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A Modest Proposal for Justice Scalia’s Seat

The unexpected death of leading conservative Supreme Court Justice Antonin Scalia during the final year in office of liberal President Barack Obama has had a seismic effect on the political scene. Even before President Obama could nominate a replacement, members of both parties aggressively staked out contrary positions. Part of the acrimony is surely driven by the stakes: The Supreme Court has taken on an increasingly central role in our national life, and a lifetime appointment to the Court would reshape its direction for decades to come. The prospect of a lame duck President making a choice with such long term consequences as a result of the unanticipated death of one man naturally raises meaningful concerns. But the present crisis creates a real opportunity to revisit a harmful assumption about the Supreme Court that is driving the conflict. While lifetime tenure on the Supreme Court is commonly assumed to be required by the Constitution, the Constitution grants Congress substantial flexibility in structuring the judicial branch. Congress might use this flexibility creatively, to appoint judges who enjoy life tenure but spend only part of that tenure on the Supreme Court. President Obama would then be able to fill Justice Scalia’s seat without remaking the Court for decades to come. Even if this approach was ultimately unsuccessful, it would be an unusually constructive resolution of an otherwise difficult impasse.

As noted, the difficulty of the current partisan impasse is driven by the high stakes involved in an appointment to the Supreme Court. In recent years, the Supreme Court has decided a presidential election, [1] and rendered controversial, antimajoritarian decisions on the Suspension Clause [2] and First,[3] Second,[4] and Fourteenth[5] Amendments, among other constitutional provisions.[6] It is tempting to suggest that the stakes of appointments could and should be lowered by reducing the profile of the judicial branch. If fewer controversies were treated as constitutional questions for the courts, the staffing of the Supreme Court would be less important.[7] But this approach clearly depends on a particular view of the substance of the Constitution. If the Constitution is understood to impose certain judicially enforceable substantive rules (such as a rule that the government cannot interfere with a woman’s decision to have an abortion, or a rule that the government cannot interfere with independent political expenditures by corporations), then the Supreme Court cannot decline to render consequential and controversial decisions applying these rules without abdicating its duties.

In any event, even if it would be helpful for the Supreme Court to take less aggressive positions substantively, there seems to be no way for Congress or the President to credibly commit the Court to that course of action—even if nominees could be made to promise particularly narrow decisions, nothing would constrain their substantive decisions once they were on the Court.[8] Controlling the Supreme Court by limiting its jurisdiction would also be difficult under current constitutional understandings, particularly if the goal of these limitations was to prevent the Court from fulfilling its essential role in supervising the judicial enforcement of constitutional rights.[9]

But while it would be impossible to limit the consequences of a Supreme Court appointment substantively, it may be possible to limit the consequences temporally. Commentators have already remarked that an end to lifetime appointments to the Supreme Court would suck much of the air out of the fight over Justice Scalia’s replacement, before sadly stating that such a change would require a constitutional amendment.[10]

However, this sad qualification may not be correct. There is remarkably little textual evidence for the proposition that the Constitution requires that a judge who sits on the Supreme Court must be allowed to sit on the Supreme Court forever.[11] Article III, Section 1 of the Constitution vests the judicial power of the United States “in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.”[12] It then provides that in order to sit on one of these courts, a judge must have life tenure: “The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour.”[13] Article III itself does not specify that a judge must spend the entirety of that life tenure on one court. While the provision does refer to both “the supreme and inferior Courts,” it is easily read as a simple clarification that a judge must have life tenure to sit on a lower court as well.[14] The text thus allows for a statutory scheme providing for a judge with life tenure to sit on the Supreme Court only for a fixed term of years before resuming her judicial service on the inferior courts.

In other words, the boundaries between federal courts are a matter of statute and custom, not firm constitutional law. Indeed, the lines between the Supreme Court and inferior courts have always been understood as permeable. For much of the Supreme Court’s history, the Justices rode circuit, traveling about the country and deciding cases in the capacity of lower court judges. For example, the famous case of Ex parte Merryman,[15] (coincidentally, a case cited with approval by Justice Scalia[16]) was decided by Chief Justice Roger Taney alone in his capacity as a Justice riding circuit. The concept of life-tenured judges sitting on a particular court for only a fixed term is also not terribly novel. The judges designated to sit on the Foreign Intelligence Surveillance Court only hold that position for a period of seven years.[17]

Attempts to draw a sharp distinction between the Supreme Court and inferior courts using other parts of the constitutional text are also unpersuasive. The Appointments Clause of Article II specifies that the President

shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.[18]

While this text may be read as drawing a distinction between “judges of the supreme Court” and other judges, it can also be read as a simple reflection of Congress’s authority to structure the judicial branch. Under the terms of the Madisonian Compromise, reflected in the text of Article III, Congress is free to not create any lower federal courts at all.[19] It should not be surprising that the staffing of these possible courts is left to the residual phrases in the Appointments Clause. The Constitution also refers separately to a “Chief Justice,”[20] but neither does this send a terribly informative signal; the Constitution also refers to a “Speaker”[21] of the House of Representatives and a “President pro tempore”[22] of the Senate, but those references are not understood to make those officers constitutionally distinct from their fellow representatives or senators.

Functional arguments against term limits fare little better. There is little reason to think that the quality of Justices available would decrease if a term limit of, say, eighteen years were imposed. There is some risk that a Justice approaching the end of her tenure might harbor ambitions for her later career and act accordingly, but that risk is already present under existing arrangements. Chief Justice John Jay clearly aspired to higher (or at least a different) office: He resigned his judicial position to become governor of New York.[23] Justice William O. Douglas harbored presidential aspirations, and very nearly became a vice presidential candidate.[24] It is even possible to speculate that Justice Scalia’s unusual concurrence in Gonzales v. Raich,[25] a decision favoring federal over state power, may have been motivated by a desire to one day be appointed Chief Justice. Life tenure is clearly not a check on ambition, or the incentives that ambition can create.

In sum, there is a credible argument that Congress could provide for a life-tenured judge to sit on the Supreme Court for a fixed term of years. This possibility offers a way out of the current impasse. The Senate could confirm President Obama’s nominee to replace Justice Scalia, after Congress had passed (and President Obama had signed) a statute providing that new appointees to the Supreme Court would sit only for a fixed term of years before resuming their judicial duties on other courts. President Obama would have the opportunity to reshape the Court’s direction for many years to come (but not many decades), and congressional Republicans would be able to reassure their constituents that they had found a responsible compromise that limited potentially harmful results. If the reform stuck, it would convert an unusually bitter impasse into an unusually salutary change.

Even if the arrangement were struck down, it could send a much needed message to the Supreme Court. As noted, it would be difficult for Congress to check the Supreme Court’s aggressive substantive rulings. But the Court has also been remarkably high handed in its dealings with the lower courts, sometimes refusing to hear appeals and provide guidance on crucial topics even when the lower courts have issued increasingly desperate pleas for instruction.[26] Congress has adopted a mechanism that is intended to address this situation. The Supreme Court is required by statute to resolve cases that are certified to them by the courts of appeals.[27] But without justification, the Supreme Court has consistently ignored this statutory duty.[28] A reminder that the judges who sit on the Supreme Court are not so different from other judges[29] might have an appropriate chastening effect. A statute of this type might also provide a framework for later efforts to make a lasting change to the Constitution.

This proposal is termed modest because it is unlikely to come to pass—the relevant individuals are set on a partisan collision course that is more likely to prove destructive than constructive. But like past modest proposals, it may shed light on an area in real need of lasting reform.

[1]See Bush v. Gore, 531 U.S. 98 (2000).

[2]See, e.g., Boumediene v. Bush, 553 U.S. 723 (2008).

[3]See, e.g., Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010).

[4]See, e.g., District of Columbia v. Heller, 554 U.S. 570 (2008).

[5]See, e.g., Obergefell v. Hodges, 135 S. Ct. 2584 (2015); Fisher v. Univ. of Tex. at Austin, 133 S. Ct. 2411 (2013); Stenberg v. Carhart, 530 U.S. 914 (2000).

[6]Depending on the definition of “antimajoritarian,” the federalism revolution of recent years may also qualify. Some commentators have suggested that a decision that forbids the federal government from achieving a result is not antimajoritarian if the Court allows state-level majorities to achieve the same result. See Steven G. Calabresi, The Constitution and Disdain, 126 Harv. L. Rev. F. 13, 14 (2012). Sovereign immunity decisions that leave the states free to waive their protections, and decisions enforcing limits on the enumerated powers of Congress fall in this category.

[7]See Megan McArdle, Replacing a Justice Shouldn’t Be So Excruciating, Bloomberg View (Feb. 16, 2016, 4:39 PM), http://www.bloombergview.com/articles/2016-02-16/‌replac‌ing‌-a-justice-shouldn-t-be-so-excruciating [https://perma.cc/2A98-VCJK].

[8]Indeed, many nominees have offered a narrow vision of the proper role of a Supreme Court justice before taking steps deemed aggressive by critics after they took office. See, e.g., Geoffrey R. Stone, Selective Judicial Activism, 89 Tex. L. Rev. 1423, 1428 & n.34 (2012) (reviewing Seth Stern & Stephen Wermiel, Justice Brennan: Liberal Champion (2010)) (arguing that although Chief Justice John Roberts had said that the proper role of a judge was simply to “call balls and strikes,” he has acted in an activist fashion after confirmation).

[9]See James E. Pfander, One Supreme Court: Supremacy, Inferiority and the Judicial Power of the United States 7–8 (2009) (laying out scholarly consensus that although Congress has broad authority to limit the Supreme Court’s appellate jurisdiction, it cannot undermine the Supreme Court’s essential function, and suggesting more limited theories). A more promising approach might be to force the Supreme Court to take on more cases by re-expanding its mandatory jurisdiction, thus leaving less time and room for the philosophical and historical investigations that have characterized its recent broad constitutional rulings. But such an approach seems more likely to result in sloppy decisions than modest ones.

[10]See, e.g., Jonathan H. Adler, A Question About Placing Term Limits on Supreme Court Justices, Wash. Post: The Volokh Conspiracy (Feb. 16, 2016), https://www.washington‌post.com/news/volokh-conspiracy/wp/2016/02/16/a-question-about-placing-term-limits-on-supreme-court-justices/ [https://perma.cc/PQT2-TN3S]; Orin Kerr, Justice Scalia’s Death and the Case for Supreme Court Term Limits, Wash. Post: The Volokh Conspiracy (Feb. 16, 2016), https://‌www.washingtonpost.com/news/volokh-conspiracy/wp/2016/02/16/justice-scalias-death-and‌-the-case-for-supreme-court-term-limits/ [https://perma.cc/ZV34-5UGK]; Mark Sherman, Some Want to Limit Justices to 18 Years on Supreme Court, Associated Press (Feb. 18, 2016, 1:58 PM), http://big‌story.ap.org/‌article/5e2d2e2783‌0e4adab88a‌7e24‌f2c3fd09/some-want-limit-justices-18-years‌-supreme-court [https://perma.cc/325A-E8EW].

[11]These are not new observations. The points in the text are drawn from Steven G. Calabresi & James Lindgren, Term Limits for the Supreme Court: Life Tenure Reconsidered, 29 Harv. J.L. & Pub. Pol’y. 769, 855–71 (2006); Roger C. Cramton, Reforming the Supreme Court, 95 Calif. L. Rev. 1313, 1323–34 (2007); and Akhil Reed Amar & Vikram David Amar, Should U.S. Supreme Court Justices be Term-Limited: A Dialogue, Findlaw Writ (Aug. 23, 2002), http://writ.news.findlaw.com/amar/20020823.html [https://perma.cc/6GGK-KCYW].

[12]U.S. Const. art. III, § 1.

[13]Id.

[14]Given that the Constitution only mandates the creation of a Supreme Court and makes the creation of lower courts a matter of legislative grace, see infra note 18 and accompanying text (describing the Madisonian Compromise), the clarification seems entirely warranted.

[15]17 F. Cas. 144 (C.C.D. Md. 1861) (No. 9,487).

[16]See Hamdi v. Rumsfeld, 542 U.S. 507, 567 (2004) (Scalia, J., dissenting).

[17]50 U.S.C. § 1803(d) (2012).

[18]U.S. Const, art. II, § 2, cl. 2.

[19]See Richard H. Fallon, Jr. et al., Hart and Wechsler’s The Federal Courts and the Federal System 7–9 (6th ed. 2009).

[20]U.S. Const. art. I, § 3.

[21]Id. art. I, § 2, cl. 5.

[22]Id. art. I, § 3, cl. 5.

[23]See John Paul Stevens, Five Chiefs: A Supreme Court Memoir 14 (2011).

[24]See Noah Feldman, Scorpions: The Battles and Triumphs of FDR’s Great Supreme Court Justices 188–93, 258–64, 317–20 (2010).

[25]545 U.S. 1, 33–42 (2005) (Scalia, J., concurring in the judgment) (holding that Congress has the power to regulate homegrown medical marijuana).

[26]See, e.g., Esmail v. Obama, 639 F.3d 1075, 1077–78 (D.C. Cir. 2011) (Silberman, J., concurring) (suggesting that the Supreme Court was ducking its responsibility to explain its holding that habeas was available to detainees at Guantanamo Bay).

[27]See 28 U.S.C. § 1254(2) (2012).

[28]See Aaron Nielson, Essay, The Death of the Supreme Court’s Certified Question Jurisdiction, 59 Cath. Univ. L. Rev. 483, 489–91 (2010) (arguing that the Supreme Court has disregarded statutory duty on misguided policy grounds).

[29]A gentler reminder was once offered by Justice John Paul Stevens. When Chief Justice William Rehnquist presided over oral arguments at the Supreme Court, he would sometimes admonish advocates who referred to one of the Court’s members as a “Judge,” insisting that they should be referred to as a “Justice” instead. Justice Stevens once consoled an advocate who used the term “Judge” instead of “Justice,” saying that the advocate should not feel too badly, since the Constitution makes the same mistake. See Jeffrey L. Fisher, Of Facts & Fantasies: Justice Stevens and the Judge/Justice Story, 14 Green Bag 2d 53, 53–57 (2010).

Response: The Metamorphosis of Corporate Criminal Prosecutions

Corporate criminal enforcement has exploded in this country. Billion-dollar fines are now routine, where they were unimaginable a decade ago, across a range of industries, from Big Pharma to the largest megabanks to defense contractors and energy companies. We have federal prosecutors and the Department of Justice (“DOJ”), together with the white-collar bar, to thank for this. Their innovations have transformed what was, in decades past, a backwater area of criminal practice, in which corporate enforcement was uncommon and any resulting fines often quite minor, into a rapidly changing and exciting field of practice.[1] Yet deep concerns remain. General Motors recently received an out-of-court deferred prosecution agreement that permits the company to avoid a conviction for concealing defects over many years—actions that cost over a hundred people their lives—accompanied by no charges for any employees.[2] We have seen major financial institutions like AIG, Barclays, Credit Suisse, HSBC, JPMorgan, Lloyds, and UBS prosecuted repeatedly in a space of just a few years. Just imposing eye-catching corporate fines is not enough to generate lasting accountability.

http://www.law.virginia.edu/lawweb/faculty.nsf/fhpbi/05BF6D59555BBEC585257322006A4960/$FILE/garrett_hires.jpg

Now, the DOJ has begun to rethink the evolving corporate prosecution approach. Professors Elizabeth Joh and Thomas Joo have written a wonderful essay critically examining the new Yates Memo—the DOJ’s new set of guidelines for individual accountability in corporate crime investigations—which has been dubbed, in the typical style of the white-collar bar, after Sally Yates, the Deputy Attorney General who drafted the memo.[3] Joh and Joo question how effective the new DOJ policy shift will be and “urge greater consideration of complexity” in corporate prosecutions.[4] They fear, as I do, that a stilted focus on only individual accountability might permit excessive leniency to be afforded to corporations. Fortunately, this policy change is not purely an “all-or-nothing” change, as I will describe, due to the way in which it interacts with other aspects of the larger set of corporate charging principles that the DOJ has already adopted. That is also an additional weakness of the policy change. It is unclear what a course correction means where, at bottom, prosecutors simply have discretion to charge corporations—or not—and settle the corporate cases that are brought through opaque, intensive, and highly complex negotiations.

Most recently, the DOJ has incorporated the Yates Memo into its broader set of corporate charging guidelines contained within the U.S. Attorneys’ Manual and made additional changes to those guidelines, including setting out the needs for corporate self-reporting and better coordination between federal enforcement agencies that so often work in tandem.[5] Those larger changes, while useful, represent an incremental shift in the overall approach. Perhaps most troubling, the DOJ has not tightened its criteria for granting leniency in the form of deferred or non-prosecution agreements to corporations. Nor has the DOJ, despite statements that recidivism will be taken seriously, changed its guidelines to address the concern that corporations violate agreements and commit new crimes but still obtain leniency.[6] The DOJ also has not meaningfully addressed the substance of prosecution agreements, from calculation of fines, to the scope of compliance reforms sought, to the supervision of the agreements. A deeper rethinking of the federal corporate charging guidelines is much needed, and the paramount concern with leniency in corporate prosecutions—to avoid undue collateral consequences—should instead be directed at individuals.

I. Why Guide Corporate Charging?

Why do we have federal corporate prosecution guidelines at all? In few areas of criminal law do prosecutors announce in advance, and in detail, under what circumstances they will prosecute versus offer outright leniency. For years, the DOJ had no specific guidelines, for example, on federal drug prosecutions; it was only recently that then-Attorney General Eric Holder issued guidance on when, for example, to charge mandatory minimums in drug cases.[7] The U.S. Attorneys’ Manual contains general guidance that pretrial diversion, supervision, and leniency should be considered for some individuals, noting that “[i]nnovative approaches are strongly encouraged,” but those approaches are rarely used by U.S. Attorneys, who have extended such pretrial leniency to a tiny fraction of individuals charged every year.[8] As federal District Judge Emmett Sullivan has put it, “people are no less prone to rehabilitation than corporations.”[9] Instead, for years, particularly under Attorney General John Ashcroft, the DOJ policy was the opposite of lenient, encouraging prosecutors to pursue the “most serious, readily provable” charges against individuals.[10] In 2010, these guidelines were moderated to encourage pursuit of “the most serious offense that is consistent with the nature of the defendant’s conduct, and that is likely to result in a sustainable conviction,” while also encouraging an “individualized assessment” of the defendant.[11]

Corporations, though, are treated differently. They have never been prosecuted only for the most serious offenses committed by their agents. Corporations have long received a separate program of treatment under the Antitrust Division’s highly successful Leniency Program (which affects both corporations and individuals, and which is not affected in its approach by the Yates Memo).[12] In 1999, then-Deputy Attorney General Eric Holder issued the first DOJ memo providing more general guidelines for corporate prosecutions.[13] It was a 2003 revision to those guidelines, however, that accompanied the modern rise in prosecutions of the largest and public companies: the “Thompson Memo,” named after Larry Thompson, the Deputy Attorney General who oversaw the revisions, as I have described elsewhere.[14] In the years since the 2003 change, the DOJ has revised the guidelines—which have been incorporated into the U.S. Attorneys’ Manual as a set of principles for prosecuting organizations—several more times, responding to concerns regarding attorney-client privilege and corporate payment of attorneys’ fees, as well as concerns regarding the appointment of corporate monitors. The overall structure of the principles contained in these Principles of Federal Prosecution of Business Organizations encouraged consideration of a set of nine factors when deciding whether to pursue an indictment or conviction of a corporation, or, alternatively, a deferred or non-prosecution agreement. These factors broadly focused on the seriousness of the past conduct at the firm, the firm’s present cooperation, reporting and compliance at the firm, and future consequences, including collateral consequences, for the firm and others should the company be prosecuted.[15]

Now, those principles have been amended yet again. The most recent 2015 changes add a tenth factor to the set of considerations when charging organizations. The addition is nothing new, since, to be precise, the DOJ separated a single prior, confusing factor that considered both cooperation and self-reporting into two separate factors.[16] To be sure, when separating cooperation as a factor, the DOJ added a clarification that it is the firm’s cooperation in the investigation of its agents that is the priority. The new guidelines also contain an entire, prominently displayed section announcing the new “focus on individual wrongdoers.”[17] That section details how prosecutions of individuals will be a focus “at every step of the process,” including from the earliest stages of an investigation.[18] Moreover, the guidelines now make clear that cooperation is to be more clearly limited to cooperation in identifying culpable individuals: “In order for a company to receive any consideration for cooperation under this section, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority.”[19] The guidelines also highlight the now separately noted importance of self-reporting in the form of a “timely and voluntary disclosure,” which is a truly important change, since corporate crimes may often go undetected, and corporations in the past had remained unsure as to whether self-reporting crimes would actually be rewarded.[20]

However, the revised principles continue to encourage the use of deferred and non-prosecution agreements for corporations, recommending their use as a middle ground, short of a conviction but not quite a declination. The principles vaguely note that whether undue collateral consequences of an indictment or conviction recommend such an approach “must be evaluated in a pragmatic and reasoned way that produces a fair outcome, taking into consideration, among other things, the Department’s need to promote and ensure respect for the law.”[21] The principles do say that “prosecutors should generally seek a plea to an appropriate offense,” and also that “generally” this should be a plea to the “most serious, readily provable offense charged.”[22] The principles also add a new section on coordinating parallel proceedings, to encourage closer cooperation between prosecutors and those pursuing civil, regulatory, and administrative actions.[23]

How important are these sorts of changes to that larger set of corporate charging principles, given the complexity of the guidelines and the emphasis on the “substantial latitude” that prosecutors retain in exercising their discretion?[24] One preliminary question is whether the latest round should even be considered a meaningful set of changes at all. Regarding the new stated focus on individual culpability, DOJ policy had already emphasized for some time that “[o]nly rarely should provable individual culpability not be pursued, particularly if it relates to high-level corporate officers,” where the company settles its case with prosecutors (since, after all, the company’s liability is necessarily premised on the crimes of its agents).[25] Supposedly, individuals were always a central focus of an investigation. Yet the new additions address an important practical problem, the subject of my recent article published in this journal.[26] There, I detail how from 2001 to 2014, prosecutors entered 306 deferred and non-prosecution agreements with companies, which are settlement deals permitting the companies to avoid an indictment and a conviction. Among those companies entering deferred and non-prosecution agreements, thirty-four percent or 104 companies, had individuals prosecuted, with 414 total individuals prosecuted to date. Nor were most of those individuals higher-ups; most were middle management. The average sentence, for those who received a sentence with jail time, was forty months, but over forty percent did not receive any jail time.[27]

The new DOJ guidance recognizes, but does not directly address, the practical challenges of identifying responsible individuals. Individual wrongdoing will now be a stated focus from the earliest stages, and the principles now seek to more directly incentivize such cooperation. A company will only get full cooperation credit for identifying all relevant individuals. But how will prosecutors know whether a company has done so, given a position of real dependence on the company’s own internal investigation for information about who did what? It had long been problematic that corporations could receive credit for cooperation that, as I have argued, does not remotely resemble the criteria for “substantial cooperation” for individuals (although the Sentencing Guidelines criteria must still themselves be reformed).[28] Nor, as Professors Joh and Joo describe,[29] does cooperation of the corporation itself necessarily mean that the most responsible individuals, rather than scapegoated low-level employees, are identified. Justice is not served if the company identifies, as Deputy Attorney General Yates put it well, “the vice president in charge of going to jail.”[30]

The limitations of the new memo extend more broadly, however. The considerations of prosecutors themselves are multifarious. Even if a company obtained full cooperation “credit,” this would not necessarily translate to a more lenient outcome. There are other factors to consider. What if the company’s track record of violations was long; would a recidivist really receive leniency for fully cooperating as to its latest violation? What if the company did not self-report, but only cooperated once it had been turned in by a competitor? What if the conduct was so reprehensible that prosecutors felt it deserved maximum punishment? After all, cooperation is only one of the ten factors in the principles. Similarly, self-reporting in the form of a timely and voluntary disclosure is just another factor, and while it can be considered “both as an independent factor and in evaluating the company’s overall cooperation and . . . compliance,” even if a company voluntarily self-discloses, “prosecution may be appropriate” based on “a consideration of all the factors set forth in these Principles.”[31] What if a company is downright non-cooperative or fails to disclose its crimes? Perhaps such a company could still receive substantial leniency if other factors weighed in the other direction, such as self-reporting or collateral consequences to shareholders and employees. Indeed, there are examples of deferred prosecution agreements that describe companies as having initially been uncooperative or not disclosing their crimes, but that later garner leniency.

There is no reason that these latest set of changes would produce greater assurances or greater clarity to corporations. With every revision and expansion of the U.S. Attorneys’ Manual principles, prosecutors still fundamentally retain broad “all things considered” discretion in corporate charging. As I have developed in my empirical work on the subject, what the guidelines say is one thing, and what prosecutors actually do in practice is another. The guidelines do not say that most public corporations should receive deferred and non-prosecution agreements, but that is what has happened in practice. The guidelines do not speak to how corporate recidivists should be treated, and the relative lack of consequences in practice speaks volumes. Perhaps we need to look at forces operating largely outside of the DOJ to better understand what occurs in corporate prosecutions.

II. Beyond the Prosecutors: Corporations and Judges

Corporations are not ordinary defendants. A large company may itself face challenges uncovering who did what, even if it is intent on cooperating. Corporate negotiations with prosecutors are dynamic, to put it mildly, and the approaches of companies and industries matter. If other major banks start to receive plea agreements, then obtaining a deferred prosecution agreement may no longer seem so necessary to preserve a firm’s reputation. The concerns of regulators may play an important role in negotiations, and often compliance terms and supervision of agreements centrally involve specialist regulatory agencies.

Let us not forget the federal judiciary and its supervisory role. Some judges have taken on a more active role in reviewing deferred prosecution agreements before approving them, as well as some plea agreements. I have argued that judges should provide a meaningful review of the terms of such agreements, given their complexity and public importance.[32] In 2013, federal Judge Richard J. Leon rejected a deferred prosecution agreement with a company for foreign bribery, “looking at the DPA in its totality” and noting that not only were “no individuals . . . being prosecuted for their conduct at issue here,” but also “a number of the employees who were directly involved in the transactions [we]re being allowed to remain with the company.”[33] Soon, the U.S. Court of Appeals for the D.C. Circuit may rule on appeal whether doing so was appropriate.

Federal Judge John Gleeson asserted a supervisory power to receive monitors’ reports concerning a deferred prosecution agreement with HSBC.[34] The DOJ guidelines have long said very little about the entire subject of supervising compliance and ensuring that a corporation adheres to the terms of a prosecution agreement.

Most recently, Judge Emmett Sullivan suggested that certain factors (suggested by this author as amicus) could provide “useful guideposts” when evaluating whether a deferred prosecution agreement with a company is truly “designed to secure a defendant’s reformation” or whether the terms are “so vague or minimal as to render them a sham.”[35] Such interventions will be of necessity quite deferential where there is no entitlement to receive diversion and where prosecutors reach an agreement with a defendant, but they may also impact the future contours of corporate prosecutions, as they have in the past.

III. Does It Take a Plan?

Do the breadth of prosecutorial discretion and the multifactored nature of the considerations the DOJ uses when charging a corporation doom any reform efforts to failure? I think not, but it takes a more comprehensive plan of attack to respond to the “too big to jail” challenge of corporate prosecutions. And, to be fair, the DOJ is continuing to rethink its approach towards corporations; the Yates memo is not the last word. For example, the Fraud Section at the DOJ has retained a compliance expert to do a more rigorous job of assessing compliance, since the corporation’s “remedial action[s]” and any efforts to implement an effective corporate compliance program are among the factors to be considered.[36] The entire area is evolving so quickly that the DOJ sensibly continues to adapt and respond to concerns, including those raised by academics, of all people.

Outside of the DOJ, perhaps, more sweeping solutions can be considered. I have suggested a broader palette of reforms to address these problems, both in my book and my recent article on the problem of individual prosecutions.[37] Legislation is pending in Congress, chiefly focused on the transparency of the financial terms in civil and criminal corporate settlements. Former Secretary of State Hillary Clinton has proposed as part of her presidential campaign a top-to-bottom plan for policing and preventing corporate crime and financial misconduct.[38] The plan carefully addresses systemic risk in financial institutions (“too big to fail”), but my interest is in “too big to jail” provisions: The plan addresses a range of concerns that companies and banks, as well as their officers and employees, can commit massive crimes at great cost to the public but receive mere slaps on the wrist. Here, I break those relevant portions of the Clinton plan down into four key recommendations.[39]

1. Corporate deals should not be out of court. I have argued for some time that non-prosecution agreements simply should not be pursued (although the Swiss Banking Program may be the exceptional circumstance in which such agreements are genuinely useful).[40] I have also argued that deferred prosecution agreements have been overused. The DOJ has begun to respond by more often entering plea agreements in the most serious corporate prosecution cases in practice, but not, as noted, as a matter of any formal policy change. The DOJ Guidelines should be changed to reflect the priority of corporate convictions, not just deals. The Clinton plan criticizes the “overuse” of out-of-court corporate prosecution agreements and calls for DOJ guidelines clarifying that those agreements should “be used in limited circumstances.”[41] The DOJ chose not to make any such change in its recent round of revisions to its guidelines. Corporations should know that they cannot count on out-of-court leniency deals for the most serious crimes. They should typically be convicted. (In contrast, I strongly agree with Judge Emmett Sullivan that we should be thinking far more broadly about deferred and non-prosecution agreements for individual offenders.)[42]

2. Corporate deals should be in the open. We should know what fines companies are really paying and what is tax deductible or offset through credits. The Clinton plan endorses the bipartisan transparency in corporate settlements legislation proposed by Senators Elizabeth Warren and James Lankford. Some agreements are quite clear on the tax consequences of a settlement. The JP Morgan settlement, for example, included $1.7 billion in forfeiture, but stated that the forfeiture was to be treated as a penalty and that JP Morgan must not see a tax deduction or credit from that settlement amount.[43] Others are more opaque. They often do not explain any sentencing guidelines calculation for how the fine was determined, either. The problem also extends to civil settlements, such as BP’s, which have been silent on the question.[44] Some settlements have also included set-offs against payments that companies have already made or have agreed to make to state and local enforcers or federal agencies. Entire agreements with corporations have been hidden, although University of Virginia law students have filed FOIA requests and successfully obtained many of them.[45] The plan says that all such corporate agreements must be publicly disclosed. The DOJ should be requiring as much on its own. Despite detailed criticism on this front as to the lenient fines imposed and the failure to calculate them in any transparent way,[46] the DOJ did not address the calculation of fines at all in its revised guidelines, and it has never done so except to say that punishment and deterrence can be accomplished by “substantial fines.”[47]

3. Individuals should be held accountable. As noted, corporations that receive non-prosecution and deferred prosecution agreements typically manage to insulate individuals from prosecution, although they invariably agree to fully cooperate with prosecutors. When individuals are charged, they are typically low-level employees, not higher-ups, and they often do not receive jail time. I have proposed to extend statutes of limitations in corporate criminal investigations.[48] The Clinton plan would do so for major financial fraud, which may make complex investigations more practicable.

4. Prosecutors need far more enforcement resources. In corporate prosecutions, there is a role reversal: The federal prosecutors are the David to the defendants, who are the corporate Goliaths of the world. Enforcers and prosecutors need substantial resources to tackle cases involving hundreds or thousands of employees at major companies. The Clinton plan is the first serious plan to bolster enforcement. When the multinational corporation Siemens was investigated in the largest foreign bribery case of its time, the firm cooperated, and in the process, Siemens spent over a billion dollars hiring attorneys and investigators to represent it.[49] Prosecutors and regulators could move mountains with a fraction of those resources.

Conclusion

We have long needed a detailed plan of action to revamp our evolving system of corporate prosecutions, which are very much the envy of the world corporate enforcement community but which are also still very much a work in progress. Professors Joo and Joh carefully dissect the Yates memo and illustrate how limited its impact will likely be, as well as the potentially perverse consequences of its priorities. It is not altogether clear that it is in fact a new policy. Since their writing, the DOJ has announced broader changes to its corporate charging guidelines. These changes are incremental and preserve broad charging discretion that has not served prosecutors or corporate prosecutions well in the past. Far more promising changes are possible, and some may be genuinely in the works at the DOJ, through legislation, and in plans that may be adopted by future administrations yet to come. To merely say the focus will be placed more on individual prosecutions raises practical questions, including whether this focus will come at the expense of careful corporate level enforcement. To bolster investigation and enforcement resources, the DOJ must reorient the entire system by rethinking the rules for civil disbarment, enhancing civil fines, incentivizing whistleblowers better, and strengthening prosecution priorities for the most serious offenders.

We are in the midst of a rethinking of our system of criminal justice in this country. We are reconsidering our mass incarceration and overly harsh sentences, with their collateral consequences on entire communities and generations of young people, and we are focusing on efforts to promote reentry, rehabilitation, and prevention, rather than punishment. When one turns to the most privileged offenders in this country, the picture is reversed. The most far-reaching corporate crimes have received leniency for years now, as the result of careful thinking and rethinking of the precise contours of a federal leniency program designed to avoid excess collateral consequences for corporate offenders. Rehabilitation is not taken seriously enough, with concerns that compliance may often be overly cosmetic. Corporate fraud enforcement needs more powerful teeth. In the years to come, hopefully we will see a reversal of federal priorities, with new efforts to avoid collateral consequences for individuals committing relatively small offenses, combined with far more rigorous prosecution of the largest corporate crimes.

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[1] For an overview, see Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 1–18 (2014).

[2] David M. Uhlmann, Justice Falls Short in G.M. Case, N.Y. Times, Sept. 20, 2015, at SR5, http://nyti.ms/1V1Kzkq. For a report expressing concern with a wide range of recent civil and criminal corporate settlements, see Office of Sen. Elizabeth Warren, Rigged Justice: 2016: How Weak Enforcement Lets Corporate Offenders Off Easy (Jan. 2016), http://‌www.warren.senate.gov/files/documents/Rigged_Justice_2016.pdf, archived at https://‌perma.‌cc/6LS7-GNWN.

[3] Elizabeth E. Joh & Thomas W. Joo, The Corporation as Snitch: The New DOJ Guidelines on Prosecuting White Collar Crime, 101 Va. L. Rev. Online 51 (2015).

[4] Id. at 54.

[5] U.S. Dep’t of Justice, U.S. Attorneys’ Manual § 9-28.000 (2015) [hereinafter U.S. Attorneys’ Manual], http://www.justice.gov/usam/united-states-attorneys-manual, archived at https://‌perma.cc/J7C9-6UR3.

[6] See, e.g., Garrett, supra note 1, at 165–68 (describing concerns regarding corporate recidivism).

[7] Memorandum from Eric Holder, Attorney Gen., U.S. Dep’t of Justice, on Department Policy on Charging Mandatory Minimum Sentences and Recidivist Enhancements in Certain Drug Cases (Aug. 12, 2013), http://www.justice.gov/sites/default/files/oip/legacy/2014/07/23/ag-memo-‌department-policypon-charging-mandatory-minimum-sentences-recidivist-enhance‌ments-in-certain-drugcases.pdf, archived at https://perma.cc/Y7ST-93YH.

[8] U.S. Dep’t of Justice, U.S. Attorneys’ Manual: Criminal Resource Manual § 712, http://‌www.justice.gov/usam/criminal-resource-manual, archived at https://perma.cc/WX3Q-5JE7. Judge Sullivan points out: “Department of Justice statistics indicate that in fiscal year 2012, there were a total of 253 pretrial diversions for individual defendants, accounting for 0.9% of the reasons why Assistant United States Attorneys declined to prosecute.” United States v. Saena Tech Corp., Nos. 14-66 (EGS), 14-211 (EGS), 2015 WL 6406266, at *27 (D.D.C. Oct. 21, 2015) (citations omitted). Judge Sullivan notes also that prejudgment probation is similarly underused. Id. at *28.

[9] Saena Tech Corp., 2015 WL 6406266, at *29.

[10] U.S. Attorneys’ Manual, supra note 5, § 9-27.400; Memorandum from John Ashcroft, Attorney Gen., U.S. Dep’t of Justice, on Department Policy Concerning Charging Criminal Offenses, Disposition of Charges, and Sentencing (Sept. 22, 2003), http://www.justice.gov/archive/‌opa/pr/2003/September/03_ag_516.htm, archived at https://perma.cc/4DF7-884S.

[11] Memorandum from Eric Holder, Attorney Gen., U.S. Dep’t of Justice, on Department Policy on Charging and Sentencing (May 19, 2010), http://www.justice.gov/sites/default/files/‌oip/legacy/2014/07/23/holder-memo-charging-sentencing.pdf, archived at https://perma.cc/‌UXQ2-UAAL.

[12] U.S. Dep’t of Justice, Antitrust Div., Leniency Program, http://www.justice.gov/atr/‌lenien‌cy-program, archived at https://perma.cc/Q3JK-PJFU.

[13] Memorandum from Eric Holder, Deputy Attorney Gen., U.S. Dep’t of Justice, on Bringing Criminal Charges Against Corporations (June 16, 1999), http://www.justice.gov/‌sites/default/‌files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF, archived at https://perma.cc/G5T7-ULMM.

[14] Memorandum from Larry D. Thompson, Deputy Attorney Gen., U.S. Dep’t of Justice, on Principles of Federal Prosecution of Business Organizations (Jan. 20, 2003), http://www.ameri‌canbar.org/content/dam/aba/migrated/poladv/priorities/privilegewaiver/2003jan20_privwaiv_doj‌thomp.authcheckdam.pdf, archived at https://perma.cc/85RM-NQJK.

[15] See U.S. Dep’t of Justice, U.S. Attorneys’ Manual § 9-28.200 (2008) [hereinafter U.S. Attorneys’ Manual (2008 Version)], http://www.justice.gov/opa/documents/corp-charging-guide‌lines.pdf, archived at https://perma.cc/A58J-72LV.

[16] U.S. Attorneys’ Manual, supra note 5, § 9-28.300 (including, as factor six, “the corporation’s timely and voluntary disclosure of wrongdoing,” and, as factor four, “the corporation’s willingness to cooperate in the investigation of its agents”).

[17] Id. § 9-28.210.

[18] Id. § 9-28.700(B).

[19] Id. § 9-28.700(A).

[20] Id. § 9-28.900.

[21] Id. § 9-28.1100(B).

[22] Id. § 9-28.1500(A), (B).

[23] Id. § 1-12.000.

[24] Id. § 9-28.200(B).

[25] See U.S. Attorneys’ Manual (2008 Version), supra note 15, § 9-28.200(B).

[26] Brandon L. Garrett, The Corporate Criminal as Scapegoat, 101 Va. L. Rev. 1789 (2015).

[27] Id. at 1791.

[28] Id. at 1843–46 (internal quotation marks omitted).

[29] Joh & Joo, supra note 3, at 58.

[30] Matt Apuzzo & Ben Protess, Justice Dept. Sets Its Sights on Executives, N.Y. Times, Sept. 10, 2015, at A1, http://nyti.ms/1UI3xfX.

[31] U.S. Attorneys’ Manual, supra note 5, § 9-28.900.

[32] Garrett, supra note 1, at 282 (arguing that “[j]udges should consider the public interest when reviewing . . . deferred prosecution agreements” and “insist on full and open hearings before approving [such] agreements”).

[33] United States v. Fokker Servs. B.V., 79 F. Supp. 3d 160, 166 (D.D.C. 2015).

[34] United States v. HSBC, No. 12-CR-763, 2013 WL 3306161, at *1 (E.D.N.Y. July 1, 2013).

[35] United States v. Saena Tech Corp., Nos. 14-66 (EGS), 14-211 (EGS), 2015 WL 6406266, at *16 (D.D.C. Oct. 21, 2015). I note that this author served as an amicus making recommendations to the court regarding the question of what standard should be used when deciding whether to approve a deferred prosecution agreement with a corporation. See id. at *19.

[36] Press Release, U.S. Dep’t of Justice, New Compliance Counsel Expert Retained by the DOJ Fraud Section (Nov. 3, 2015), http://www.justice.gov/criminal-fraud/file/790236/download, archived at https://perma.cc/DN4Z-F87F.

[37] See Garrett, supra note 26, at 1839–49 (exploring possible reforms); Garrett, supra note 1, at 273–84.

[38] Hillary Clinton: Wall Street Should Work for Main Street [hereinafter Clinton Plan], https://www.hillaryclinton.com/p/briefing/factsheets/2015/10/08/wall-street-work-for-main-street, archived at https://perma.cc/9CUX-Y2QU.

[39] I previously outlined these four features of the Clinton Plan in an op-ed. See Brandon L. Garrett, It Takes a Plan (To End ‘Too Big to Jail’), Huffington Post (Oct. 15, 2015), http://‌www.huffingtonpost.com/brandon-l-garrett/it-takes-a-plan-to-end-too-big-to-jail_b_829614‌0.html, archived at https://perma.cc/A6NC-ARH8; Brandon L. Garrett, It Takes a Plan (To End ‘Too Big to Jail’), CLS Blue Sky Blog (Oct. 14, 2015), http://clsbluesky.law.columbia.edu/‌2015/10/14/it-takes-a-plan-to-end-too-big-to-jail/, archived at https://perma.cc/UF9Z-SEH8.

[40] In 2010, the United States and Switzerland signed a treaty providing for the exchange of information on potential tax evaders. The DOJ subsequently announced that it would offer non-prosecution agreements to Swiss banks that voluntarily disclosed their roles in helping individuals avoid U.S. taxes. For a more detailed explanation, see Garrett, supra note 1, at 244–45. The DOJ has detailed the Swiss Bank Program and provided materials from each of the cases on a useful website. See U.S. Dep’t of Justice, Swiss Bank Program, http://www.‌justice.gov/tax/swiss-bank-program, archived at https://perma.cc/39H9-C6NL.

[41] Clinton Plan, supra note 37.

[42] United States v. Saena Tech Corp., Nos. 14-66 (EGS), 14-211 (EGS), 2015 WL 6406266, at *21 (D.D.C. Oct. 21, 2015).

[43] See Verified Complaint, Exhibit D to the Deferred Prosecution Agreement, at 1–6, United States v. JPMorgan Chase Bank, No. 14-CR-___ (S.D.N.Y. Jan. 6, 2014), http://www.‌justice.gov/‌sites/default/files/usao-sdny/legacy/2015/03/25/JPMC%20DPA%20Packet%20%‌28Fully%20Executed%20w%20Exhibits%29.pdf, archived at https://perma.cc/H3DE-BQDV; Garrett, supra note 1, at 124.

[44] Garrett, supra note 1, at 135 (noting that, in entering a civil consent decree with BP, the Environmental Protection Agency did not explain how it reached a penalty of $15 million).

[45] Univ. Va. Law Sch., First Amendment Clinic Obtains 18 More of DOJ’s Secret Deals with Corporate Offenders (June 4, 2015), http://www.law.virginia.edu/html/news/2015_sum/‌foia.htm, archived at https://perma.cc/Z8JL-92JK.

[46] See Garrett, supra note 1, at 67–70, 149–50.

[47] U.S. Attorneys’ Manual, supra note 5, § 9-28.1500(B).

[48] Garrett, supra note 26, at 1841–42.

[49] Nathan Vardi, The Bribery Racket, Forbes (May 28, 2010), http://www.forbes.com/‌global/2010/0607/companies-payoffs-washington-extortion-mendelsohn-bribery-racket.html; see also Garrett, supra note 1, at 9–10.

[50] The author is the Justice Thurgood Marshall Distinguished Professor of Law, University of Virginia School of Law.

[51] This piece is in response to a piece by Professors Elizabeth Joh and Thomas Joo which was published by the Virginia Law Review Online in October 2015.

[52] The piece by Professors Joh and Joo can be found here.

[53] Please also see Professor Garrett’s longer article on this subject here.

The Corporation as Snitch: The New DOJ Guidelines on Prosecuting White Collar Crime

Volkswagen, the world’s largest auto maker, acknowledged in September 2015 that it had equipped its cars with software designed to cheat diesel emissions tests. Eleven million of its cars contained “defeat devices” that initiated full emissions controls only during emissions testing, and not under normal driving conditions.[1] The VW scandal may become the first major test of the Department of Justice’s recently announced guidelines that focus on individual accountability in white collar criminal investigations.[2] Criminal investigations into safety defects at two other leading car makers, General Motors and Toyota, yielded no criminal charges against any individuals.[3] But in a recent speech announcing the new guidelines, Deputy Attorney General Sally Yates stated, “Crime is crime,” whether it takes place “on the street corner or in the boardroom.”[4] “The rules have just changed.”[5]

The most significant policy change in the new Yates memo states that “to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue.”[6] Deputy Attorney General Yates referred to this as an “all or nothing” policy toward cooperation.[7] This tough talk about individual corporate agents is probably at least in part a short-term political move. The guidelines were announced with great fanfare one week before the DOJ announced the GM settlement, which deferred the prosecution of criminal charges against the corporation and charged no individual officers or employees. According to U.S. Attorney Preet Bharara, GM received credit for cooperating with the investigation.[8]

As many commentators have already observed, holding individual corporate agents accountable is nothing new.[9] The DOJ’s official policy has long stated that if identifiable corporate agents are culpable, the Department will prosecute those individuals, and not just the corporation.[10] In the GM case, however, the DOJ charged only the corporation with fraud and false statements to regulators,[11] even though the Information charging the corporation describes numerous acts by individuals[12] that might have formed the basis for charges against them.[13] In her September 10, 2015 speech, Yates declared, “Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation.”[14]

It is troubling that individuals have avoided prosecution in so many large corporate criminal investigations.[15] But it is not clear that the new cooperation policy will increase individual charges. Even if corporations provide complete information about their agents’ conduct, individual charges may be stymied by the fact that harmful conduct is often caused by the acts of multiple agents who lack criminal intent and are unaware of each other’s acts. Indeed, U.S. Attorney Bharara specifically blamed that “siloing” effect—the diffusion of responsibility—for the lack of individual charges in the GM case.[16]

Moreover, it is unclear whether the new cooperation policy will generate the kind of useful information the DOJ expects. The Justice Department is embracing an informant culture, borrowed from other areas of criminal investigation, to fight white collar crime.[17] In her speech introducing the new DOJ guidelines, Yates compared the new cooperation policy to the use of informants in drug trafficking. Once caught, a drug trafficker can: “decide to flip against his co-conspirators. He can proffer to the government the full scope of the criminal scheme. . . . But if he has information about the cartel boss and declines to share it, we rip up his cooperation agreement and he serves his full sentence. The same is true here. A corporation should get no special treatment as a cooperator simply because the crimes took place behind a desk.”[18]

We raise questions about this new approach and some of its possible implications. We urge greater consideration of complexity in the corporate setting. This is not a plea for leniency toward corporations or their officers. Indeed, in some cases, the new cooperation policy’s emphasis on individual prosecutions could itself result in leniency: prosecutors may award excessively generous credit to corporations in order to build cases against individuals.

The Corporation as Snitch

A street crime enforcement model is a peculiar analogy. The heavy reliance on informants [19] in the street crime context has faced numerous questions about its effectiveness and its fairness. Informants in the drug war are “notoriously unreliable.”[20] The exchange of benefits for information is a practice roundly criticized for being secret,[21] largely unregulated, risky,[22] harmful to communities,[23] and of questionable effectiveness in controlling crime.[24] To be sure, white collar defendants are unlikely to face some of the harms suffered by street informants. But equating corporate misconduct to drug dealing poses problems nevertheless.

A. Corporate Complexity

By transplanting the informant model to the corporate setting, the DOJ seems to underestimate the complexity of misconduct and decisionmaking in the corporate setting, something that previous policy statements have acknowledged. As the U.S. Attorneys’ Manual observes, a corporation cannot literally commit criminal acts, since it can act only through its human agents.[25] Individual agents of a corporation are liable for their own criminal conduct, and thus the Manual has stated since 2008 that the threat of individual liability is the best way to deter corporate misconduct.[26] Whether a corporation can also be held liable for the acts of its agents is a more difficult legal question.[27] Even where it is supported by law, corporate liability may be inadvisable due to collateral consequences, such as harm to innocent investors, employees, and customers.[28] The Manual devotes a twenty-page section, the “Principles of Federal Prosecution of Business Organizations,” also known as the Filip Factors,[29] to the policy concerns prosecutors should weigh when deciding whether to charge a corporate entity.

In short, the Filip Factors presume that individual corporate agents will be charged for their own misconduct,[30] and provide guidance for the more difficult and less common practice of charging a corporate entity.[31] The new cooperation policy, however, centers on offering cooperation credit to corporate defendants in exchange for information about individual agents. That is, it presumes a situation in which the corporation faces liability exposure. A recent study has found, however, that prosecutions and convictions of corporations have decreased since the Filip factors were introduced.[32] Furthermore, prosecutors will need corporations’ cooperation to gather information about individuals only when prosecutors have been unable to find such evidence on their own. Because corporations can act only through their agents, this is precisely the situation where a corporation has the least risk of liability and cooperation credit is thus least valuable to the corporation. Indeed, by providing information about individuals’ conduct in such a situation, a corporation may give prosecutors a basis for corporate liability that would not otherwise exist.

Sharing incriminating information about individual agents is least risky for the corporation when the agents’ misconduct constitutes rogue behavior. Such conduct is less likely to be the basis of vicarious corporate liability,[33] however, and thus the enticement of cooperation credit has less value. A corporation in such a situation is likely to cooperate in order to resolve the scandal and improve its public image, not in order to reduce charges or sanctions.

The drug-dealer analogy is ill-suited to the complexity of the corporate setting and suggests further potential difficulties with the new cooperation policy. In the analogy, the corporation is the informant, a lower-level criminal seeking leniency, and the individuals involved in the corporate misconduct are the more culpable “cartel bosses.” This likens a corporation to an individual on par with, and fully distinct from, its human board members, officers and employees. It also suggests that those human individuals are the true “bosses” and the corporation is a mere lackey. But while a corporation is a distinct legal entity for the purpose of criminal charges and sanctions, whether the corporation cooperates with prosecutors is controlled by the very corporate leaders the DOJ is so intent on pursuing.

The prototypical informant is offered leniency in exchange for implicating someone else: a straightforward appeal to self-interest. The incentive structure is quite different in the corporate context, however. Prosecutors can negotiate with a corporation only indirectly, through its human representatives. A corporation’s legal representatives are its directors.[34] The board of directors typically includes the CEO and other top executives of the corporation; indeed, in many large American corporations, the CEO is also the chair of the board.[35]

B. Ceding Control to the Corporate Informant

A heavy reliance on informants delegates enforcement discretion to the informants themselves, as many commentators have noted.[36] Informants can only identify people they know, and may focus on people they dislike.[37] Criminal informants, rather than law enforcement officials, can end up controlling investigations.[38] Surely corporations as informants pose similar risks.

Thus, there are at least two ways the new policies may not work as intended. The “all or nothing” approach to cooperation may backfire because it not only allows the corporation to choose “nothing,” but may encourage that choice. If prosecutors will grant leniency only to corporations that implicate individuals, the corporation may choose not to cooperate at all. The board that speaks for the corporation is likely to protect its own. An offer of leniency toward the corporate entity is unlikely to entice CEOs and other board members to incriminate themselves. If corporate leaders implicate anyone at all, they will most likely be lower-level agents.[39]

In announcing the new guidelines, Yates stated that the Justice Department would not be satisfied if a corporation were to give information incriminating only “the vice president in charge of going to jail,” i.e., a designated sacrificial lamb.[40] But there is no way of guaranteeing that high-level agents are incriminated. (Indeed, many cases may not involve any high-level misconduct.) If prosecutors are dependent on the corporation for information, they cannot know whether the board has implicated all the true culprits or merely offered up a scapegoat.

In addition, if a board decides not to cooperate in order to protect its own, prosecutors’ refusal to consider leniency may inflict economic harm on innocent shareholders. As the existing Filip Factors point out, corporate-level prosecutions may cause third-party harms;[41] the all-or-nothing cooperation policy may have similar impacts. Those who currently own the company’s stock may be victims, not beneficiaries of the corporate misconduct. They may have paid high purchase prices while the conduct was benefiting the corporation, only to suffer investment losses when the criminality was uncovered. Disruption of the corporation’s business due to prosecution and conviction may cost innocent employees their jobs, and other companies may lose valuable contracts and business opportunities. Strict punishment of a corporation due to recalcitrance on the part of its directors will only increase such third-party harms.

Conclusion

The Justice Department’s new focus on individual accountability in the white collar context is laudable, but problematic. The new “all-or-nothing” policy toward corporate cooperation is based on the notion that “crime is crime”—that is, that crime in the corporate context should be treated the same as crime in other contexts. But while corporate wrongdoing may be as harmful as other crimes, the corporate entity and its structure create unique issues. Corporate decisionmaking involves multiple people with potentially conflicting priorities. As a result, the new policy may not yield more information or convictions with regard to high-level officials—those individuals the Department is most interested in investigating.

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[1] At a Glance: Which VW Brands Are Involved in the Scandal, Associated Press: The Big Story (Sept. 29, 2015, 9:40 AM), http://bigstory.ap.org/article/2fa99fe9d9814ffa959474a4af54‌3446/glance-which-vw-brands-are-involved-scandal, archived at http://perma.‌cc/94D2-VADQ; Coral Davenport & Jack Ewing, U.S. Orders Major VW Recall Over Emissions Test Trickery, N.Y. Times, Sept. 19, 2015, at A1, available at http://nyti.ms/1iC‌8AD6. A group of researchers at West Virginia University first noticed the unusually high emission patterns of VW vehicles in a study of diesel powered cars. Bill Vlasic & Aaron M. Kessler, It Took E.P.A. to Pressure VW to Admit Fault, N.Y. Times, Sept. 22, 2015, at A1, available at http://nyti.ms/‌1V6VF7V.

[2] See generally Memorandum from Sally Quillian Yates, Deputy Att’y Gen., U.S. Dep’t of Justice, to All U.S. Att’ys et al., Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015) [hereinafter Yates Memo], available at http://www.justice.gov/dag/file/769036/download, archived at http://perma.cc/A9RM-6HDD (describing the Department of Justice’s new policy of individual accountability).

[3] See, e.g., Jerry Hirsch, Prosecutors, Not Regulators, Are the New Enforcers of Automotive Safety, L.A. Times (Sept. 17, 2015, 5:54 PM), http://www.latimes.com/business/autos/la-fi-gen‌eral-motors-fine-20150917-story.html, archived at http://perma.cc/TMQ2-6C6H.

[4] Sally Quillian Yates, Deputy Att’y Gen., U.S. Dep’t of Justice, Remarks at New York University School of Law (Sept. 10, 2015) [hereinafter Yates Remarks], available at http://www.justice.‌gov/opa/speech/deputy-attorney-general-sally-quillian-yates-delivers-remarks-new-york-univer‌sity-school, archived at http://perma.cc/KVM6-JU3A.

[5] Id.

[6] Yates Memo, supra note 2, at 3. The Yates Memo further states that investigations of corporate misconduct should focus on individuals from the start; that civil and criminal attorneys should communicate with each other throughout the investigation; that the resolutions of corporate investigations will not include protections for individuals absent extraordinary circumstances; that corporate cases should not be resolved without plans to resolve cases against individual defendants; and that the decision whether to bring civil actions against individual defendants should take into account more than the individual’s ability to pay. See id. at 3–6.

[7] Yates Remarks, supra note 4.

[8] Associated Press, General Motors to Pay $900 Million for Faulty Ignition Switches Linked to At Least 169 Deaths, N.Y. Daily News (Sept. 18, 2015, 10:01 AM), http://nydn.us/1FjQXl6.

[9] See, e.g., Daniel P. Chung, Individual Accountability for Corporate Wrongdoing, Harv. L. Sch. F. on Corp. Governance and Fin. Reg. (Sept. 21, 2015), http://corpgov.law.harvard.edu/‌2015/09/21/individual-accountability-for-corporate-wrongdoing, archived at http://perma.cc/‌6JJK-RE7G; The Yates Memo, FCPA Professor (Sept. 11, 2015), http://www.fcpaprofessor.com/‌the-yates-memo, archived at http://perma.cc/‌R5YD-L35B.

[10] “Only rarely should provable individual culpability not be pursued, particularly if it relates to high-level corporate officers,” even if corporate-level liability is established. U.S. Dep’t of Justice, U.S. Attorneys’ Manual § 9-28.200(B) (2008) [hereinafter U.S. Attorneys’ Manual], available at http://www.justice.gov/usam/usam-9-28000-principles-federal-prosecution-business-organizations, archived at http://perma.cc/4GCF-ENHL.

[11] Information, Exhibit B to the Deferred Prosecution Agreement, at 4, 6, United States v. Gen. Motors Co., No. 1:15-cv-07342 (S.D.N.Y. Sept. 17, 2015), available at http://www.justice.gov/‌usao-sdny/file/772261/download, archived at http://perma.cc/‌YNS7-94Y4.

[12] On two occasions after it became publicly known that a defect was preventing the deployment of airbags, “GM personnel” gave the National Highway Traffic Safety Administration (“NHTSA”) “the misleading impression that GM worked promptly and efficiently to resolve known safety defects, including, specifically, defects related to airbag non-deployment.” Id. at 4. “[C]ertain GM engineers knew” that the part in question, a switch, was defective before it went into production, “[b]ut the engineer in charge of the Defective Switch approved its production anyway.” Statement of Facts, Exhibit C to the Deferred Prosecution Agreement, at ¶ 5, United States v. Gen. Motors Co., No. 1:15-cv-07342 (S.D.N.Y. Sept. 17, 2015), available at http://‌www.justice.gov/usao-sdny/file/772261/download, archived at http://perma.cc/YNS7-94Y4. Although the Information points to specific acts by specific individuals, it does not give any of their names.

[13] 18 U.S.C. § 1349 (2012), for example, prohibits attempt or conspiracy to commit mail or wire fraud, and 18 U.S.C. § 371 (2012) prohibits conspiracy to commit any federal offense.

[14] Yates Remarks, supra note 4.

[15] Brandon Garrett, who maintains the most complete database on corporate deferred prosecution and non-prosecution agreements, notes that in about two-thirds of cases involving deferred or non-prosecution agreements with public corporations, no employees were prosecuted. See Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 13 (2014).

[16] David Ingram, Corporate ‘Siloing’ an Obstacle to Charging GM Employees: Prosecutor, Reuters (Sept. 17, 2015, 6:38 PM), http://www.reuters.com/article/2015/09/17/us-gm-settlement-individuals-idUSKCN0RH31B20150917, archived at http://perma.cc/PGT5-P9V3.

[17] The government has used informants in prominent white-collar cases in recent years, including cases involving insider-trading and currency manipulation. See Elizabeth E. Joh & Thomas W. Joo, Sting Victims: Third-Party Harms in Undercover Police Operations, 88 S. Cal. L. Rev. 1309, 1313 & n.14 (2015). Other tactics from the “street” crime context have also been imported into white-collar investigations, such as undercover operations and wiretaps. See id. at 1313 & n.12.

[18] Yates Remarks, supra note 4.

[19] An informant “provides information about someone else’s criminal conduct in exchange for some government-conferred benefit, usually lenience for his own crimes, but also for a flat fee, a percentage of the take in a drug deal, government services, preferential treatment, or lenience for someone else.” Alexandra Natapoff, Snitching: The Institutional and Communal Consequences, 73 U. Cin. L. Rev. 645, 652 (2004).

[20] Andrew E. Taslitz, Prosecuting the Informant Culture, 109 Mich. L. Rev. 1077, 1077 (2011).

[21] See, e.g., Delores Jones-Brown & Jon M. Shane, ACLU N.J., An Exploratory Study of the Use of Confidential Informants in New Jersey 6 (2011), https://www.aclu-nj.org/files/1113/‌1540/4573/0611ACLUCIReportBW.pdf, archived at https://perma.cc/X5RR-E7JQ (“By design, the working relationship between law enforcement agents and confidential informants is shrouded in secrecy.”). This is also true in the corporate setting. See Garrett, supra note 15, at 287 (“Much [in corporate prosecutions] remains hidden, including how agreements are carried out, whether compliance is carefully supervised, how fines are calculated, [and] why so individuals are prosecuted.”).

[22] See, e.g., Sarah Stillman, The Throwaways, New Yorker (Sept. 3, 2012), available at http://‌www.newyorker.com/magazine/2012/09/03/the-throwaways, archived at http://perma.cc/‌QM68-XVYX.

[23] See Alexandra Natapoff, Snitching: Criminal Informants and the Erosion of American Justice 103, 109–112 (2009).

[24] See id. at 109–11.

[25] U.S. Attorneys’ Manual, supra note 10, § 9-28.200(B).

[26] Id.

[27] A corporation may be held vicariously liable for the criminal acts of its human agents, but only where express or implied legislative intent supports such liability. See, e.g., N.Y. Cent. & Hudson R.R. v. United States, 212 U.S. 481, 494–96 (1909); United States v. Hilton Hotels Corp., 467 F.2d 1000, 1004 (9th Cir. 1972).

[28] U.S. Attorneys’ Manual, supra note 10, § 9-28.1000.

[29] The Principles underwent a major revision pursuant to a 2008 memo from Deputy Attorney General Mark Filip. See Memorandum from Mark Filip, Deputy Att’y Gen., U.S. Dep’t of Justice, on Principles of Federal Prosecution of Business Organizations to the Heads of Dep’t Components and U.S. Atty’s (Aug. 28, 2008) [hereinafter Filip Memo], available at http://www.justice.‌gov/‌sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf, archived at http://perma.cc/‌N2GW-DXP4. Yates referred to them as the Filip Factors in her remarks introducing the newest policies. See Yates Remarks, supra note 4. Ironically, Filip’s 2008 memo itself had recommended that the DOJ stop referring to new policies by the name of the issuing official, arguing that the practice made the policies seem politically contingent and temporary. See Filip Memo, supra.

[30] U.S. Attorneys’ Manual, supra note 10, § 9-28.200(B).

[31] Id. § 9-28.300.

[32] Justice Department Data Reveal 29 Percent Drop in Criminal Prosecutions of Corporations, Transactional Records Access Clearinghouse (Oct. 13, 2015), http://trac.syr.edu/‌tracreports/‌crim/406, archived at http://perma.cc/CK4G-ALPV.

[33] Corporate-level criminal charges are more likely if management condoned agents’ criminal conduct. See U.S. Attorneys’ Manual, supra note 10, § 9-28.500. They are less likely if a corporation attempted (even though unsuccessfully) to control its agents through compliance mechanisms, see id. § 9-28.800, and if individual prosecutions are adequate to address the misconduct. See id. § 9-28.300. United States v. Hilton Hotels Corp. upheld vicarious corporate liability for Sherman Act violations by agents who defied corporate policy, but the court inferred this unusually strict standard from the Sherman Act context. 467 F.2d 1000, 1006 (9th Cir. 1972).

[34] See, e.g., Del. Code Ann. tit. 8, ch. 1, § 141(a) (2014) (“The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors.”).

[35] See Paul Hodgson, Should the Chairman be the CEO?, Fortune (Oct. 21, 2014, 12:49 PM), http://fortune.com/2014/10/21/chairman-ceo, archived at http://perma.cc/3MJK-2WKA. Examples include Disney, Bank of America, and Facebook. See id; Corporate Governance: Board of Directors, Facebook, http://investor.fb.com/directors.cfm (last visited Oct. 27, 2015), archived at http://perma.cc/8SHS-P29M.

[36] Natapoff, supra note 19, at 671 (“By relying on informants, law enforcement focuses its resources based on informant information.”).

[37] See id. at 673–74 (“To put it another way, snitches can only snitch on people they know.”).

[38] See id. at 674; see also Ellen Yaroshefsky, Cooperation with Federal Prosecutors: Experiences of Truth Telling and Embellishment, 68 Fordham L. Rev. 917, 944 (1999) (discussing instances where prosecutors have been duped or manipulated by their cooperators).

[39] Former Volkswagen CEO Martin Winterkorn, who resigned shortly after news of the cheating software emerged, stated that the company’s misconduct was the result of “the grave errors of very few” employees. Jack Ewing, Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception, N.Y. Times (Sept. 22, 2015), http://nyti.ms/1V7JHeh.

[40] Matt Apuzzo & Ben Protess, Justice Dept. Sets Its Sights on Executives, N.Y. Times, Sept. 10, 2015, at A1, available at http://nyti.ms/1UI3xfX.

[41] U.S. Attorneys’ Manual, supra note 10, § 9-28.1000.

Photos courtesy of UC Davis School of Law

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