Corporate Crime Reporter
18 Corporate Crime Reporter 1(10), January 5, 2004
INTERVIEW WITH E. LAWRENCE BARCELLA, PAUL,
JANOFSKY & WALKER, WASHINGTON, D.C.
When Deputy Attorney General James Comey called a snap press conference at the Justice Department last week – the week between Christmas and the New Year – reporters were obviously suspicious.
Something was up.
When he took the podium, his assistant Christopher Wray was not looking at all happy.
The reason: Wray was about to be stripped of his authority over the CIA leaks case (See “Why Did Comey Appoint Fitzgerald?” page one)
Comey appointed his good buddy Patrick Fitzgerald, the U.S. Attorney in Chicago, to take over the investigation.
For months, the Justice Department had been repeating the manta – we are professionals, we can handle this investigation.
And then, all of a sudden, they pass it off to Fitzgerald, who is the middle of a high profile criminal corruption prosecution of the former Governor of Illinois, George Ryan.
So, what’s going on?
To gain some insight into this deal, we called on E. Lawrence Barcella.
Barcella is a partner in the Washington, D.C. law firm of Paul, Hastings, Janofsky & Walker.
We interviewed Barcella on December 30, 2003.
CCR: What law school did you graduate from and what have you been doing since?
BARCELLA: I graduated from Vanderbilt Law School in 1970. I was an assistant U.S. Attorney in Washington, D.C. until 1986. I have been in private practice since.
CCR: What is your private practice?
BARCELLA: It is a very broad based white collar litigation practice.
CCR: What was your involvement with independent counsels?
BARCELLA: Throughout the years of its existence, I represented either targets, subjects, or witnesses in eight or ten of the independent counsel investigations. There were a number that never became public – although I was involved in one of them.
CCR: The law that allowed for the appointment of an independent counsel is dead and gone. And you believe that is a good thing.
BARCELLA: It oftentimes created a counsel that was primarily independent of prosecutorial balance and perspective. You created a prosecutor that often had little prosecutorial experience. They were wonderful lawyers, experienced lawyers, but not necessarily lawyers that had either prosecutorial or white collar experience.
Second, you focused them on a single incident or a single individual to the exclusion of everything else. And the first victim in any independent counsel investigation usually ended up being perspective. You created a situation that by its nature lacks perspective.
And then, of course, the statute required a written report.
That undermined the whole concept of an Independent Counsel, who shouldn’t have been required to justify their decision in writing.
Since most lawyers – and certainly the ones who would be Independent Counsel – are Type A personalities, they will tend to write an exhaustive report that explains in excruciating detail what they did and what they found.
Oftentimes you would end up with those reports slamming the people who were the subjects or targets of the investigation, even when no prosecution was initiated or warranted. If the idea is to choose someone with independent judgment, they shouldn’t be required to justify their decision in that manner.
CCR: The point of the independent counsel statute was to avoid what we saw today. A couple of hours ago, the deputy attorney general, James Comey, went before reporters at the Justice Department and announces that Attorney General John Ashcroft has decided to step out of the CIA leak investigation case, to avoid the appearance of a conflict of interest. Comey appointed the U.S. Attorney in Chicago to investigate the case. He said he did this to take it out of the direct chain of command at the Justice Department.
I asked Comey – does the Attorney General have the authority to fire the U.S. Attorney? No, he said, that would be the President who fires U.S. Attorneys. He said he didn’t know whether he Comey had the authority.
So, you still end up with someone within the system doing the investigation.
BARCELLA: With the rarest of exceptions, that’s really not a problem. The more high visibility the investigation, the less of a problem.
CCR: But you still have the potential for a Saturday Night Massacre.
BARCELLA: In the initial Watergate investigation, when the White House felt that certain changes had to be made, they made a direction to the Attorney General, he resigned. They made a direction to the Deputy Attorney General, he resigned. And finally, the Solicitor General ended up carrying out the direction to fire the independent counsel.
CCR: And that was Robert Bork.
BARCELLA: And it ruined his chances to be on the Supreme Court. And it was also probably the last act that ended up predicting the resignation of Richard Nixon. The system worked in a sense. There are different ways in which the system can work. And I don’t think that you necessarily always need to have an independent counsel to take care of those situations.
That having been said, what the Deputy Attorney General did today is not really the kind of action that the special counsel regulations contemplated. Usually, what is contemplated is that you bring somebody in from the outside, who would still be theoretically under the Justice Department’s umbrella, but is from the outside.
CCR: Comey was asked about this. He said that he considered bringing somebody in from the outside. But he decided to appoint the U.S. Attorney from Chicago because he felt this would give the special prosecutor more independence. He said that under the special counsel regulation, the special counsel has to report to Comey issues of major import.
This way, he tells Fitzgerald, I want you to call it as you see it. Don’t come back to me unless you need more resources.
BARCELLA: And I can understand it may well work that way. One of the worst decisions that was made under the independent counsel statute was the replacement of Bob Fiske, who was appointed under the special counsel regulations, with Ken Starr. That was not done by the Justice Department. That was done by the Special Division of the U.S. Court of Appeals for the District of Columbia for Appointing Independent Counsel.
CCR: Why was that done?
BARCELLA: It has always been an interesting question as to why it was done. The special division has never really had to justify why it was done. They had the power under the statute. There was a brief period of time when the independent counsel statute lapsed. It was during that period of time that the original Whitewater allegations came up. That is when Bob Fiske was appointed. Bob Fiske is one of the most highly regarded, one of the most experienced trial lawyers and white collar lawyers in the country.
When the independent counsel statute was re-enacted, the special division sue sponte replaced Bob Fiske with Ken Starr. Ken Starr is an incredibly bright guy with a tremendous amount of personal integrity. He himself had no prosecutorial background. And I think that ultimately ended up causing that lack of perspective that I talked about earlier.
What happened today is a hybrid. They have taken one of the most experienced and independent U.S. Attorneys in the country. And they made Pat Fitzgerald the special counsel for this case. Pat Fitzgerald and Jim Comey are old long-time dear friends. They served in the U.S. Attorneys office in the southern district of New York. They tried some terrorism cases together.
And that could cut both ways. It probably does mean that Jim Comey has complete utter confidence and trust in Fitzgerald. And when he says – you handle it, and you just come to me when you need resources, I’m sure that is exactly what he does mean.
CCR: Up until a couple of hours ago, the Justice Department was saying – there is no need for a special prosecutor. The Democrats on the Hill were calling for a special prosecutor. The Justice Department was saying – we have a professional staff of lawyers and investigators. They know what they are doing.
And then, all of a sudden, boom – there is a special counsel. When I asked Comey about this, he said – can’t tell you why this happened.
BARCELLA: You could guess either way. I could you give you a reason that suggests that they have uncovered some evidence that seems to implicate somebody in the White House. I can give you speculation that suggests that they are not going to get anywhere with it and they want to have optics coverage.
It works both ways. You can speculate either way. You can say that in recent days they may have uncovered some information in the investigation which indicates that there may be some people in the White House that are going to be either called before the grand jury, or that are going to be publicly identified as potential targets of an investigation. That would certainly ratchet up the appearance of conflict issue that the Democrats on the Hill have been hammering.
On the other hand, I could also argue that over the past couple of weeks, maybe it has become obvious that it doesn’t look like there is going to be any resolution to the leaks investigation, and they want to have optics coverage that way. They want to make sure that if that is the announcement that is going to be made, it is going to be made by someone who is far more independent than John Ashcroft.
CCR: What about the possibility that the lead investigator, John Dion, was on to something, and they removed him from the investigation?
BARCELLA: I don’t know whether Fitzgerald is going to replace John Dion or not. John has been around for years and years. And my guess is that Fitzgerald probably knows John. And so chances are they have probably known each other and work together. And he has an opinion of him totally independent of this investigation.
You are bringing into the investigation a known quantity. Pat Fitzgerald is a known quantity. He is a no nonsense, experienced, hard nosed prosecutor. Remember the whole reason why he was brought in to be the U.S. Attorney for the northern district of Illinois. There was a huge hue and cry raised at the time – understandably – because he was an outsider.
If you go back and read some of the stories over the past couple of weeks that were written about the indictment of former Illinois Governor Ryan – you will see references to his being an outsider. But the perception was that they needed an outsider to do the kind of corruption investigation that needed to be done. And that maybe this indictment of Governor Ryan would never have been brought if you didn’t have somebody from the outside who wasn’t beholden to anybody in the state.
Pat has a well earned reputation as a hard-nosed, independent and experienced prosecutor.
CCR: Maybe they want a prosecutor who knows how to prosecute Republicans?
BARCELLA: He knows how to prosecutor everyone from Republicans to terrorists. I don’t think that labels mean much to him.
CCR: There is much skepticism of corporate internal investigations. They have a reputation of being whitewashes.
BARCELLA: I certainly have never conducted a whitewash. And most of the people I know who do this sort of thing haven’t either. You always have in any endeavor, you have your own personal and professional reputation at stake.
And if I am called in to do an internal investigation, I’m going to do the best job of trying to figure out what is there and what isn’t there.
The fact of the matter is, I have conducted internal investigations that have turned up significant wrongdoing. I have conducted internal investigations where significant wrongdoing was not found. Sometimes you end up with a whistleblower who has a legitimate reason for doing just that – blowing the whistle. And sometimes you have a disgruntled employee who was fired for inadequate performance on the job and decides to make up a story.
You have to be able to distinguish between those and figure out what the situation is, what the story is. And then it is a question of whatever conduct you find rises to the level of a criminal offense or a reportable offense.
The law has changed significantly from where it was 20 years ago. You have the federal sentencing guidelines for corporations. You have the XYZ Agreement from 20 years ago that arose out of the Department of Defense-Department of Justice government procurement investigations.
Then you move through the S&L crises, through the health care investigations, and then more recently as a result of the Enrons and WorldComs and finally Sarbanes-Oxley, you have a progression, a continuum, where you better have teeth in an internal investigation.
And lawyers now have obligations that are spelled out more clearly now than they were in the past. You probably read last week where a very well known law firm publicly resigned from the representation of a client because it was not comfortable with the client company’s response when the law firm reported material issues up the line. This is one of the new requirements that the SEC put in place after Sarbanes-Oxley. They were not completely comfortable that their advice was being taken the way it should have been.
CCR: It was a less than noisy withdrawal?
BARCELLA: It was a less than noisy withdrawal, but the law firm did what it should have done. Someone within the company leaked the fact that the law firm was withdrawing. But the company did exactly what the law, the regulations, and their professional ethics required them to do.
The perception, both publicly and among prosecutors that internal investigations are not independent is by and large misguided.
CCR: What would be the incentive for a corporate client to leak the fact that their lawyers resigned from a case?
BARCELLA: There are potential enhanced liabilities for officers and directors under Sarbanes Oxley. Everybody and their brother who has ever been on a corporate board of any significant size or another has probably been sued in one class action or another. So, if someone at a high enough level at a company cannot get the response they think they ought to get, leaks may occur. I’m not sure that is the best way to do it, but it certainly is an effective way to do it.
CCR: How does Sarbanes Oxley change internal investigations?
BARCELLA: With the requirement that CEOs and CFOs personally certify the financials of a corporations, you find that those highest level officers want to make sure that those certifications are accurate. If there allegations that there may be some material problems, they are going to look into it. They are the ones that put their names on the line. They have to certify that. Most larger companies have developed a system of sub-certifications. Obviously, in a big corporation, the CFO or the CEO cannot possibly have all of the knowledge they are going to need. The sub-certifications ask for still relatively highly placed employees of a company, but certainly below the CFO and CEO level, to certify to their areas of responsibility.
You have throughout the mid and upper levels of a corporation now a much more highly defined sense that things need to be done the right way. And people are raising questions that they didn’t necessarily raise before. There is much less reluctance to say – can we do this, can we do that?
Also, the accounting and auditing firms have been changed dramatically by Sarbanes-Oxley. Their responsibilities have been changed by Sarbanes-Oxley. And not just by Sarbanes-Oxley, but also by the proliferation of class action lawsuits against them.
Look at what happened to Arthur Andersen. All of the remaining final four are battling lawsuits all over the country in which their actions as the outside independent auditors of companies have not only come under scrutiny, but also come under complaints and lawsuits. As a result, the accounting firms are holding companies to much higher standards than they used to. All of that leads to a completely different atmosphere than existed just a couple of years ago.
CCR: Is that a good thing?
BARCELLA: As long as the pendulum ends up where it ought to, which is at equilibrium. Right now, the pendulum has swung too far. There is almost a rabid atmosphere out there. There is an assumption that every company is out to screw the shareholder, screw the government, screw the customer. That is simply not the case. The contrary is true. But the perception has been put out there. It is like a dead cat dropped on the doorstep. It is going to take a while before the perception catches up with reality.
The government has to help with that perception. The government has been responsible for the almost poisonous atmosphere.
CCR: Do you believe that the Andersen case should not have been brought?
BARCELLA: The result was predictable. It was clear that the result was the corporate death penalty. It was clear going in that if Andersen was convicted, it would be the death penalty. And it was. That was way too high a punishment.
CCR: When Eliot Spitzer was running for Attorney General, he said he was going to revoke corporate charters. When he faced off with Merrill Lynch, he decided not to require Merrill Lynch to admit wrongdoing. The reason he said was that he feared a Arthur Andersen result.
Last month, when he testified before Congress on the mutual fund scandal, and he said that no company is too big to fail, he’s going to let the chips fall where they may.
BARCELLA: If a company is operating in an illegal manner at its core, then it ought to be out of business. But the range of people that you harm when you impose a corporate death penalty is far more than simply the two or three or four malefactors that you identify as being responsible for illegal conduct.
Let’s take Andersen as a simple example. You ended up as tens of thousands of people out of jobs.
CCR: Malcolm Sparrow, a professor at Harvard’s Kennedy School, told us a couple of weeks ago that those Andersen employees were quickly picked up by the other accounting firms.
He’s in favor of exclusion of companies that defraud Medicare, for example. He’s in favor of the death penalty for a company when it comes to health care fraud.
I asked about the lost Andersen jobs. Sparrow said that most of those people were picked up by the other accounting firms. The Big Five became the Big Four.
BARCELLA: Yes, some of them were. Not all of them were. Some lost their benefits, their pensions. And some people say that if Andersen were doing its job, maybe the Enron shareholders would not have suffered.
Maybe they wouldn’t have. But if you take Enron, you had a lot of rules that were hard to understand by everybody. You had some people who appeared to be doing their best not only to manipulate those rules b ut to try and improperly avoid those rules.
The question is – how deep does the punishment go? If you had somebody who maybe didn’t act smart enough, maybe wasn’t sharp enough to catch what somebody was trying to do – what punishment should there be? That’s negligence. Maybe the civil litigation takes care of much of that, without having to resort to criminal prosecution that ends up with the results that we see.
My view has always been the Thomas Aquinas view of individual responsibility – organizations do not commit crimes – people do. And if you feel that you have people in an organization that are committing crimes, you deal with those people. But you look at the consequences.
If you can remove the people who are committing the crimes, and through behavior modification, make the corporation behave the way it is supposed to act, that to me is a better result than killing in essence a 60,000 employee organization, where maybe ten, or 40, or even 100 of those employees were acting in a way that they shouldn’t. That still is still 59,900 that ended up suffering for the acts of some. You can remediate that, you can fix that.
CCR: So, as a prosecutor, you would not ever bring a criminal charge against a corporation?
BARCELLA: No, I didn’t say that. I said that I think that individual responsibility is more relevant. There may be instances where I would bring a charge against corporation, because of the fine structures involved, because of the types of remedies that you might be able to impose under the sentencing guidelines.
For instance, a judge can have someone brought in as a special master to oversee the operations of a company on probation. But that is different than doing something that you know is going to necessarily result in the death of a company.
CCR: But if you bring a charge against a company that is operating in a certain area, like the securities industry, the death penalty is almost sure to result.
BARCELLA: And with a company like an outside independent auditor, you know ahead of time that is going to happen.
CCR: We interviewed Alice Martin. She is the U.S. Attorney in Alabama who is bringing the case against the HealthSouth employees. The company is being represented by Bob Bennett.
She said that at her first meeting with Bob Bennett, Bennett came in and said – HealthSouth is going to waive its privileges, its going to cooperate in every way – here’s my home phone number, call me if you have any problems.
The result is – so far, no criminal prosecution of HealthSouth. Sixteen executives charged with crimes. The company probably gets off.
BARCELLA: Getting off is a relative term.
CCR: Well, if you have sixteen top executives pleading guilty to crimes, there is some indication there of corporate complicity there?
BARCELLA: Firm wide, no? At the highest levels, it may well be. So, what do you do? You have a company that still has thousands of employees who didn’t do anything wrong, has scores of hospitals and facilities that have patients that need medical assistance.
What are you trying to do? Do you want that company to run the right way? Or do you want to cause a significant disruption of the employment of thousands of people who haven’t done anything wrong, but more importantly to cause significant interruption to the health and welfare of tens of thousands of patients. Isn’t there a better way to handle it?
If you get the people responsible to plead guilty, if you get the company to pay a significant and meaningful fine, and if you end up with a company ending up with policies, processes and procedures so that it is now going to end up doing things exactly the way that it ought it, haven’t you accomplished a better long range goal? People who have caused the problem have gone to jail and have been punished, the company is now operating the way it ought to be operating.
CCR: Spitzer is now running for Governor of New York. He just held a fundraiser that raised $2 million. He’s on a red hot rhetorical streak against corporate crime. Is he risking spooking the markets?
BARCELLA: There is always that possibility. You have to be careful. Let’s take mutual funds. You have to be careful who you punish. Who is a mutual fund? You have to make sure that what you do doesn’t adversely affect the investors. You have to be careful not swing with too big of a bat. You don’t want to hit innocent investors.
CCR: Back to the Justice Department’s decision to pick Fitzgerald to investigate the CIA leaks case. I sense that you like that fix.
BARCELLA: I don’t dislike the fix. There are a unique set of circumstances that make this probably the right move for this case under these circumstances. That is not to suggest that it would always be the right in a different circumstance with a different set of facts.
CCR: You doubt that this is a political fix. What are the chances that the internal investigators were hot on the trail of someone high up at the White House and Fitzgerald was appointed special counsel to derail the investigation?
BARCELLA: I would be shocked if that if the case. If that is the case, Pat Fitzgerald would not have been the guy that you are going to do this with.
CCR: And it is better than going to an outside person because –
BARCELLA: In this circumstance, you have somebody who is there, has all the clearances, knows what he’s doing, understands the issues, is involved in these cases. So, you probably do not end up with what would be a perfectly natural loss of time.
If you brought in somebody incredibly qualified from private practice, and there certainly are plenty of people out there who could handle this, people who are good enough to handle it are usually pretty busy. And it is a lot more difficult for someone in private practice to start shoving matters to somebody else.
CCR: Fitzgerald is pretty busy prosecuting the former Governor of Illinois.
BARCELLA: But he’s not personally prosecuting the Governor of Illinois. He’s got experience prosecutors doing these prosecutors. He has certainly been a guiding force.
But he’s not the guy putting witnesses in the grand jury. He’s not the guy that is interviewing people, reviewing documents.
He’s making ultimate decisions based on recommendations of equally experienced prosecutors. It is a little bit easier for him to be able to slip in quickly than it is for somebody in private practice to do the same thing.
CCR: On the whole, are Republicans better at prosecuting these kinds of cases than Democrats?
I worked for Republican Attorneys General, Democrat Attorneys General, Republican and Democratic U.S. Attorneys.
In the final analysis, there was more independence and less control in Democratic administrations.
But by the same token, often there is less support. Prosecutorial issues were not necessarily the same level of priority in Democratic administrations as in Republican administrations. But on the other hand, because the Republicans were more interested in these prosecutions, there were more layers of bureaucracy.
Those balanced different ways in different cases. But do they handle them differently in one than in another? No.
And I had many investigations that straddled both administrations. They were handled in different ways. But an experienced prosecutor with integrity is not going to let a political decision get made – certainly not quietly.
CCR: Recently, there was a targeted killing of a federal prosecutor in Maryland. You were the target of a hit scheme once.
BARCELLA: It was a long time ago. It was in the early 1980s. There was a guy that I was investigating who was a former CIA agent.
CCR: Ed Wilson.
BARCELLA: Ed Wilson. He decided to sell his services to Libya, before last week when Libya was more of a bogeyman that it is today. And I orchestrated a sting to lure him back into the United States. He was not too pleased.
He went to the Metropolitan Correction Center in Manhattan. He was not too pleased about the fact that he was in jail and about to be prosecuted on a variety of offenses.
He approached a guy who was in the prison with him who was a convicted murderer. Wilson told this guy he wanted to figure out a way to whack me, one of the other prosecutors, and some witnesses.
The guy, although a convicted murderer, decided, since he was going to be coming up for parole in a couple of years, that whacking a federal prosecutor was not something that was likely to enhance his parole eligibility. So he reported it. He was wired up.
There were taped conversations. Wilson arranged for some of the associates on the outside to give some money to a courier. One of the worst things he did was get one of his sons to be the courier. An undercover FBI agent played a hit man. The plot ended up unraveling after that.
CCR: How much time did he end up for doing that?
BARCELLA: For the conspiracy to murder, he ended up getting 25 years. He was also sentenced to time for his activities with Libya.
CCR: Did his son do time?
BARCELLA: The son did no do time. We ended up dropping the charges against the son. As one friend of Wilson said, the government treated his son better than Wilson did.
[Contact: E. Lawrence Barcella, Paul Hastings Janofsky & Walker, 1299 Pennsylvania Avenue, 10th Floor, Washington, D.C. 20004. Telephone: (202) 508-9500. E-mail: [email protected]]
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