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Must Read – Former Deputy Attorney General David Ogden’s Speech Criticizing The DOJ’s Leverage-Based Enforcement Approach

How many articles, speeches or commentary by former high-ranking DOJ officials does it take to realize that the DOJ is frequently misguided?

The latest former high-ranking DOJ official to criticize the DOJ’s current approach to investigating and resolving alleged legal violations by business organizations is David Ogden [1]. Currently a partner at WilmerHale, Ogden previously was the DOJ Deputy Attorney General and prior to that a DOJ Assistant Attorney General.

Touching upon many of the same issues I have been writing about for years – from my 2010 article “The Facade of FCPA Enforcement [2],” to my 2010 Senate FCPA testimony [3], to my recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement [4],” in this recent speech [5] Ogden criticizes the DOJ’s “leverage-based” enforcement approach.

The speech is a must read and is excerpted below. Tomorrow’s post will be an episode of the FCPA Flash podcast in which Ogden discusses various aspects of the speech.

The focus of Ogden’s speech was “about a feature on the landscape that – as a former DOJ official and a long-time admirer of that institution – deeply concerns me: my perception that the Department and perhaps other enforcement agencies have moved away from traditional notions of prosecutorial discretion, founded in self-discipline about the facts and the law, a search for proportionality and acknowledgment of the need for restraint in negotiating pleas and settlements, and moved toward a greater willingness to use leverage to negotiate maximum fines and penalties …”.

According to Ogden, “that shift damages the reputation of law enforcement, drives a wedge between good businesses and the government, and sets back the cause of justice.”

Thereafter, Ogden stated:

“I am increasingly concerned that a new and unbridled leverage based way of doing law enforcement bears significant blame for eroding the faith of the American people in critically important institutions, both private and governmental, by which I mean both our country’s business community on the one hand, and the US Department of Justice and other law enforcement agencies, on the other.

On the business side, we have a corrosive perception by much of the American public and a great deal of political rhetoric to the effect that corporate crime is rampant and that it is the cause of most of America’s economic unfairness and social ills. The thesis is that companies would prefer to go on breaking the law so long as doing so is
profitable; and that laws against corporate crime are not effectively enforced and corporate wrongdoers are never brought to justice, and so it just goes on and on, and we are all getting ripped off.

That popular conception is vexing, not because we imagine that there is no such thing as corporate crime – to the contrary – but because so many at American companies of all sizes today are investing more in compliance and ethics than at any time in history, and as a result, by most accounts, American companies are the most law abiding businesses in the world. A great many in our business community highly value compliance and good business ethics. That gets lost in the cynicism out there. And of course, the popular perception is also vexing because many in the business community believe that far from getting a pass, they are subjected to over-enforcement and over-criminalization.

That popular perception is deeply damaging to law enforcement, too, and that damage is really just the other side of the same coin. There is a growing perception by many in the electorate (and much political rhetoric) that federal law enforcement is feckless and regularly “bought off” through resolutions of corporate investigations – civil settlements and plea agreements – that are mere “slaps on the wrist” or “costs of doing business” while it allows the real wrongdoers to go free. The government responds to this critique with higher and higher dollar settlements and plea bargains, and now with an announced policy to emphasize enforcement against corporate executives – the so-called Yates Memo. Yet I would submit to you that the government’s perception problem is getting worse, not better.

Now there are doubtless many contributing causes to this miserable state of affairs. I want to focus on one: a subtle but marked shift in DOJ’s enforcement approach from one largely grounded on considerations of fact, law and proportionality – and one that recognized the proper role of self-restraint given the Department’s outsized bargaining power – to a new one based more on leveraging its outsized bargaining power to maximize the number and size of settlements and pleas.

My concern is that this leverage-based approach sometimes yields large-dollar plea agreements and settlements and accompanying press releases and headlines about criminal behavior despite weak underlying evidence – including often very weak evidence of mens rea – or very aggressive or unclear theories of liability and damages. Because the leveraged settlements and pleas can be obtained despite weak factual predicates and uncertain legal grounds, credible prosecutions of individuals on the same theories are often not practicable or, if prosecutions are pursued, the government loses them. Whereas the government has enormous bargaining power over companies and thus can leverage corporate pleas, individuals have more to lose and less to gain from a plea and will often litigate weaker allegations where their companies have settled. The resulting huge settlements and lack of individual prosecutions help drive the popular perceptions of widespread corporate criminality and supine or incompetent law enforcement unwilling or unable to take on powerful interests.

So this leverage-based approach not only yields unjust and disproportionate outcomes, but it is also counterproductive from almost every perspective.

[…]

More government lawyers appear to take the view that whatever penalty the government can extract from a company is presumptively fair, that the outcome is self-justified by the defendant’s willingness to agree to it. Indeed, I have heard it suggested by some in the enforcement community that it would be wrong for government lawyers to leave money on the table; if they took less than they could get, then they would be depriving the Treasury of money that could have been recovered. “Who am I,” they implicitly ask, “to give away the people’s money?”

Thus, instead of asking what (if any) penalty would be fair and proportionate in the light of the facts and law, the enforcement agencies seem increasingly to be asking themselves “how can we maximize what this company pays?” And because the new goal is the maximal outcome, the government like any good plaintiffs’ lawyer will (perhaps even thinks it should) bring to bear all of the tools in its arsenal, press every point of leverage, and make demands designed to drive the highest number. And in the end, if a defendant is unhappy with the result of the process or believes it to be unjust, the thinking goes, the company has only itself to blame for agreeing.

Of course, the demand and push-back of the bargaining process are and were always part of a settlement dynamic. By the same token, considerations of fairness and proportionality continue to inform the government’s positions in many cases. Many government lawyers in many cases still employ rigorous self-discipline and seek just, rather than maximal, outcomes. I am speaking here of a movement along a spectrum, but it seems to me there has been a marked shift. And the fallacy in the new approach is that it fails to recognize the significance of the reality that the parties are not on an equal playing field. The government has the power to compel disproportionate outcomes and compel settlements in cases that it probably could never win in litigation. Now, to be clear, the government should never fail to proceed out of fear of losing a righteous case in court. I am talking about the government’s ability to settle a non-righteous case out of court.

There are several factors that confer outsized leverage on prosecutors. Ultimately, the biggest source is the powerful arsenal of potential punishments and sanctions Congress has given the enforcement agencies. Many companies look at the potential consequences of losing in court – astronomical potential fines and penalties, with almost limitless adverse collateral consequences – and feel they have no choice. They will push back in negotiation and develop their defenses of course – but in the end the pressures to capitulate and seek the best deal they can are hydraulic. Unpacking the elements of the leverage, there is the simple fact of potential indictment or other public disclosure of an investigation, each of which can have a harmful impact on a company, regardless of the ultimate resolution of a case.

[…]

… [C]riminal penalties may not even provide the most leverage. Instead, the threat of debarment or exclusion often provides the biggest stick. Debarment means that a company cannot enter into contracts with the government for a period of years – for a defense contractor, for example, this could literally end the business. Exclusion means that so-called indirect providers such as pharmaceutical and medical device companies cannot receive reimbursement from federal health care programs for a period of years. Given the market share of those programs, exclusion is viewed as a corporate death sentence.

Faced with such prohibitive consequences of litigating, companies have considered it imperative in most cases to engage with the government, cooperate where appropriate to seek to persuade that no violation occurred or that any harmful effects were small, but ultimately capitulate to almost any government bottom line. The risks of losing are too high. It is worth a great deal to every company in this situation to resolve the enforcement action as soon as possible, to obtain closure and certainty. The value of that closure and certainty is government leverage.

[…]

The existence of large and destructive potential penalties, collateral consequences, the costs of multiple and uncoordinated investigations: none of these are new – though the piling on may be more egregious than ever in many areas and potential penalties are going up. The imperative that companies feel in these situations to find a way to resolve them quickly, with accompanying leverage for the government, is also not new. What is new in the last fifteen years, in my view, is the government’s greater willingness to exploit that leverage, and to abdicate to the bargaining process what it had previously seen as its own obligations of ensuring proportionality through the exercise of careful self-scrutiny and appropriate restraint. As I said, it seems many in government think the bargain itself, given the defendant’s willingness to agree, becomes self-justifying. Even worse in my view, the failure to extract the last possible penny is seen by some as a derogation of a government lawyer’s duty to maximize the return to the federal Treasury. Seemingly lost in the shuffle is the sightline to what should be – what I have always understood to be – the enforcement lawyer’s polestar: the idea that it is justice for citizens, not victory for its own sake, that government lawyers are supposed to pursue.

As frustrated as we are in the business community, I believe that this shift in enforcement approach has hurt the government almost as much. Without question, fines and settlements are through the roof.

[…]

There is reason to believe some of these settlements and pleas come even where the government’s case is weak – indeed, where the government would have profound difficulties proving a case in court. In a significant number of matters that have resulted in corporate pleas, the government has sought to prosecute individuals and the prosecutions cratered. More often, the government has not even tried to pursue prosecutions of individuals. Those failures call into doubt the prior corporate pleas, because corporate liability generally follows only if an individual or individuals acting within the scope of their job duties violate the law. Corporations are not in fact “people too,” but are instead legal entities made up of people. And thus some agent of the corporation, some individual person, must have the requisite culpable mental state. Therefore, if the government does not have enough to prosecute any individual, it generally doesn’t have enough to prosecute the corporation. Prosecutors do not want to let the bad guys off and they are not incompetent. The more plausible explanation in the mine run of cases is that when it comes down to it, the prosecutors recognize, before or after they secure a corporate plea, that they do not have a prosecutable case against any individual.

But we have these corporate plea deals anyway, often with very large penalties, at least in part because one of the Department’s central goals appears to have become generating the most dollars and lining up the most pleas and settlements. Perhaps that is because big dollars and lots of pleas drive the “metrics” in a metrics-driven world. The enforcement agencies, including especially DOJ and DOJ components, make annual announcements about new aggregate records of fines and penalties. We see almost daily headlines about record-setting plea deals. And one has to concede, if you like efficiency, that big dollar pleas and settlements are very efficient.

[…]

Prosecutorial leverage is generating balance sheet leverage. But because this is law enforcement, that should be cause for concern, not celebration, not only because the establishment of such metrics is in serious tension with the goal of pursuing justice in every case, but also because that phenomenon coincides with a growing perception among defense attorneys and in-house counsel – anecdotal to be sure but very widespread – that these large corporate settlements and pleas increasingly come in cases with weak facts or weak legal theories.

Now, it may be obvious why this is bad for the targets of investigations, but why is it bad for the government? Because as mentioned the leverage that generates all those dollars and all that efficiency doesn’t work as well with individuals. Their incentives are different and individuals will more often insist on their day in court. And frankly, appreciating the devastating personal dimensions of an unsuccessful criminal prosecution, I suspect many prosecutors – though by no means all, sadly – are more inclined to exercise restraint in weak cases where individuals are concerned. But in such cases – big corporate settlement and no individual prosecution – the public’s presumption is not that the corporate case was weak. After all, the public asks, why would the corporation have agreed to that massive settlement and why would the government have demanded it if there was not a strong case? The settlement or plea is seen as proof that a crime has been committed and the perception is that the government has simply let individuals off the hook, that it has folded because it feared losing a righteous case it should have brought, or that it has allowed companies to buy their executives’ freedom through the large settlements.

Although I believe that picture is largely or entirely wrong, it has become a real political narrative, almost as bad for the Department as any narrative could be.

[…]

So after years of aggressive enforcement and huge settlements, no one is happy. We seem to have only losers. No winners. We have corporate pleas and we don’t have corresponding convictions of individuals. The credibility of business and government alike has suffered. America’s standing with its own citizens and in the world is undermined by this perception of widespread corporate criminality paired with feckless enforcement agencies. And the tendency to leverage large settlements in weaker cases is a big part of the problem.

[…]

Excessive penalties and vigorous pursuit of factually or legally marginal prosecutions will inevitably push information underground. It is lamentable, but it only stands to reason that if companies fear, based on experience, that the government is likely to use every point of leverage to drive highly punitive outcomes, they will be less willing to disclose violations to the government. Companies will be less incentivized to fully investigate allegations or to create detection and prevention mechanisms that might trigger obligations to disclose. Justice-based and proportionate law enforcement – and concrete incentives for those who cooperate – beget cooperation. Leverage-based law enforcement suggests to business that no good deed will go unpunished, and thus pushes the other direction.”

Ogden concluded his speech by highlighting a “Way Forward” in which he proposed:

“It has taken many years to create this set of problems and there is no easy fix. But I would suggest a few specific approaches:

• First, given these concerns, Congress should consider adjusting the limits on potential penalties to reflect the potential for them to drive leveraged and bargain-justified outcomes rather than just and proportionate outcomes.

• Second, we should encourage discussion about how the Department can re-emphasize the time-honored justice, focused, restraint and proportionality-based approach to law enforcement. I hope that the Department of Justice will consider what policies it can put in place to ensure that prosecutors are exercising their discretion with the goal of achieving justice rather than maximizing monetary outcomes. The Department should look at its metrics and its systems of rewards, and consider whether focusing on aggregate dollars and returns on investment sets a proper tone. I think it does not. Leaders should remind government lawyers to check their flag: the Department prosecutes on behalf of Lady Justice, not the Queen’s Treasury, and wins its point only when justice is done its citizens in the courts. As I said, many government lawyers subscribe to and implement that traditional ethos even now, and these better angels should be strengthened and incentivized.

• Third, the government should create appropriate mechanisms to coordinate when various agencies or multiple sovereigns are involved in an investigation. This includes information sharing, a clear division of responsibilities, and coordination of the ultimate enforcement goal. The government needs to discipline itself to avoid piling on and seek a single just and proportionate outcome with respect to every alleged violation.

• And, fourth, we should be looking for new ways to align the interests of corporations, the government and the public in prevention – moving away from a too-singular focus on after-the-fact enforcement.”