Last week in this speech before the New York City Bar Association, Assistant Attorney General Lanny Breuer defended the DOJ’s frequent use of NPAs and DPAs. See here for video of the speech.
This post first contains excerpts of Breuer’s speech and then comments on it and the issues raised.
Breuer began his speech as follows. “Over the past three-and-a-half years, the Department of Justice has entered into dozens of DPAs, and non-prosecution agreements, or NPAs. I’ve heard people criticize them and I’ve heard people praise them. What I’m here to tell you, is that, along with the other tools we have, DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe. Though the U.S. Supreme Court blessed the concept of corporate criminal liability over 100 years ago – in New York Central Railroad Company v. United States – until roughly 20 years ago, we had only the blunt instrument of criminal indictment with which to attack corporate crime. Prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct – either indict, or walk away. In the 1990s, however, the government began doing something new: agreeing to defer prosecution against the corporation in exchange for an admission of wrongdoing, cooperation with the government’s investigation, including against individual employees, payment of monetary penalties, and concrete steps to improve the company’s behavior. And, over the last decade, DPAs have become a mainstay of white collar criminal law enforcement. The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts. Companies now know that avoiding the disaster scenario of an indictment does not mean an escape from accountability. They know that they will be answerable even for conduct that in years past would have resulted in a declination. Companies also realize that if they want to avoid pleading guilty, or to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance. Our prosecutors are sophisticated. They know the difference between a real compliance program and a make-believe one. They know the difference between actual cooperation with a government investigation and make-believe cooperation. And they know the difference between a rogue employee and a rotten corporation.”
Breuer further stated as follows. “One of the reasons why deferred prosecution agreements are such a powerful tool is that, in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea: when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement. All of these components of DPAs are critical for accountability. Perhaps most important, whether or not a corporation pleads guilty … or enters into a DPA with the government, the company must virtually always publicly acknowledge its wrongdoing. And it must do so in detail. This often has significant consequences for the corporation, and it prevents companies from explaining away their resolutions by continuing to deny that they did anything wrong.”
Breuer concluded as follows.
“To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.”
“When the only tool we had to use in cases of corporate misconduct was a criminal indictment, prosecutors sometimes had to use a sledgehammer to crack a nut. More often, they just walked away. In the world we live in now, though, prosecutors have much greater ability to hold companies accountable for misconduct than we used to – and the result has been a transformation in the culture of corporate compliance. In appropriate circumstances, large corporations, such as Siemens AG, must plead guilty for their crimes. In other cases, because the company has gone to extraordinary lengths to turn itself around, for example, or provided the government with extensive cooperation, a deferred prosecution agreement or non-prosecution agreement may be the best resolution. No matter what, individual executives and employees must answer for their conduct. And, perhaps most important of all, companies know that they are now much more likely to face punishment than they were when our choice was limited to indicting or walking away. Overall, this state of affairs is better for companies, better for the government, and better for the American people.”
*****
Let’s probe the two reasons why the “old” system, in which the DOJ either brought criminal charges or didn’t, seems to trouble Breuer.
First, he stated as follows. “Prosecutors faced a stark choice when they encountered a corporation that had engaged in misconduct – either indict, or walk away.” There is absolutely, positively nothing wrong with this choice. Bringing criminal charges against person (natural or legal) should not be easy. It should be difficult. Our founding fathers recognized this as a necessary bulwark against an all powerful government. There is no legal or policy reason warranting a change from such a fundamental and long-lasting principle.
Second, Breuer, without specifically mentioning the prosecution, carries forward the Arthur Anderson effect that has guided DOJ policy for over a decade ((i.e. the notion that indicting a company will result in a corporate death sentence). Breuer stated as follows. “I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake.” However, as highlighted in this recent guest post, Gabriel Markoff recently debunked the Arthur Anderson effect as factually false.
Breuer is clearly troubled, with good reason, by traditional notions of corporate criminal liability. However, rather than seek substantive solutions to this issue, either on a statute by statute basis (such as a compliance defense to the FCPA – see here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense”) or more comprehensively, Breuer instead defends an alternate reality that is equally problematic.
Use of NPAs and DPAs to resolve alleged corporate criminal liability presents two distinct, yet equally problematic public policy issues.
The first is that such vehicles, because they do not result in any actual charges filed against a company, and thus do not require the company to plead to any charges, allow egregious instances of corporate conduct to be resolved too lightly without adequate sanctions and without achieving maximum deterrence. On this issue, Breuer states in his speech that “when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing.” This is a false statement. While the standard NPA and DPA templates do contain a section concerning acceptance of responsibility, the acceptance is as to conduct and alleged facts, not actual legal charges.
The second is that such vehicles, because of the “carrots” and “sticks’ relevant to resolving a DOJ enforcement action (for more on this issue, see “The Facade of FCPA Enforcement – here), often nudge companies to agree to these vehicles for reasons of risk-aversion and efficiency and not necessarily because the conduct at issue actually violates the law. Breuer essentially admitted as such in his speech when he stated as follows. “[Companies] know that they will be answerable even for conduct that in years past would have resulted in a declination.”
Thus, use of NPAs or DPAs allow “under-prosecution” of egregious instance of corporate conduct while at the same time facilitate the “over-prosecution” of business conduct.
The alternate reality that Breuer defends is defined by the absence or practical absence of judicial scrutiny of many DOJ enforcement theories. Thus, by supporting use of DPAs and NPAs, Breuer is advocating an enforcement climate that insulates DOJ’s enforcement theories from judicial scrutiny in all but the rarest of circumstances. It is not hard to see why the DOJ favors such a system. Such a system makes its job easier and places the DOJ in the role of prosecutor, judge and jury all at the same time. Former Attorney General Alberto Gonzales rightly observed as follows. “In an ironic twist, the more that American companies elect to settle [through DPAs and NPAs] and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.” (See here for the prior post).
In short, Breuer’s defense of DPAs and NPAs was unconvincing. The Assistant Attorney General is clearly troubled by traditional notions of corporate criminal liability. However, rather than seek substantive solutions to this issue, Breuer instead defended an alternate reality that is equally problematic. This alternative reality benefits the DOJ, benefits the private bar, but harms other stakeholders and undermines the rule of the law and justice.
*****
In his speech, Breuer also supported the premise underlying an FCPA compliance defense when he stated as follows. “Companies also realize that if they want … to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance.” In my “Revisiting a Foreign Corrupt Practices Act” article (here), I demonstrate that despite the DOJ’s institutional opposition to an FCPA compliance defense, the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent, and unpredictable ways. Breuer’s statement once again demonstrates the truth of this position. However, unpredictable de facto defenses have no place in a justice system based on the rule of law. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors the DOJ already considers in assessing corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent and predictable model.
