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Corporate Criminal Liability Promotes Corporate Cooperation

July 29, 2009 11:52 PM

I'm going to respond to John latest arguments in my next post. Right now, though, I want to spend some time addressing one additional and critical purpose served by corporate criminal liability: obtaining cooperation from corporations in the investigation and prosecution of the individuals at the heart of white collar crime. Without the ability to threaten charges against the corporate body, such cooperation would be rare if non-existent. And without corporate cooperation, many serious white collar criminals would never be caught. Let me explain why.

For a number of reasons, the investigation and prosecution of white collar crime is extremely slow and resource-intensive. First, the crime itself is often very complex. Indeed, sophisticated white collar criminals do all they can to add to the complexity of their misdeeds by hiding them beneath layers of accounting tricks, false or fraudulent transactions, deleted records, and second sets of books. In a case of any significance, law enforcement might have to sort through hundreds of thousands or even millions of documents to unravel the criminal behavior. This work might take a team of investigative agents and multiple prosecutors years to carry out.

Second, white collar cases are often not open and shut. Many times, the key question is whether the individual defendants harbored the requisite criminal intent. The typical white collar defendant will plead good faith or advice of counsel. Specifically, he might claim that the action in question was, at worst, an innocent accounting mistake. Alternatively, the defendant might contend that he approved the questionable transactions, or the manner in which they were recorded on the company's books, only after carefully consulting with the corporation's accountants and legal counsel. In cases in which the prosecution alleges that the defendant stole from the company, he is very likely to claim that the money and benefits he "received" were merely "compensation" previously approved by the board.

These kinds of defenses are unique to white collar crimes; a bank robber, for instance, cannot plead ignorance of the law or claim that the bank approved of his (illicit) withdrawal. Moreover, they are difficult to overcome. At minimum, they require extensive interviews with the accountants, lawyers, and directors involved. If these individuals are not inclined to be cooperative, they must be subpoenaed to the grand jury and perhaps even granted immunity. In addition, countering these defenses often requires prosecutors to seek the advice of experts and prepare them for possible testimony at trial.

Third, major corporations and the individuals associated with them usually have the resources to hire excellent attorneys who specialize in white collar criminal defense. These attorneys have the ability to slow down an investigation to a considerable extent if they so choose. They can object to subpoenas duces tecum on a whole host of grounds, forcing repeated hearings relating to subpoena enforcement. They can claim attorney-client privilege and work-product protection of the documents subject to a subpoena, requiring the establishment of a system to filter the challenged documents to obtain a ruling from the court before government agents may see them. Defense counsel can advise their clients not to give voluntary statements to government investigators and to exercise their Fifth Amendment right not to be compelled to testify in the grand jury absent immunity. If they are coordinating their efforts through a joint defense agreement, counsel can ensure that this lack of cooperation is widespread, if not universal, forcing prosecutors to decide which potential witnesses to immunize in a situation of substantial uncertainty - something they are rightly hesitant to do. Unless it is fueled by a whistleblower or other inside information, these tactics - labeled the "delaying game" by criminologist James Coleman - can slow an investigation to a snail's pace, and perhaps even cause it to stall altogether.

Fourth, the difficult nature of white collar cases means that they often must be prosecuted bit by bit, as prosecutors unravel the wrongdoing and work their way up the corporate ladder. Charges are first brought against the lower-level employees, who are much more likely to have been caught red-handed, with the hope that their indictment or conviction will lead to cooperation against mid-level management. If this succeeds, the mid-level managers are prosecuted with the hope that they will implicate the responsible high-level corporate officials. If so, prosecutors can finally attempt to bring these individuals to justice. Of course, because they have insulated themselves from the criminal activity, they undoubtedly have the best chance of either escaping conviction or having it overturned on appeal, despite being the most morally culpable of the bunch.

Corporate cooperation shifts the balance of power dramatically. No longer foes, the corporation and the government team up to unmask the individuals at the center of the criminal activity, thereby getting to the heart of the matter quickly and efficiently. This is because the corporation has likely completed an internal investigation long before law enforcement arrived on the scene. If so, the corporation has already isolated the critical documents and witnesses, compiled witness statements, and identified the key culprits. If it willingly turns this information over to the government, a huge amount of time can be shaved from the investigative phase of the criminal case. Indeed, with corporate cooperation, the successful completion of a complex white collar prosecution might very well be reduced from a matter of years to a matter of months. This is not mere speculation: in the post-Enron era, DOJ has successfully prosecuted an unprecedented number of very large corporate frauds by convincing companies to cooperate against the individuals involved.

Without the possibility of a criminal conviction hanging over its head, however, a corporation has zero incentive to cooperate. By circling the wagons, it has a good chance of shielding its own from prosecution. And even if this strategy eventually fails, so what? A few individuals will be prosecuted and the corporation will continue on its merry (and probably criminal) way.

John will probably respond that forgoing this enormous benefit is the price we must pay because corporate criminal liability is morally offensive in a liberal state. I consider myself a very strong proponent of morality, but I just don't think it's that simple. More on this later.




Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.