Volume 101 - Virginia Law Review

The Corporate Criminal as Scapegoat

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.

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

Taming Title Loans

For the poor, credit is hard to come by, and cash nearly impossible. With little or nothing to secure a loan, it is easy to see why. An individual living hand-to-mouth has few possessions she can part with, even temporarily. Take a car for instance. Someone in need of quick cash is in no position to surrender what is likely her only mode of transportation, even if it is only as short-term collateral. But such borrowers are not completely out of luck. Enter title loans: With these transactions, the borrower does not physically surrender her car, and yet she may obtain a four-figure loan. Meanwhile, the lender is secured in the event of default. It is this phenomenon that has made title lending so attractive for underprivileged consumers and so lucrative for fringe-market lenders.

To understand this apparent paradox and the consequences it can spawn, consider the following hypothetical based on a congressional anecdote.You are like one of millions of Americans living paycheck-to-paycheck, and your rent is due in two days. Though usually responsible with your rent, some unexpected medical bills have made timely payment impossible this month. You do not have a credit card, and your landlord will not accept such a payment method anyway. You also do not have much in the way of collateral for a loan. You do, however, have a car. But, of course, you consider it essential. Without it, your ability to work is jeopardized. To your surprise, you find a lender willing to permit you to keep possession of your car while loaning you the $1,000 or so you need to make rent. The lender’s condition is simply that you repay the loan at a 300% annual interest rate in one month’s time.

You are smart enough to recognize that 300% APR would entail interest payments of $3,000 for a $1,000 loan—if the term were for a year. But because even the loan documents themselves contemplate a one-month term, you reason that this transaction will only cost you about $250. Yet, where things can go wrong, they often will. This maxim is particularly true for borrowers in fringe credit markets such as these. It happens that you are not able to make the full payment at the end of the month. Your lender is willing to accept an interest-only payment and roll over the loan for another month, an option you have no choice but to accept. But with a new $250 expense (in addition to the $1,000 owed in principal) built in to an already-fragile budget, you quickly find that you may never repay this loan. Yet, every month, you make those interest-only payments for fear of losing your vehicle and your livelihood. After months of dutifully making these backbreaking payments—indeed, after four months you will have paid back about as much in interest as you borrowed—you finally miss a payment and find yourself homeless and destitute, a victim of the repossession of the only asset you owned.

This scenario may sound outlandish, but it is all too common. Meanwhile, state legislators face a clear and consistent picture of the ills of this industry, yet across the nation they have prescribed inconsistent and ineffective regulatory schemes while largely grappling with the issue of whether title lending should exist at all. This debate misses the mark. Leaving these products unregulated is an abdication of legislative responsibility—an implicit nod to the industry that it is permissible to take advantage of the poor and the desperate. On the opposite end of the spectrum are those who would ban the products, but this approach is equally misguided. Title loans have the potential to produce consumer utility in the appropriate circumstances, and a flat ban is paternalistic and shortsighted. The federal government remains mostly silent on the topic. The problems with title loans are well understood, but a practical solution evades policymakers. Hiding in plain sight is a federal response to parallel problems and the corresponding creation of an entity with power—and indeed, a mandate—to regulate these transactions.

This Note will argue that the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”) calls for a solution to many of the practices associated with title lending, and that the Consumer Financial Protection Bureau (the “CFPB” or the “Bureau”) was created with a compelling mandate to bring such solutions to life. Part I of this Note will provide an overview of title lending, and will then proceed to analyze the three most-cited problems prevalent in the industry. Specifically, these ailments include the failure of lenders to consider a borrower’s ability to repay the loan, the failure of lenders to adequately disclose to borrowers the risks of these transactions, and the enigmatic “debt treadmill” spawned by monthly rollovers.

Parts II and III will combine to offer a novel contribution to the literature on title lending. Part II will identify why the CFPB is the appropriate actor to regulate title loans. But Part II will not only identify that the Bureau is the appropriate regulator; rather, it will also argue that the Dodd-Frank Act actually mandates that the CFPB regulate to address the concerns this Note will highlight. That is because title lending’s infirmities as identified in Part I are major sources of focus in the Dodd-Frank Act’s consumer-protection provisions. Finally, Part III will show how the Bureau might implement a regulatory scheme and enforcement regime that is compatible with its broad empowerment in the Dodd-Frank Act. This final Part will explore the application of Dodd-Frank-inspired solutions to the trio of title-lending issues laid out in Part I while also remaining sensitive to the fact that title loans are a unique fringe-credit product. Accordingly, Part III will tailor ideas from Dodd-Frank such that they apply to the industry in the most practical way. Along the way, this final Part will address anticipated counters to these proposals and will submit a framework designed to please advocates of both consumer protection and consumer autonomy alike.

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