Prosecutors in the boardroom.
Is that what we want?
Whether we want it or not, that’s what we’ve got.
Anthony Barkow is co-editor of a book by the title – Prosecutors in the Boardroom: Using Criminal Law to Regulate Corporate Conduct (NYU Press, 2011).
He’s a former federal prosecutor. And he’s now a partner at Jenner & Block in New York.
Barkow’s book raises the red flag about the rise of deferred and non prosecution agreements to settle corporate crime cases.
“The book is definitely critical of the practice,” Barkow told Corporate Crime Reporter in an interview last week. “But in a lot of ways, the book raises and explores the practice without necessarily condemning it. It does put forward a policy blueprint of ways the practice could be improved. But it’s a practice that is here to stay.”
“You can argue the practice should just stop, but that’s not going to happen. Reformers need to accept as reality that this is the way it is and the way it is going to be.”
But prior to the Arthur Andersen case, in fact this wasn’t the practice. The practice was either indict, convict or drop the case. There was an immediate change.
“It was more corporate prosecution catching up with what was happening in the criminal justice system as a whole,” Barkow says. “It used to be that individual defendants went to trial all of the time. Now, 95 to 97 percent of individual defendants plead guilty without going to trial.”
“And in some ways, this is a reflection of that. And it’s a reflection of the way that criminal prosecution in general has shifted to cooperation with the government.”
“In the corporate arena, it was slower to get there. But it has caught up. The incentives are very strong for corporations to cooperate with prosecutors, to conduct the investigation themselves into the wrongdoing and cooperate with the government by reporting to the government, sharing information and facts with the government so as to avert a corporate prosecution, or resolve the prosecution by entering into a deferred or non prosecution agreement.”
“You have the entity acting in some ways as a cooperator against the individual potential defendants, who might be executives, or middle or lower level management or employees who actually carried out the wrongdoing.”
“This all happens against a backdrop of respondeat superior liability where the corporation is essentially liable for the acts of any of its employees. If one of its employee commits a crime, the corporation can be prosecuted.”
“So, the corporation has an incentive to root out those wrongdoers, cooperate with the government, and purge the wrongdoers, potentially pay a fine, agree to compliance measures and move on with its business.”
Didn’t the rise of deferred prosecution agreements shift power to the defense side?
“It gave new powers to both the defense and the government – powers that weren’t there before,” Barkow says. “The government is securing reforms that it couldn’t secure absent this practice.”
With criminal prosecution, the government can get probation, probationary orders. There are ways to get to the same end with criminal prosecution.
“That’s true,” Barkow says. “But this is less risky and happens a lot faster. It also happens on the front end, allows the government to prosecute individuals and incentivizes the corporation to cooperate more.”
Clearly, corporations want to preserve this system. They prefer these agreements over pleading guilty.
“I would say yes and no,” Barkow said. “Yes – it is preferable to enter into a deferred and non prosecution agreement than to be charged and convicted. And that’s why corporations do it.”
“But, because this mechanism is easier on the government, it allows the government to do it more often. And thus it subjects more corporations to enforcement. It expands the government’s reach. It allows it to target more corporate entities.”
“So, once corporations are in the crosshairs, they would prefer a deferred or non prosecution agreement. But obviously, they would prefer in the first instance to not be subject to government scrutiny at all. “
Without these agreements, we wouldn’t be seeing this level of enforcement?
“That is probably likely,” Barkow says. “These agreements allow the government to leverage its limited resources, to bring more cases, to threaten more actions, and reach more resolutions that it would absent these resolutions.”
“Just look at the Fraud Section of the Department of Justice and the number of deferred and non prosecution agreements it has entered into over the past five to eight years. There is no way that Section – which was really small four years ago – could have pursued that many prosecutions. The reason they were able to do it was that these were agreed to early on.”
“The securities unit in the Southern District of New York ranges from 15 to 25 people at any given time. But if it can enter into deferred and non prosecution agreements against a number of corporations, that probably takes less work than actually prosecuting one of those corporations all the way to trial.”
In the old days, you would prosecute and get the plea, or drop the case. You didn’t go to trial.
“That’s true,” Barkow says. “But it depends how far down the road it goes. From the government’s perspective, with these agreements you get the cooperation of the corporation against particular individuals.”
[For the complete q/a format transcript of the Interview with Anthony Barkow, see 26 Corporate Crime Reporter 44(12), November 12, 2012, print edition only.]