Denis McInerney, the nation’s top corporate crime prosecutor, last week defended the Justice Department’s practice of using deferred and non prosecution agreements in major corporate crime cases.
McInerney, the Criminal Division’s Deputy Assistant Attorney General, faced a flurry of questions and criticism at last week’s Corporate Crime Reporter conference at the National Press Club.
McInerney appeared on a panel moderated by Steven Fagell, a partner at Covington & Burling.
Also on the panel were David Uhlmann, the former chief of the Environmental Crimes Section at the Justice Department, and currently a Professor of Law at the University of Michigan, Michael Koehler, a Professor of Law at Southern Illinois University School of Law, Kathleen Harris, a partner at Arnold & Porter in London, and Anthony Barkow, a partner at Jenner & Block in New York.
McInerney said that deferred and non prosecution agreements are “a product of the reasoned judgment developed over time by prosecutors — to incentivize companies to do all the things that we want them to do, especially starting with disclosing the misconduct when it is uncovered, and then going through the cooperation they can provide in us getting to the people who engaged in the misconduct.”
But, Uhlmann said that “this is not about cooperation.”
“Cooperation can be obtained through plea agreements,” Uhlmann said. “This is not about structural reform. Structural reform can be obtained through plea agreements — and maybe better obtained through civil consent decrees. This is about a profound ambivalence in parts of the Department about the very notion of corporate criminality.”
During the question period, McInerney was asked whether he was profoundly ambivalent about corporate criminal liability.
“No, I’m fully in favor of it,” McInerney shot back. “I’m not ambivalent in the least. It’s an appropriate thing to have. As a result of it, and the enforcement of it over the last ten, twenty years, we have seen a complete radical change in how the corporate world behaves in a very positive way. It’s a good thing. And continued aggressive enforcement of it, that is also incentivizing companies to do the right thing, is exactly where we should be and where we are.”
Uhlmann was not convinced.
Nor were many in the audience, which included many members of public interest organizations who organize to curtail corporate crime.
“Why is it the case that in the Criminal Division, primarily in the Fraud Section of the Criminal Division, there is widespread use of these agreements, but in the rest of the Department, which do more corporate criminal prosecutions, they are hardly used at all?” Uhlmann asked.
McInerney never answered that question, even though it was asked a number of times.
“The better practice is for the Justice Department to make up or down decisions in the area of corporate crime,” Uhlmann said.
“In the area of corporate crime, if the Justice Department believes that a crime has occurred, the Justice Department should bring criminal charges,” Uhlmann said. “There is no more important role that the Justice Department plays than its role investigating and prosecuting crime. And if the Justice Department believes that a particular case warrants criminal prosecution, it should bring criminal charges. It should not sacrifice criminal prosecution to a private agreement never entered in court, never overseen by a judge in any meaningful way that doesn’t involve any public hearing, that doesn’t involve any corporate officials coming into the courtroom admitting guilt.”
“On the other hand, if the Justice Department doesn’t believe that a criminal prosecution is necessary or warranted, then they should decline. They should decline prosecution in favor of — in most cases they have the option of civil or administrative enforcement.”
“Instead we have a situation with deferred and non prosecution agreements, where if the terms are attractive enough, the company can avoid criminal prosecution. I’d suggest to you that gives the impression, rightfully or wrongdoing, that gives the impression that justice can be bought.”
“I’m not suggesting that there is no deterrence from these agreements because clearly there is,” Uhlmann said. “I’m not suggesting that there is no punishment from these agreements, because clearly there is. What I am saying is that there is less deterrence and less punishment.”
“We send a very strong and very important message when we label conduct as criminal. When we condemn conduct as criminal, it is very different from anything else we do in our justice system.”
“We rob the expressive value of criminal prosecution when we say corporate crime can be handled through deferred prosecution or non prosecution.”
“These are not criminal resolutions. There is no guilty plea. There is no sentence. There is no official proceeding. And we take something essential away from from the role of criminal prosecution when we do that. It’s a mistake.”
“The mischief is not just that we are doing so many of them. But there is no case that is too big.”
“The Upper Big Branch mining disaster was the worst mining disaster in over 40 years,” Uhlmann said. “Twenty nine people died. There were hundreds of willful violations of the Mine Health and Safety Act. The were a double set of books — one for health and safety inspectors one for the company. As a result, the government didn’t know about the violations. Twenty-nine miners dead. And it results in a non prosecution agreement. Great terms. Lots of money for victims. Prosecution of individuals. The largest fine ever for mine health and safety. But no criminal prosecution of the company. That is a terrible mistake. It’s because of this policy. The policy should be changed.”
Koehler, who runs a popular web site called FCPAprofessor.com, said that 83 percent of all Foreign Corruption Practices Act (FCPA) enforcement actions have been resolved with deferred and non prosecution agreements — including 100 percent of them in 2012.
“The Department has become so uncomfortable with the traditional notions of corporate criminal liability that they have constructed and indeed championed this alternative reality that is equally problematic,” Koehler said.
“There have been egregious instances of corporate bribery engaged in by senior executives with board knowledge and approval that have been resolved with NPAs and DPAs,” Koehler said. “This facilitates the under-prosecution of corporate crime.”
“When DPAs and NPAs are used in FCPA context, there is only a 6.5 percent chance that any individuals are going to be held accountable,” Koehler said. “When a corporate plea is used, there is an 83 percent chance that an individual will be held accountable.”
“These resolutions have had a troubling, distortive and toxic effect on this one area of law,” Koehler concluded. “There is no judicial scrutiny of most fcpa enforcement theories.”
“Of course, the Justice Department is in favor of these because it makes their job easier. Of course, the FCPA bar and FCPA Inc. is in favor of these it expands the market for legal services.”
McInerney was not buying turning the clock back to a time when corporations pled guilty to their crimes.
“When you say they could just plead guilty, you are wiping out in a large measure the incentive for a company to do all the things I’ve described the company is doing nowadays,” McInerney said.
“If the company is going to just say after I uncover misconduct, if I disclose it, if I fully cooperate, if I remediate, I terminate the wrongdoers, I get our act together in a completely robust way, at the end of that whole process, what the Department will want is a guilty plea, why would I do it?”
“You are disincentivizing companies in terms of doing the right thing. You are not crediting companies for doing the right thing.”
“If we had a world where prosecutors made up or down decisions, as some on the panel are advocating, and the Department chose to decline prosecution and we proceeded with civil sanctions by the SEC in the FCPA space, could we achieve the same sort of compliance and incentives through that model than through the current model?
“I don’t think so,” McInerney said. “The threat of criminal prosecution is the big threat. It is the thing that has changed dramatically how the corporate world operates nowadays. If you purely left it to the civil litigants, the regulators like the SEC and the CFTC — that’s helpful, but it’s not as compelling. Having spent 15 years in private practice working with many companies, I think I’ve seen enough to persuade me companies will respond to the threat of criminal prosecution in a way that’s very different than the way they will respond to a civil sanction of some sort.”
UhImann said he agreed that corporations “respond to the threat of criminal prosecution in ways different from civil enforcement — criminal enforcement is a tremendously important part of any regulatory system.”
“I was trained from my earliest days as a prosecutor that it was wrong, that it was a violation of Department policy to threaten criminal prosecution to extract anything in the civil context, to lord criminal prosecution over people to try and get them to do things. I get really uncomfortable when I hear that we need to have a threat of criminal prosecution if it’s in cases where we are not prepared to bring criminal prosecution.”
“Let’s be clear,” McInerney said. “In these cases, we have concluded that there was criminality.”
Koehler: “That’s not what your former boss said. In September, Lanny Breuer’s direct quote — ‘companies know that they will be answerable for conduct that in years passed would have resulted in a declination.’”
McInerney: “Let me be very clear. That’s not at all inconsistent at all.”
Koehler: “It’s not?”
Uhlmann: “Sure it is.”
“If the government has the goods to bring a criminal case, by all means,” Uhlmann said. “There is a lot of negotiating that takes place there. You can give incentives. Lanny Breuer also talked about prosecuting subsidiaries, as if that was a new development. That actually has been done for twenty years. But that’s a way you incentivize cooperation. You can allow people to plead to lesser charges. That’s another way to incentivize cooperation.”
Barkow said that “one the primary policy justifications — or certainly a significant policy justification — is — getting DPAs and NPAs is easy.”
“It’s a lot easier than charging a company,” Barkow said. “And it’s a lot easier than charging it and to try to get a plea. And it’s an easier way for prosecutors to get what they want and think what they are supposed to get. That’s an argument against it. And it’s an argument in favor of making prosecutors make up or down decisions. But I don’t think that the Department would disagree. It’s an easier way to get things. There is no neutral adjudicator. Respondeat superior makes it really easy to charge a company or threaten to charge a company. And you can extract a settlement and extract cooperation to make the company do the work that the prosecutors can’t do themselves because they don’t have enough resources.”
“And they can broaden their net. That’s an inversion of our system because it gives prosecutors power to meddle in the business of companies. It makes it easier for prosecutors to get these things because there is no one there to check it.”
“And at the end of the day, it’s the same thing you see in handling non white collar crime cases. It’s really easy to get someone to cooperate when they face 55 years in jail. They have no other choice other than to flip and cooperate. It’s importing some of that power imbalance into the corporate crime arena. And that’s the way the federal criminal system operates now. And I would suggest that it has just empowered prosecutors too much to get things too easily that they really should be getting in some situations.”
Koehler said that while the UK is poised to import deferred prosecution agreements, they have rejected the idea of importing non prosecution agreements.
“And the DPAs that are likely to become official in the UK in 2014 are materially different than ours,” Koehler said. “There is judicial involvement very early on and it includes a contemplated preliminary hearing. So, the notion that our model is being exported is not true.”
But Harris, who practices with Arnold & Porter in London, wondered how much different the UK model will be from that in the United States.
“The UK DPA model will have a provisional hearing in private where the judge is invited to take an early view as to whether or not it is in the interest of justice to proceed with an individual DPA,” Harris said.
“And that is to alleviate some of the concerns in relation to the public interest and some of the concerns in relation to the US model about transparency. What you may well find is that those issues they discuss in private, which one would have to say would have to be pretty meaty to decide when to enter a DPA, would never make it into the public light. And what you might end up with is a kind of final hearing with a very precise agreed set of facts to be read out to the public. And I wonder in reality whether it will look any different to the wide ranging settlement that you finally see as a DPA in the United States.”
“There are features in the US model that will creep into the UK system,” Harris said. “The UK is trying to prevent that at the outset by saying they are going to issue a code, to talk about there being a thorough investigation. I’m not sure if the practical reality of the UK system is going to end up any different from the US. It’s certainly going to need a lot of safeguarding to satisfy the public interest.”