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United States v. Goliath

Criminal prosecutions of large organizations exhibit a unique power dynamic. The target organizations include goliaths—some of the largest corporations in the United States, including AIG, America Online, Bristol-Myers Squibb Co., Computer Associates, HealthSouth, KPMG, MCI, Merrill Lynch & Co., and Monsanto. A U.S. Attorney’s office with its limited resources may look like a tiny David by comparison. But prosecutors have their slingshot: they wield the threat of an indictment, which results in potentially catastrophic collateral and reputational consequences to a corporation. Yet it is a threat that prosecutors can ill afford to carry out due to those consequences. The détente resulting from the collision of those oversized forces has taken a surprising turn, perhaps because there was nowhere else to turn—from criminal prosecution towards structural reform. By that I mean that prosecutors adopted a strategy to avoid an indictment and a conviction by entering into detailed compliance agreements with organizations. In one example of a demanding structural reform agreement, KPMG International, charged with marketing illegal private tax shelters, agreed to shut down its private tax practice, to cooperate fully in criminal investigations of former employees, and to hire an independent monitor for three years to implement an elaborate compliance program.

In my piece, “Structural Reform Prosecution,” I present a picture of why and how federal prosecutors now enter into such agreements supervising the rehabilitation of these goliath organizations. The Article examines the agreements’ origins, goals, terms, and the broader legal and institutional setting, including through empirical analysis of the agreements entered after the Department of Justice (“DOJ”) announced its new approach in January 2003. While hue and cry over organizational prosecutions have focused on privilege waiver and employer payment of attorney fees, those two issues just scratch the surface of the complex problems that these massive efforts raise. I hope here to draw attention first to a series of problems raised by how these agreements define compliance and second to the multi-polar context in which these agreements are entered. “Structural Reform Prosecution” concludes by posing questions for future work. I expand on that discussion here by proposing reforms that, from different perspectives, address some of the difficult issues that these agreements raise.

International Human Rights in American Courts

In 1984, in Tel-Oren v. Libyan Arab Republic, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court’s dismissal of an international human rights case. In the first sentence of his concurring opinion, Judge Edwards wrote, “This case deals with an area of the law that cries out for clarification by the Supreme Court.” Twenty years later, the Supreme Court decided Sosa v. Alvarez-Machain. What, if anything, has the Court clarified?

Judge Edwards referred to tort suits brought by aliens for violations of the law of nations under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350. The ATS originated as Section 9 of the Judiciary Act of 1789. The modern text is little changed from the original. It reads:

The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.

There are two jurisdictionally interesting things about Section 9. First, Section 9 was designed to provide easy access to federal court, authorizing jurisdiction in district courts staffed by resident district judges, with no amount-in-controversy requirement. Second, although Section 9 premised jurisdiction on the presence of an alien as a party, it limited the exercise of that jurisdiction to only two specified sources of substantive rights: violations of United States treaties and torts in violation of the law of nations. There was no difficulty with subject matter jurisdiction over suits based on treaty violations. Such suits clearly came within the “arising under” jurisdiction of Section 2 of Article III, and I will not be concerned in this essay with those suits.

“For Profit Charity”: Not Quite Ready for Prime Time

For-profit charity is an intriguing idea. At a high level abstraction it is already proving useful. For-profit entrepreneurs and investors often consider the broader social impact of their work, evaluating projects in terms of social returns as well as investment returns. On the nonprofit side, the concept encourages firms to use incentive compensation to reduce managerial slack and to inject a dose of accountability into a sector that needs it. But as a tax concept—that is, as a category of firms exempt from tax—“for-profit charity” might be unworkable, at least in the form suggested by Professors Malani and Posner.

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