Toward improving the law and policy of corporate criminal liability and sanctions.

• Author: Schwartz, Irwin
• Position: Reducing Corporate Criminality: Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform

1. INTRODUCTION

   Prosecutorial discretion is a hallmark of the American criminal justice process. Prosecutors have "broad ... [but] not completely unbridled" (1) discretion in choosing whom to prosecute, for what offenses, and to what extent. Guiding the exercise of that discretion is critical to public confidence in the criminal justice process. The Department of Justice ("DOJ")'s efforts have served as a focal point for discussion of public policy. At times its policy statements have provoked debate, and the debate led to policy changes. Other changes in policy or substantive law continue to be discussed and should be addressed in hopes of improving our process and assuring that appropriate goals are set and met in the administration of criminal justice.

   In this paper, I comment on the DOJ's policies from my perspective as a white-collar defense lawyer. I have focused particularly on the policies as they relate to a corporation (and other organizations which I refer to collectively as corporations) that faces potential prosecution for an employee's acts that were unknown to it, contrary to its policies, and contrary to its interests. I address the law of corporate criminal liability (Part II), the overbreadth of respondeat superior criminal liability (Part III), the origins and development of the DOJ's policies (Parts IV and V), and areas in which I believe change would benefit the criminal justice process (Part VI), including:

   1. Establishing an affirmative defense to respondeat superior criminal liability, based on a corporation's compliance efforts.

   2. Modifying current DOJ policy to exclude a corporation's post-offense cooperation and remediation from factors to evaluate in determining whether it should be prosecuted.

   3. Modifying current DOJ policy on offenses committed by "rogue employees." Current policy is that prosecution of a corporation "may not" (2) be appropriate in such circumstances. I suggest the more emphatic policy that prosecution "is not" appropriate.

   4. Adding guidance on when financial penalties should be sought against a corporation, and if so, how to determine an appropriate amount. In 2009, the DOJ committed to writing policy in this area but has not done so to date.

2. THEORIES OF CORPORATE CRIMINAL LIABILITY

   The United States Code defines a "person" to "include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." (3) But no provision in Title 18 U.S.C. specifies the elements of corporate criminal liability. In the last hundred years, four separate theories of corporate liability have been applied in our courts:

   * A corporation may be liable if it authorizes unlawful conduct by its agents or employees. (4)

   * A corporation may be liable based upon "collective knowledge" of all of its employees, although no single employee could be found liable. (5)

   * A corporation may be liable if it ratifies unlawful conduct, after learning of it. (6)

   * A corporation may be liable based on the doctrine of respondeat superior. (7)

   Of these theories of liability, respondeat superior is used most commonly in federal prosecutions. In 1909, the Supreme Court extended "only a step farther" the common law torts rule of respondeat superior, and held that Congress constitutionally may create corporate vicarious criminal liability. (8) In the years since, relatively few decisions construed that broadly stated proposition. There has been

   increasing criticism of it, including analyses by two former Attorneys General of the United States. (9)

   An indictment charging a respondeat superior theory of liability usually alleges that a crime was committed by a corporation "by and through its agents and employees, acting in the scope of their employment and for the benefit of [the corporation]." (10) There are three elements of respondeat superior criminal liability: (1) a crime was committed by a person who was an employee or agent of a corporation; (2) the employee or agent was acting within his or her authorized scope of employment (read broadly); and, (3) the employee or agent acted with intent to benefit the company, at least in part. (11)

   It is sometimes easier to convict a corporation on a respondeat superior theory of liability than it is to obtain a punitive damages judgment against it. For example, in Kolstad v. American Dental Association, the Supreme Court limited punitive damages under respondeat superior to instances in which a tortious act was committed by an employee acting in a managerial capacity. (12) No Court of Appeals has afforded similar protection to a corporate criminal defendant (13); an employee at any level of a corporation can expose his or her employer to criminal penalties.

   Second, the Supreme Court recognized as "an affirmative defense to [civil] liability that the employer had exercised reasonable care" to avoid misconduct by managerial employees. (14) From a policy perspective, it observed:

   It would therefore implement clear statutory policy and complement the Government's ... enforcement efforts to recognize the employer's affirmative obligation to prevent violations and give credit here to employers who make reasonable efforts to discharge their duty. Indeed, a theory of vicarious liability for misuse of supervisory power would be at odds with the statutory policy if it failed to provide employers with some such incentive. (15) No comparable affirmative defense has been recognized in a criminal case. A corporation's compliance efforts, however great, do not bar criminal liability. When evidence of compliance efforts is received in a criminal trial, the Courts of Appeals are divided on whether it bears on an employee's intent to benefit his employer, (16) or on whether the employee acted in the scope of employment, (17) or both. (18) United States v. Sun-Diamond Growers of California (19) epitomizes how unfairly criminal liability may be imputed vicariously to a corporation.

   Sun-Diamond Growers of California was an "agricultural cooperative owned by individual member cooperatives" that grew and sold fruit and nut products. (20) Richard Douglas was Sun-Diamond's in-house lobbyist. (21) Douglas unlawfully furnished gratuities to then-Secretary of Agriculture Mike Espy, and made unlawful campaign contributions to his brother, Henry Espy. (22) Sun-Diamond funds paid for all that Douglas provided to the brothers Espy. (23) It was prosecuted on a respondeat superior theory of liability. (24)

   Defending against the campaign funds charges, Sun-Diamond argued that Douglas defrauded and deceived it, and that in consequence respondeat superior liability should not attach. (25) Although the Court of Appeals observed, "Sun-Diamond does look more like a victim than a perpetrator" on those charges, it upheld the convictions. (26) It reasoned that a jury could conclude that Douglas "was acting ... with an intent (however befuddled) to further the interests of his employer" by currying favor with Secretary Espy. (27)

   For a corporation victimized by an employee's deceit, the Court of Appeals concluded that federal law provided no protection, and "the only thing that keeps deceived corporations from being indicted for the acts of their employee-deceivers is not some fixed rule of law or logic but simply the sound exercise of prosecutorial discretion." (28)

3. GUIDING THE EXERCISE OF DISCRETION WITHIN THE DEPARTMENT OF JUSTICE

   In the late 1970's the DOJ issued policies to guide its lawyers in the general exercise of prosecutorial discretion. (29) In 1999, the first of a series of corporate policy guidelines was issued by then-Deputy Attorney General Eric H. Holder, Jr. (30) His policy statement has been refined and revised repeatedly since 1999, each iteration commonly referred to by the name of the Deputy Attorney General who signed it. (31) The current policy statement appears in the U.S. Attorneys' Manual, [section] 9-28.000 (2008), as "Principles of Federal Prosecution of Business Organizations" ("the Principles"). (32) Parts of the DOJ's policy were criticized by former senior members of the DOJ, (33) the Bar, (34) courts, (35) and the business community. (36) The 2008 Filip Memorandum (37) ameliorated some of that criticism, (38) but not all. (39)

   The Principles have been supplemented by DOJ policy on the use of monitors in deferred prosecution and non-prosecution agreements. (40) Such agreements and the use of monitors to implement them have also been a source of criticism, (41) and subsequent amendment. (42)

   Most recently, the DOJ and the Securities and Exchange Commission published "A Resource Guide to the U.S. Foreign Corrupt Practices Act," (43) which may be viewed as an amplification or explication of policies included in the Principles.

   In addition, some DOJ agencies have separate policies guiding their attorneys' discretionary decisions. For example, the Antitrust Division has a "Corporate Leniency Policy." (44) In some ways it is more detailed and rigid than the Principles.

   For example, it states a "first in-first out" rule, not found in the Principles: "[t]he Division grants only one corporate leniency per conspiracy, and in applying for leniency, the company is in a race with its co-conspirators and possibly its own employees who may also be preparing to apply for individual leniency." (45) In contrast, the Principles do not limit the number of organizations to which leniency may be extended, and requires only "the corporation's timely and voluntary disclosure of wrongdoing." (46)

   Finally, government agencies other than the DOJ have their own voluntary disclosure and leniency programs, which may or may not be approved by the DOJ. For example, the Tax Division of the DOJ worked in concert with the Internal Revenue Service to establish a voluntary disclosure program for taxpayers who failed to report offshore bank accounts and avoided the consequences which otherwise might have attached. (47)

   In contrast, the...