The Department of Justice (DoJ) has caved in to a battalion of corporate and white collar crime defense attorneys and academics who have twisted the logic of law into pretzels on behalf of their clients, by announcing a new policy that will make it more difficult for federal prosecutors to prosecute corporations for the crimes their employees commit.
The DoJ is, in effect, restraining federal prosecutors with new guidance that says e-mails, letters, faxes and other communications between a company's attorneys and other executives can only be sought in rare circumstances.
Why? Because it is now understood that compelling companies to cough up communication between corporate lawyers and corporate executives is a violation of the attorney-client privilege rights of white-collar defendants and the corporations.
Note the logic here. The "client" of the corporate attorneys is deemed to be the corporate executives who might be breaking the law (e.g. committing accounting fraud) -- not the shareholders -- the people who actually own the company, who they are often caught ripping off.
So much for having learned anything from that tickertape of corporate financial scandals know as Enron, Adelphia, Global Crossing, WorldCom, etc. etc.
Paul McNulty, the deputy attorney general who issued the new policy this week told the Senate Judiciary Committee earlier this year that most corporations are anxious to co-operate with government investigations and therefore very rarely need to be compelled to surrender privileged information. They choose to do so voluntarily in order to shorten investigations that are bad for their image and share price. But that wasn't enough for the members of the committee who threatened to pass a law changing the policy.
It's no surprise that the Bush DoJ has mounted a tepid defense of corporate criminal liability. It's not as if they want to see Halliburton dismantled for war profiteering. In fact, they haven't really pursued it at all in recent years -- apart from a few antitrust cases, there hasn't been a single corporation that has been criminally prosecuted. In large part that's because companies have been obtaining what are known as "deferred prosecution agreements" -- i.e. agreements to cooperate in an ongoing investigation in exchange for a guarantee that the company itself won't be charged for a crime.
Apparently that's not enough. So now, pressured by the American Bar Association's white collar crime group, as well as Congress, the policy outlined after Enron in the so-called Thompson memorandum (2003), which says federal prosecutors must weigh the level of a corporation's co-operation with the government when deciding whether to indict the company, has been scrapped.
As I've said, the idea that federal prosecutors have been overeager in pursuing corporate crime is a wild exaggeration. The example that's always used is Arthur Andersen -- which was criminally prosecuted for obstruction of justice in the Enron case. I'm sick of this shit. Let's review: who shredded Andersen's reputation, prosecutors or Andersen itself?
For one, it's always conveniently forgotten that Andersen refused to settle the matter with a deferred prosecution and instead chose to go to trial, where it was convicted by a jury. The decision was overturned by the Supreme Court, but the damage was done, and ever since DoJ has been reluctant to criminally prosecute any big companies. (How many other banks, accounting firms and law firms do you know that have gotten away with aiding and abetting that cornucopia of corporate corruption witnessed since then?)
You may say that proves the point, but accounting firms build their business on their reputation for integrity, especially when it comes to auditing. And Andersen had already failed to prevent accounting frauds at Waste Management and Sunbeam before Enron came along. So it wasn't exactly the first time the firm had been caught. Moreover, Andersen was later implicated in Global Crossing and WorldCom, so there's no guarantee it would have survived those subsequent blows to its reputation.
No, what's going on here is not some necessary fix to federal policy. What's really going on here is that, five years after Enron, with Kenny Boy dead and Skilling finally on his way to jail, the corporate criminals are back on the attack against any type of accountability -- whether it's the accounting firms seeking a liability cap (i.e. use their status as a cartel to argue that they are too big to be prosecuted), or the slow evisceration of Sarbanes Oxley, or the evasion of any responsibility for skyrocketing CEO pay, the backdating of stock options, etc.
And rather than pursue these brazen strategies openly, as usual they pursue them through trade associations and front groups that are dressed up like "blue ribbon" commissions, including the Chamber of Commerce, the Business Roundtable and the so-called Committee on Capital Markets Regulation -- more aptly called the committee to Defend Corporate Criminals in Our Midst (DEFCOM) by the Corporate Crime Reporter. Last week, the CCMR recommended that "the Justice Department revise its prosecutorial guidelines so that firms are only prosecuted in exceptional circumstances of pervasive culpability throughout all offices and ranks." And so, their recommendation is now DoJ's policy.
Apart from the fact that DoJ has already been extremely reluctant to prosecute anyone after taking it on the chin for Andersen, it's amazing how in so short a time this has become the conventional wisdom. In fact, some corporate crime experts and academics -- notably University of Chicago Law Professor Richard Epstein -- want to take it way beyond the recent thrust toward accountability, and roll things back much further. Epstein, for one, has asserted that corporations should never be criminally prosecuted.
What, has this guy ever heard of Bhopal? the Valdez? the Pinto? Dalkon Shield? Thalidomide? ADM?
Perhaps the venerable constitutional scholar ought to explain why corporations can have the status of persons (under the 14th Amendment) -- and thus enjoy the rights of speech and other rights originally intended for living, breathing human beings, but then can't be prosecuted like people can for crimes.
In fact, the prevailing wisdom is that corporations in the U.S. can be prosecuted for crimes. But that has not always been the case, as it used to be argued that corporations lacked mens rea (a "directing mind") essential for determining criminal guilt. Perhaps prof. Epstein would like to see this perspective prevail once more.
Arguments opposing corporate criminal liability have slowly fallen away. Probably the most significant reason why is because corporations are more readily identifiable than the humans within them as responsible for criminal behavior, and have the deep pockets where the loot is hidden that can be used to compensate victims. (Of course, even then the restitution is rarely enough.)
But there's another reason that has to do with the nature of corporations themselves. Corporations are legal constructs as well as institutions. The incentives driving these institutions often push the individuals who wish to succeed within them to the boundaries of what is permissible under the law. Penalties and fines are routinely viewed as "the cost of doing business" (i.e. an acceptable price -- at least acceptable to those who stand to gain). This dynamic is what has led leading corporate crime experts to describe corporations as "criminogenic" cultures. And when that is understood, it is easy to understand why it is not enough to prosecute a "few bad apples." Things are less likely to change if you don't address the design of the system itself. That requires going after the corporation as the source of the problem.
When our cars or computers don't work right, we have them repaired or get a new one. Similarly, we need to address the structural nature of corporations if we ever wish to get at the underlying causes of corporate crime -- and yet now the official policy is -- "don't go there."
Corporations are sophisticated, complex, adaptive, and continually evolving. They are paradoxically both mindless and intelligent at the same time -- governed by an array of internal and external incentives and programs. To deal with the complexity of the flaws in the corporate system -- especially crimes that harm so many people each year -- prosecutors should be given all the resources necessary and tools available to pursue the culprits and causes of corporate crime.
In short, we should be putting the handcuffs on the real criminals, not the cops on the corporate crime beat who want to do their job.