- FCPA Professor - http://fcpaprofessor.com -

Three Cheers For Judge Rakoff

If you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.) (and not just because he looks like my Dad in a black robe).

Judge Rakoff recently wrote a review [1] of Professor Brandon Garrett’s book “To Big To Fail” and the below posts provides some excerpts and commentary.

Judge Rakoff writes:

“Under federal law, corporations can be held criminally liable if even a low-level employee, in the course of his or her employment, commits a criminal act that benefits the corporation. One might think, therefore, that federal corporate prosecutions, whether deferred or otherwise, would typically be accompanied by prosecution of the responsible individuals. But more often than not, this has not been the case, especially when large companies are involved. Rather, as Garrett and many others (including this writer) have pointed out, in recent years the federal government has brought many corporate prosecutions in which no employee has been prosecuted or even identified as criminally responsible.

This is especially true in the case of deferred prosecutions. According to Garrett, “in about two thirds of the cases involving deferred prosecution or non-prosecution agreements and public corporations, the company was punished but no employees were prosecuted.” This suggests that the Department of Justice has been persuaded by its own rhetoric that the main point of these agreements is to change corporate culture, so that company employees of all levels will be dissuaded in the future from committing company-related crimes.”

For years I have exposing the DOJ’s empty rhetoric concerning individual prosecutions in the FCPA context.  Indeed, last October I extended an open invitation to the DOJ to refute statistics published in this [2] post: since 2008,  75% of corporate FCPA enforcement actions have not resulted in any related enforcement action against a company employee.

More specific to the DOJ’s frequent use of NPAs and DPAs in the FCPA context, as highlighted in this [3] recent post, since NPAs and DPAs were introduced to the FCPA context in 2004, if a corporate FCPA enforcement action is resolved soley with an NPA or DPA there is less than a 10% chance that the DOJ will bring related criminal charges against company employees.

Both of these statistics are notable because as Judge Rakoff notes – and recently noted by the DOJ’s Deputy Attorney General (see here [4]) – “corporations do not act criminally, but for the actions of individuals.”

Judge Rakoff further states:

“Given such patent ineffectiveness when it comes to deferred prosecutions, it is somewhat surprising that Garrett argues that tighter enforcement of deferred prosecution agreements can still make them effective. Perhaps. But one also wonders whether the impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

In the FCPA context, I have not called for NPAs and DPAs to be revised, but rather have consistently stated for at least three years that NPAs and DPAs should be abolished.  In calling for abolition of NPAs and DPAs it is important to recognize that such a proposal does not seek to abolish a long-standing feature of the U.S. criminal justice system, but rather a failed experiment brought to the FCPA context approximately ten years ago.  As previously highlighted, my proposal to abolish NPAs and DPAs is coupled with a corporate compliance defense (see here [5] and here [6]).

In conclusion, Judge Rakoff further states:

“The preference for deferred prosecutions also reflects some less laudable motives, such as the political advantages of a settlement that makes for a good press release, the avoidance of unpredictable courtroom battles with skilled, highly paid adversaries, and even the dubious benefit to the Department of Justice and the defendant of crafting a settlement that limits, or eliminates entirely, judicial oversight of implementation of the agreement.”

Spot-on Judge Rakoff.