For the most part, it’s the big corporations getting the deferred and non prosecution agreements, while the small companies get the plea agreements. And there are cases where, for some reason, the Justice Department refuses to release the deferred or non prosecution agreement.
“There are about two dozen that I know of where the agreement itself has not been made public,” Garrett told Corporate Crime Reporter in an interview last week. “There is a press release or some other public announcement that an agreement has been reached. We know there is an agreement, but we just don’t have a copy of it. Most of those are non prosecution agreements, where you can’t get a copy of the agreement from the docket sheets.”
Are the documents not released because defense attorneys are saying to the Justice Department — we don’t want you to release this document?
“We don’t always know,” Garrett said. “Some of the prosecutors were contacted by the University of Virginia Law Library and the prosecutors said that the case was sealed by agreement of the parties. Others haven’t provided an explanation.”
The Law School’s First Amendment Clinic has sued to get one of these agreements. This is the first litigation in this area, right?
“As far as I know,” Garrett said. “There was litigation over a monitor’s report in one case. But this is the first case seeking a copy of a corporate prosecutor agreement.”
Why did the clinic pick this non prosecution agreement?
“I don’t think they picked this particular agreement for any reason other than it was the first in the alphabet,” Garrett said. “It was the ABC Tree Company. There was nothing special about it. It was not one of the bigger companies and not one of the bigger cases. It is just the first in a nice sized list of prosecution agreements that haven’t been made public. There was a press release. This was not a secret deal. And the terms of the agreement weren’t being released. And the folks of the clinic thought this was an issue of important public concern. And to the extent that there was anything confidential, there is no reason why it couldn’t be blacked out of the agreement. But it seemed odd that the entire agreement would be kept out of the public eye.”
There could be an agreement between the prosecutor and the defense attorney not to release the document”
“Presumably there is some kind of an agreement like that. And it’s all so odd. There are particular U.S. Attorney’s offices that tend to allow these agreements to be kept confidential. It certainly doesn’t seem like a good practice, if your goal is to deter corporate misconduct. You want other companies to see what happens if you get prosecuted.”
What about transparency generally at the Department of Justice when it comes to corporate criminal prosecution?
“This is not a transparent area,” Garrett said. “The Justice Department does release agreements, but the agreements are not particularly detailed. When they are detailed they look not that different if there had been an information or indictment had the case gone forward without a settlement.”
“The settlement agreements often do not have a lot of detail in terms of what they are requiring a company to do by way of compliance. And once the agreement is entered, there is very little that is made transparent about what is done to implement the agreement. That said, some of these agreements are extremely detailed. And some groups of prosecutors take these agreements very seriously and treat them as an opportunity to carefully report about corporate misconduct and to carefully report about what steps must be taken to prevent the misconduct from occurring.”
“So, there are real model corporate prosecution agreements out there. And then there are others that seem like brief recitations of boilerplate.”
How would it break in terms of percentages?
“I try to characterize them in different ways,” Garrett says. “How many have a statement of facts, how many of them require admissions of misconduct. Most agreements have some kind of statement of facts. You can’t evaluate them by asking — how many pages of statement of facts do they have? One problem is — we don’t know. It could be that there was very little misconduct to describe. And that’s why the statement of facts was so thin. Or it could be that there was a great deal that went wrong and it is simply not being disclosed in a statement of facts.”
“That is one reason it is so hard to evaluate these things from the outside. Of course, prosecution agreements sometimes look good compared to the civil alternatives. Many observers were disturbed by the civil settlements in the JP Morgan case a few weeks ago where the statement of facts there was quite bare, did not include clear admissions of wrongdoing, nor clear descriptions of what was done. Some observers wondered whether the statements like that could have been based on media accounts. There wasn’t a lot of new information. There is a concern that if you think some prosecution agreements are bad, some of the civil alternatives might have been even more bare bones.”
Judge Jed Rakoff made a speech last month touching on these issues.
“It’s a wonderful speech,” Garrett said. “His view is that individuals have to be prosecuted to deter corporate misconduct. His view is that prosecuting the corporation itself doesn’t add anything and instead can have collateral consequences.”
“I agree with him that it is a serious concern that corporate prosecutions can look like an artificial scapegoat. The entity gets prosecuted, pays some fine, agrees to do some compliance that may or may not be cosmetic, while the individual wrongdoers get off free. If that happens, that is a terrible message to send. And he’s particularly focused on post financial crisis prosecutions where there have not been many prosecutions of individual wrongdoers and where the few prosecutions against major banks have been deferred prosecutions.”
“My data support many of the things he says. In the cases with deferred and non prosecution agreements, very few employees or offices are prosecuted. Only about a third of the cases involve individual prosecutions.”
Garrett is out next year with a new book — Too Big to Jail: How Prosecutors Take on Corporations (Harvard University Press, Fall 2014).
“I spent a lot of time in my book in progress on data from these agreements suggesting that compliance is often described in terms that are vague and lead to the concern that the compliance might be cosmetic,” Garrett said. “Most of the agreements also don’t require monitors to oversee compliance. And the fines are typically lenient and involve reductions far below what the guidelines would require.”
“If the trade off is — we are going to handle your case in a lenient way, using alternatives to prosecution, your fines will be reduced, but in exchange we demand serious compliance — it’s not so clear that serious compliance is being demanded. It may just be a lenient deal all around. When you combine that with the under prosecution of individuals, then there is real cause for concern.”
“I paint a slightly more optimistic picture in my book because I do think that there are model agreements out there where even though no individuals were prosecuted, it looks like the company is being shaped up. Sometimes reforming an entire company really is a better outcome than punishing a group of employees that the company can easily replace. And I’m not convinced that singling out a few individual employees really is a good alternative to prosecuting the company.”
“I’m also not convinced by the argument that holding companies accountable is something regulators should do. I disagree with that because we have seen so often in the past that regulators don’t have the resources to be tough enforcers and that having prosecutors in the picture can help regulators do their job better since prosecutors can marshall more substantial investigative resources. And it’s not an either/or proposition.
In so many of these cases, regulators work with prosecutors and they enhance each other’s enforcement capability. I don’t buy the argument that these cases could be handled equally well by civil authorities.”
“If we could have all of our dreams answered and Congress would simply give ten times more money to regulators, that might be a better system than having prosecutors involved.”
“From my perspective, there is no moral gain to prosecuting a company. The purpose isn’t to hold an artificial entity morally accountable. The purpose is to force the company to comply and to deter criminal behavior in organizations. We wouldn’t have to have a system where prosecutors are the last line of defense. But we do have a system like that. So, it’s important not to abandon corporate prosecutions but instead think about the ways they can be made more effective.”
“Other judges have raised this concern — that in order to prosecute a corporation, there must be an individual employee who committed a crime. How can you have a situation where a company admits that crimes occurred and yet no individual person is held accountable? Something seems wrong there.”
“That said, I can see where prosecutors, who have limited resources, would rather hold the company accountable. It might take years and years to try to unravel who did what. Or if it’s a situation where 60 people find the document, how do you figure out which was the one who should most be held criminally responsible? Maybe you just want to make sure that no document like that is ever signed again at the company.”
“Take some of these pharmaceutical cases. There might have been tens of thousands of employees who were marketing a drug in a way that violated regulations. Are you going to prosecute all of them?”
“I can see why there is an even deeper moral concern. There are areas where federal prosecutors are willing to prosecute large numbers of individuals who didn’t do anything violent.”
“Think of all of the immigration prosecutions, which are about half of the federal docket. Those individuals are being prosecuted for civil violations — violations of immigration statutes. And for a chiefly regulatory purpose — having to do with regulating entry through the borders. Most countries don’t treat immigration violations as a crime. So, there is a moral and philosophical question about whether immigration crimes should be crimes. But that’s an area where we are willing for policy or philosophical reasons to put an awful lot of individual people under criminal sanction. And not because they did anything violent or because they damaged property.”
“Same is true for so many federal drug prosecutions involving non violent first time offenders. The purpose was to regulate the federal drug trade. You are talking about people who merely possess drugs and who didn’t do something violent. And they were not kingpins organizing the drug trade. There are at least some analogies to be made to the non prosecution of low level people at legitimate entities. And low level people at legitimate entities don’t typically have to live in fear of prosecution. And that’s not to say we should be prosecuting lots of low level corporate employees just like we prosecute lots of low level people in the drug trade. It’s just to say that if we are going to be lenient in corporate cases and focus on rehabilitation, maybe we should be focusing on rehabilitation more broadly.”
“In corporate cases, prosecutors say they are focused on rehabilitation of the corporation. And apparently prosecuting individuals isn’t the central goal. But rehabilitation is not a big priority in most other areas that federal prosecutors work in.”
“Right now my thinking is that it’s understandable that sometimes prosecutors focus just on the corporation if they don’t have the resources to track down the individuals. But if prosecutors are not going to meaningfully prosecute individuals, they had better have an effective deterrent to corporate misconduct. Sometimes it is sensible to focus on the corporation. We all know, although it is hard to pin it down, that corporate culture is important. And we know that crimes can have far greater seriousness and people can cause far greater harm because of the role of organizations. Focusing on organizations is really important. It would be wrong for prosecutors to neglect organizations and simply think about corporate crime in individual terms.”
“That makes it all the more important that prosecutors have a well informed approach toward holding the corporation itself accountable. If there are going to be cases where only the corporation gets prosecuted, it better get prosecuted right.”
[For the complete transcript of the Interview with Brandon Garrett, 27 Corporate Crime Reporter 48(10), December 23, 2013, print edition only.]