Is the Corporate Criminal Enforcement Ecosystem Defensible?

• Author: O'Sullivan, Julie R.

1. INTRODUCTION 1047 II. THE COSTS OF CORPORATE CRIME 1054 III. THERE IS NO EVIDENCE THAT THE CORPORATE ECOSYSTEM WORKS TO FURTHER THE PURPOSES OF PUNISHMENT 1056 IV. CORPORATE CRIME IS TREATED VERY DIFFERENTLY THAN STREET CRIME, CREATING A LEGITIMACY CRISIS 1058 V. CORPORATE POWER AND INFLUENCE 1062 VI. UNCONSCIOUS BIAS 1065 VII. WHAT IS TO BE DONE? 1069 I. INTRODUCTION

   A remarkable amount of ink has been spilled on the subject of corporate criminal liability--whether we should have it, what standards ought to apply, and how it ought to be administered. What is rarely discussed is how this piece of the criminal justice system fits into the overall federal criminal enforcement universe. White-collar enforcement is its own ecosystem, with its own political economy that requires that the threat of corporate criminal liability exist to maintain a status quo that benefits all of its participants--lawyers, corporations, and prosecutors alike. What does that ecosystem look like, how does it compare to the functioning of the federal criminal system addressed to non-white-collar criminality, and how can the differences between them be explained--and justified?

   It has been widely acknowledged that, compared to many drug, immigration, or simple fraud cases, investigating corporate crime is difficult. That said, with sufficient effort and resources, it is possible to bring corporations and their executives to account. We have had corporate crime waves in the past, and criminal convictions have followed. (1) Yet, after the financial crisis of 2008, which grew out of banks' handling of mortgage-backed securities, not a single high-ranking executive went to jail. This is despite the fact that many millions lost their jobs, their homes, and their savings; the recession that followed is said to have destroyed over $30 trillion of world wealth. It is not difficult to identify other cases of white-collar individual immunity from accountability in the recent past. (2) The empirical reality now is that very few large corporations are criminally sanctioned, and very few corporate executives go to jail. (3)

   What is going on here? Although we have no way of knowing just how much corporate criminality exists, there is no reason to believe that corporations or their executives have become more law-abiding. (4) So, what accounts for this lack of criminal accountability?

   Over the last few decades, the government has engineered or taken advantage of a variety of circumstances that have forced corporate America to forge a crime-fighting partnership with the government--in effect, compelling corporations to clear away some of the obstacles to their own potential liability. (5) The primary such circumstance is the threat of the criminal sanction under a respondeat superior standard of corporate liability that is exceedingly easy to satisfy. Many have argued that corporate criminal liability is unnecessary or perhaps even counterproductive because the criminal stigma adds nothing to the deterrence that civil remedies can achieve. (6) Although, as explored within, the threat of the criminal stigma may not be sufficiently proximate to deter the wrongdoing in the first instance, it has achieved its current primary purpose in the white-collar ecosystem: forcing "good citizen" corporations to cooperate extensively with government efforts to bring them to account and enhancing the government's ability to force corporations to some sort of settlement in return for leniency for the corporation and, derivatively, its executives.

   First, once corporations are within prosecutors' sights, the threat is real: Convicting a corporation under the respondeat superior standard is like shooting fish in a barrel with a cannon. Few, if any, large corporations contemplate actually contesting their liability through trial. Second, such is the in terrorem effect of a potential criminal sanction that corporations are willing to undertake otherwise unthinkable steps at the behest of prosecutors.

   Corporations will begin by tasking counsel to investigate: "Internal investigations have their costs, but, given the imperatives created by statutory, regulatory, prosecutorial, sentencing, civil liability, and corporate law pressures, 'the internal investigation has become the standard of care whenever credible allegations of significant misconduct are raised in organizational settings.'" (7) Where government authorities are--or are likely to become aware of the allegations, counsel for the corporation almost always cooperate extensively with prosecutors--even taking their guidance in the conduct of the investigation--and report the results to the government. These investigations can cost hundreds of millions of dollars in attorneys' fees and other expert assistance; in some cases, the costs of the self-inculpating investigation can exceed the ultimate penalties imposed. (8) During the investigation, companies may be willing to exacerbate their potential financial exposure by waiving the attorney-client privilege and work product doctrine, thus exposing counsel's roadmap to liability to plaintiffs in collateral civil litigation. Certainly, companies pay enormous sums in disgorgement, fines, and remedial measures to avoid the criminal stigma. And as part of these settlements, companies may accede to intrusive ongoing government oversight of their compliance efforts for a potentially long period of time, including the potential for the appointment of an expensive and invasive monitor.

   It is fair to assume corporations would not willingly take these steps out of a sense of civic responsibility. They do so because their cost-benefit analysis dictates that the costs of self-inculpation and settlement are less than the costs of a conviction--whether those costs be criminal fines, restitution, court-ordered monitoring, reputational effects, debarment from government contracting or de-licensing, financing problems, employee defections, customer or consumer confidence, or the like.

   The threat of criminal liability has also been instrumental in inducing firms to spend enormous sums of money instituting what are touted as "effective" compliance programs. "The trajectory of compliance expenditures over the past several decades may be traced to a good corporate citizenship movement in the mid-1990s where the government proposed a public-private sector partnership to combat corporate crime." (9) Such spending has increased to the extent that "[t]here soon will be as many enterprise-wide risk, audit, legal, and compliance professionals on the payroll of corporations in the United States as municipal police officers keeping our streets safe." (10) A central part of the DOJ's approach to corporate crime is its apparent belief that compliance programs are more effective than the criminal stigma in deterring future corporate wrongdoing--or at least in promptly detecting and remediating any misconduct. This can be viewed as a radical rethinking of the prosecutorial role and the purposes of criminal punishment of corporations pursuant to which the criminal stigma is employed as a potent threat allowing prosecutors to force corporations to "rehabilitate" themselves through structural and cultural reforms. (11)

   The government has increasingly concluded (rightly or wrongly) that, to achieve the optimal level of cooperation and compliance initiatives, it has to reassure corporations that such extraordinary measures will be worth their while. The critical blowback that the DOJ received after the indictment of Arthur Andersen LLP in 2002, which led to the firm's implosion, resulted in a new approach in organizational crime cases: the federal government's practice of disposing of big-business cases by using so-called deferred prosecution agreements (DPs). (12) These agreements generally provide that, in return for fulsome corporate cooperation in the investigation and other considerations, the government will, after a probationary period, dismiss or forego criminal charges against the organization. To induce the requisite cooperation, the DOJ has freely offered DPs, (13) or at least in some contexts, referrals for civil regulatory resolutions. (14) The DOJ, apparently believing that even these mechanisms were insufficient to induce the necessary degree of cooperation, recently adopted a program for Foreign Corrupt Practices Act (FCPA) matters that contemplates outright declinations founded on self-reporting and cooperation rather than, as is traditional, insufficient evidence. (15) It has also elected not to pursue cases criminally when the collateral consequences--such as suspension and disbarment from government contracting--would have unfortunate third-party effects. (16)

   Although there was a blip of corporate indictments around 2015, after the DOJ was criticized for relying too heavily on DPs, (17) few large corporations are now subjected to criminal sanctions even though they have imposed huge costs on society due to demonstrable wrongdoing. In the last years of the Obama Administration, the government "levied $14.15 billion in total penalties by prosecuting seventy-one financial institutions and thirty-four public companies. During the first 20 months of the Trump Administration, corporate penalties declined to $3.4 billion in total corporate penalties, with 17 financial institutions and 13 public companies prosecuted." (18) The number of white-collar prosecutions has been plummeting for years and is now at a 20-year low. (19)

   These policies and practices coincide with a lack of criminal accountability for persons within the corporations, as well as the corporations themselves. The deluge of criticism that followed the DOJ's failure to indict a single high-ranking individual after the 2008 recession led to the policy embodied in what is called the Yates Memorandum, issued in 2015. (20) That memo emphasized that prosecutors ought to focus on prosecuting individuals, not just...