Educating compliance.

AuthorPodgor, Ellen S.
PositionAchieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance

INTRODUCTION

The most effective way to achieve corporate compliance is to have individuals comply with the law. After all, a corporation has no human attributes to act or form the required mens rea of the crime. (1) Rather, it is the individuals within the corporation that qualify this legal fiction for criminal prosecution. Corporate criminality evolved as a concept to allow entities to be punished for criminal acts (2) committed by either high managerial agents within the entity (3) or agents acting in a respondeat superior capacity, with jurisdictions differing over the level of individual participation needed for a criminal prosecution. (4) Although the success of corporate compliance is threaded to the conduct of individuals within the corporation, (5) the two parties (corporation and individual) are often placed at odds with each other by prosecutors. (6)

Prosecutors proceed with deferred prosecution agreements that entail providing benefits to the corporation, oftentimes contingent upon the corporation providing information of employee wrongdoing to the government. (7) Corporations can basically pay a hefty fine to the government, but avoid the collateral consequences of a conviction, by agreeing to a deferred or non-prosecution agreement with the Department of Justice (DOJ). (8) These agreements recognize the importance of continuing the business, yet also provide for punishment for past misconduct. (9) The value of these agreements to the corporate entity, the shareholders, the workers associated with the company, and consumers who may benefit from the product produced by the company, is clear. They may suffer some loss, (10) but the company can continue to do business. (11)

These agreements, however, can place individuals within the company as the defendants in criminal cases, and defendants operating at an enormous disadvantage because of the corporation's desire to relieve itself of criminal liability by providing extensive cooperation to the government. Individual defendants may face corporate disdain because of the desire of the corporate directors to minimize the losses to the company. The corporate disenfranchisement faced by these individuals can include a loss of their attorney-client privilege, (12) company provided counsel representation, and most importantly losing the support and recognition that the company had provided them in the past. (13)

Clearly some of the individuals who are prosecuted have knowingly committed acts for which they received a personal benefit and deserve prosecution and punishment. But there are also cases where the individual is acting to please corporate superiors or to meet corporate agendas, and the individual perpetrator has received no personal profit or gain. (14) Finally there are corporate leaders, such as CEOs or CFOs who may have taken the corporation down a path that ignored the law. (15)

Irrespective of the guilt or innocence of the alleged corporate perpetrators, this Essay argues that pitting the corporate entity against the individual is an unusual construct for achieving compliance. This reactive model looks at punishing misconduct to achieve compliance with the law. Focusing more resources on the front end and using a pro-active model to achieve compliance would keep the corporate structure whole and yet also provide a sound basis for eradicating corporate criminality. This Essay proposes that an education model be implemented, with the government more actively participating in promoting compliance with the law.

I REACTIVE MODELS TO ACHIEVE COMPLIANCE

Reaction is the hallmark of our criminal justice and political system. An extraordinary event typically triggers new legislation and government response. For example, the discovery of hundreds of companies paying significant money to foreign officials links to the passage of the Foreign Corrupt Practices Act. (16) Likewise, one has to wonder if the Sarbanes-Oxley Act would be a reality but for the corporate and accounting scandals surrounding the Enron debacle. (17) Corporate criminality appears to be no different, with a reactive model as the norm and pro-active approaches often left for private entities to establish and administer.

Many scholars focus on the prosecution of corporate criminality as a means to achieve deterrence or rehabilitation. (18) Professor Peter Henning stresses the importance of having punishment of corporate criminal liability serving an "expressive function" in society. (19) Professor Pam Bucy looks at "corporate ethos" in imposing criminal liability. (20) Others claim that corporate criminality serves no valid legal function (21) or should be discarded or usurped with the use of civil remedies. (22) Some want to see the doctrine refocused. (23) For example, Professor Miriam H. Baer looks at the importance of examining "linkage"--"the connection between cessation of future wrongful conduct and punishment for prior wrongful conduct." (24) But these articles discussing corporate criminality for the most part provide for an after-the-fact approach to curtailing corporate misconduct. They look at how different responses to the transgressions of law can assist in preventing future improprieties. Even the deferred and non-prosecution agreements of the government are reactive as they often include monitoring to prevent future criminal activities. This happens only after there has been a determination or agreement that misconduct has occurred.

Pitting the corporation against individuals within the entity is a component of the government's use of a reactive model to counter criminality. By securing evidence from the company, the prosecutor has eased the investigative burden when proceeding against the individual wrongdoer. But there are repercussions to using the entity to gather evidence and play a cooperating role in the prosecution of individuals within the corporation. (25)

A highlight of most deferred prosecution agreements is a requirement that the corporation cooperate with the government by providing evidence of wrongdoing by individuals within the company. This can include documents and any other materials that might be requested by the government. (26) For example, in the KPMG deferred prosecution agreement the company agreed to provide information on "present and former partners, employees, and agents of KPMG" (27) and that their obligation to cooperate would continue even after the dismissal of the Information against them. (28)

Although this cooperation serves to close criminal cases more efficiently, it removes a level of trust between the entity and its employees. Employees may be less likely to ask for the assistance of corporate counsel when faced with legal issues if they fear that this might later expose them to criminal liability. (29) Because the prosecution is operating by using a reactive model, the focus is on the immediate issue--prosecuting the individual who acted illegally.

The few instances of pro-active efforts to achieve compliance usually result from the corporate guidelines that provide a reward to companies that have effective programs (30) and court decisions that emphasize the need to have compliance measures in place to avoid civil suits. (31) But these naked efforts serve only as threats for non-compliance or benefits that can accrue when there has been compliance, as opposed to efforts that might educate to assure compliance. Further, the efforts typically are private company responses to these government threats and benefits.

The Sentencing Guidelines for Organizations provide benefits to companies being sentenced for criminal wrongdoing when they have in place an effective compliance program. The programs that companies implement do not require that they have a perfect scorecard on compliance, but the Guidelines do say that an effective compliance and ethics program shall "exercise due diligence to prevent and detect criminal conduct" and "promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law." (32) Minimal standards are set forth to achieve "due diligence and the promotion of an organizational culture that encourages ethical conduct and a commitment to compliance with the law." (33) These include seven points such as "establish[ing] standards and procedures to prevent and detect criminal conduct" (34) and "[a]fter criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program." (35) Commentary to the guidelines provide additional explanation of the "factors to consider in meeting requirements of this guideline." (36) The bottom line, for the purpose of this Essay, is that companies that engage in criminal activity can reduce their fine and sometimes their criminal exposure by having an effective...

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