

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