Examining Corporate Crime

FEDERAL PROSECUTORS have announced when they will and will not prosecute corporations. The U.S. Department of Justice (DOJ) recently has issued revised guidelines for dealing with criminal acts by organizations.

The origin of the guidelines is a 1999 memorandum, “Federal Prosecution of Corporations,” by Clinton administration Deputy Attorney General Eric H. Holder Jr. The memo stated a no-tolerance policy, in which corporations “should not be treated leniently because of their artificial nature.” Prosecuting corporations can produce “great benefits for law enforcement and the public, particularly in the area of white-collar crime,” the memo continued.

Certain factors customarily influence a decision to prosecute. How strong is the evidence? Would a conviction likely deter similar conduct by others? Do equally effective non-criminal sanctions exist? The Holder memo addressed these questions and more, identifying eight considerations for prosecutors who want to indict a corporation: the nature and seriousness of the offense; the pervasiveness of the wrongdoing; prior conduct and enforcement history; timely and voluntary disclosure; the existence and quality of a corporate compliance program; remedial measures taken by the corporation; the ripple effect of a conviction; and concurrent or alternative regulatory and civil remedies.

This past February, Deputy Attorney General Larry D. Thompson completed revisions to the Holder memo in reaction to highly visible corporate fraud scandals. The new guidelines suggest that the government will bring criminal charges against corporations in only a “minority of cases.”

Nevertheless, this administration's policy directs local U.S. attorneys to closely examine the adequacy of a corporation's internal compliance program, determining whether they are “truly effective” or “mere paper programs.” Another area of focus will be a company's level of cooperation with law enforcement. “[T]oo often business organizations, while purporting to cooperate with a [DOJ] investigation … impede the quick and effective exposure of the complete scope of wrongdoing,” Thompson says.

Although the Holder memo and Thompson's revisions are similar in substance and focus, the new policy stresses the nature and seriousness of the offense, which may “warrant prosecution regardless of the other factors.” Moreover, prosecutors must now scrutinize the role of the corporate board. Whether the directors exercised independent judgment or simply “ratif[ied] officers' recommendations” will be examined, along with whether the directors were provided with sufficient data and information to enable them to make an independent judgment. Also, did a company's reporting systems facilitate a fully informative picture of its compliance with legal requirements?

The increased focus on corporate governance presents at least one obvious risk: Will a corporate officer's or manager's crime automatically condemn the corporation's compliance program with no consideration of how individually motivated the perpetrator may have been? Fair-minded prosecutors should measure the overall strength and efficacy of such a program without undue emphasis on its failure to prevent a particular incident.

To review the guidelines, visit www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/crm00162.htm.