A corporate criminal is no scapegoat, assures the Department of Justice (“DOJ”), because it is always a priority to target all culpable individuals at a company. DOJ policy emphasizes that “[o]nly rarely should provable individual culpability not be pursued, particularly if it relates to high-level corporate officers,” even if the company settles its case with prosecutors. After all, under the respondeat superior standard that applies in federal criminal cases, a corporation can be prosecuted if and only if an employee committed a crime. As the Supreme Court has put it, “[T]he only way in which a corporation can act is through the individuals who act on its behalf.” Yet, as is increasingly the subject of high-profile criticism, more often than not, when the largest corporations are prosecuted federally, individuals are not charged. In this Article, I develop data describing these individual prosecutions—which tend to result in light sentences when convictions are obtained. These data illustrate the special challenges of bringing corporate prosecutions, and they suggest why, in contrast to what prominent critics have argued, bringing more individual cases is no adequate substitute for prosecuting companies. I conclude by proposing how corporate prosecutions could be brought to enhance individual criminal accountability.
The corporation appears to be a kind of a scapegoat: perhaps not entirely blameless, as in the traditional concept, but literally impossible to actually jail—yet capable of receiving the brunt of blame and punishment, while the individual culprits go free. Data presented in this Article suggest that the problem of individual and corporate prosecution requires far more careful consideration. In about two-thirds of deferred and non-prosecution agreements (“DPAs” and “NPAs”) with companies, no individual officers or employees were prosecuted for related crimes. Many were quite high-profile prosecutions; well over half were public corporations, and many were Fortune 500 and Global 500 companies. The companies are required to admit their crimes and accept responsibility for them, and yet the individual culprits faced no criminal consequences.
The problem becomes far more complex, however, when one asks what occurs when individual officers and employees are charged. In this Article, I study the outcomes in those cases in some detail. Prosecutors typically obtained light sentences and experienced quite high numbers of outright losses in the form of acquittals and dismissals. As will be described in Part I, from 2001 to 2014, prosecutors entered 306 deferred and non-prosecution agreements with companies. Among those, 34%, or 104 companies, had officers or employees prosecuted, with 414 total individuals prosecuted. Most prosecuted individuals were not high-up officers of the companies, but rather middle manag-rs of one kind or another. Of the individuals prosecuted in these cases, thirteen were presidents, twenty-six were CEOs, twenty-eight were CFOs, and fifty-nine were vice-presidents. What happened in these cases? Of the 414 individuals, 266, or 65%, pleaded guilty. And for-ty-two were convicted at a trial, an elevated trial rate of 10%. How were convicts sentenced for these corporate crimes? The average sentence, including those who received probation but no jail time, was eighteen months. As I will describe, that is somewhat lower than aver-age sentences for many of the relevant federal crimes. The average sentence among those who did receive jail time was higher—forty months. But it was only 42% or 128 of the 308 individuals convicted (266 who pleaded guilty and 42 who were convicted at trial) who received any jail time. This is a low imprisonment rate. To be sure, many convicts paid large fines. Of the individuals prosecuted, 144 individuals were fined, with an average fine of $382,000.
Of still greater concern was the large number of prosecution losses: 15% of the cases were unsuccessful, which, as I will develop in Part I, is far higher than what is typical in federal white-collar prosecutions. Fifty-two individuals had charges dismissed pretrial. Eleven were ac-quitted at trial. Still other cases were not ultimately successful; nine had convictions reversed on appeal. In addition, forty individuals were charged but have not been convicted, either because the cases are still pending, or individuals are fugitives or have not been successfully extradited.
“There is no such thing as too big to jail,” Attorney General Eric Holder announced in a stern video message in May 2014, underscoring that no financial institution “should be considered immune from prosecution.” Yet it is increasingly common to hear complaints, including from prominent politicians, judges, journalists, and academic commentators, that the government “has prosecuted only a handful of individuals in the Wall Street meltdown of 2008.” Presidential candidate Hillary Clinton has said, “Even though some institutions have paid fines and even admitted guilt, too often it seems like the people responsible get off with limited consequences (or none at all).” The concerns have also been raised in areas of federal criminal practice unrelated to banks or to the causes of the financial crisis. For example, then-Senator Arlen Specter asked in 2010 hearings why no employees of Siemens were prosecuted for foreign bribery violations after the company paid record fines to settle a Foreign Corrupt Practices Act (“FCPA”) prosecution. Senator Spector asked, “[W]ho’s going to jail?” (Subsequently eight employees were indicted, but none have to date been extradited to the United States.) In environmental prosecutions, critics have also asked why executives have not been targeted following deadly spills, mine explosions, and other disasters.
Federal Judge Jed Rakoff has offered a prominent critique of this problem, arguing that prosecutors are too quick to settle corporate cases on lenient terms after hasty investigations; he concludes that prosecuting individuals would be more effective than “imposing internal compliance measures that are often little more than window-dressing.” Professor Dan Richman has added that “simplistic clamoring for more heads” will not address an underlying need for “more systemic regulatory reforms.” Still others have long argued that corporate criminal li-ability standards should be altered, sharply limited, or even abolished as inconsistent with the purposes of criminal law. Whether the allure of individual prosecutions substitutes for efforts to provide sound regulation of corporations, much less prosecution of noncompliant corporations remains an important subject.
The relative lack of individual prosecutions raises a puzzle: One might expect it to be far easier for prosecutors to bring white-collar cases when they benefit from the company’s cooperation. Companies typically agree to fully cooperate with investigations that may continue long after the firm settles its case. Companies conduct detailed internal investigations, turn over documents, records, and emails, and they agree to produce employees for interviews. DOJ officials began to respond to critics with remarks in 2014 that highlighted the importance of “true” corporate cooperation that provides “evidence against” the “culpable individuals.” In September 2015, the DOJ released a new memorandum, amending its guidelines to reflect a focus on individual accountability for corporate crimes, stating, among other changes, that no longer will corporations receive any credit for cooperation without providing all relevant facts regarding individual misconduct. The DOJ also acknowledged “many substantial challenges unique to pursuing individuals for corporate misdeeds.” Despite the remarkable access prosecutors can obtain from companies, prosecutors still often do not succeed in holding individuals accountable. Moreover, there is a separate scapegoating concern that, when employees or individuals are charged, they may be identified based on the information the company offered to prosecutors. The higher-ups, who may control negotiations with prosecutors, may themselves remain above the fray while lower-level employees are “thrown under the bus.”
After detailing these empirical findings, this Article turns in Part II to explaining why it is that corporate prosecutions are not associated with many successful individual prosecutions. Critics are right to suggest that prosecuting individuals has been a priority for some corporate crimes but not others—with, for example, antitrust being an exception. The “corporate scapegoat” problem goes to the heart of a central rationale for settling corporate prosecutions. However, there are other important rationales that I will detail in Part II of this Article. Although such cases have largely escaped criticism, it may be just as problematic or more so when only individuals are prosecuted and not the corporation. Justice is not fully served by individual prosecutions if only the company can pay adequate fines, restitution to victims, or change practices and policies to prevent future crimes. In my view, justice is served by prosecuting corporations. But neither individual nor corporate prosecutions are necessarily a ready substitute for each other. While corporate cooperation can help overcome practical obstacles, corporate complexity raises still others, particularly regarding showing intent. Establishing culpability of individuals acting within complex organizations can be difficult. For strict liability offenses, the conduct may be easy to prove, but less worthy of prosecution due to low culpability. Prosecuting thousands of traffic tickets may make little sense—particularly if the company can pay one massive ticket to cover the social cost. Or if the conduct was very serious but committed by low-level employees, focusing on the corporation may be the best way to address the problem. Regulatory crimes may be best resolved by settling with the regulated entity. In such areas, treating the corporation as the scapegoat makes eminent sense.
In Part III, I will explore three types of reforms. First, I will examine proposals to enact new substantive crimes to reach complex corporate malfeasance or even financial negligence, which I view as ill advised. Instead, I will propose a series of legislative changes that may do far more good. Statutes of limitations could be extended for categories of complex corporate cases. The Speedy Trial Act could be revised to permit deferred prosecutions for corporations only if the firm cooperates to identify culpable individuals. Sentencing statutes and guide-lines could be revised to similarly tighten requirements for corporate cooperation. Second, I will explore changes to DOJ policy and practice. In some areas, prosecutors may have rested secure having obtained a corporate settlement with eye-catching fines. Using corporate prosecutions to charge individuals—securing “more heads”—would require stricter policies and added resources for investigations and enforcement. A third approach, emerging in a few recent cases, uses corporate settlements to change the incentives for employees and officers at the firm, using what I have termed “structural reforms” to prevent future criminality.
Despite DOJ policy that “only rarely” should “culpable individuals” not be prosecuted, far too many corporate cases lack individual prosecutions. The uneven results in individual prosecutions that are brought illustrate why the pattern persists. However, I will conclude in this Article that, contrary to what some critics have argued, corporate prosecutions need not come at the cost of individual accountability—corporate prosecutions can and should be used to enhance individual accountability and deter corporate crime.
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