Corporate Crime Reporter

19 Corporate Crime Reporter 47, December 5, 2005

INTERVIEW WITH BENJAMIN GREENBLUM, AUTHOR OF "WHAT HAPPENS TO A PROSECUTION DEFERRED?" COLUMBIA LAW REVIEW, NEW YORK, NEW YORK

Benjamin Greenblum wants to be a corporate crime defense attorney.

What better way to prepare than to study and write about deferred prosecution agreements?

And so he has.

Last fall, Greenblum, a third year student at Columbia Law School, was taking a class taught by professors John Coffee and Jed Rakoff.

The title of the class: “The Black Letter Law of White Collar Crime.”

That’s when he started thinking about deferred and non prosecution agreements.

And last month, the Columbia Law Review published his article – “What Happens to a Prosecution Deferred?

Judicial Oversight of Corporate Deferred Prosecution Agreements,” 105 Columbia Law Review 1863 (2005).
We interviewed Greenblum on November 24, 2005.

CCR: You are a third year law student at Columbia Law School. Where did you do your undergraduate work?

GREENBLUM: I went to the University of Pennsylvania. I graduated in 2001 with a degree in business from the Wharton School and a degree in history from the College of Arts and Sciences. I started Columbia Law School in 2003.

CCR: What did you do from 2001 to 2003?

GREENBLUM: I worked for a year for a political consulting firm in New York, Sheinkopf Communications. I then worked for a year for the Public Advocate in New York City.

CCR: Who was that – Mark Green?

GREENBLUM: No, I worked for his immediate successor – Betsy Gotbaum. She was just re-elected last month. I worked on her campaign at the consulting firm, and then once she was elected, I left the firm to work for her in city government.

CCR: What will you being upon graduation?

GREENBLUM: I'll be clerking for Judge Dennis Jacobs of the Court of Appeals for the Second Circuit. Beyond that, I'm not sure where I'll be headed.

CCR: Do you want to be a prosecutor or a defense attorney?

GREENBLUM: I'd like to work in a firm doing defense work. I'd also like to do a turn in the U.S. Attorney's office. But in the long term, I see myself doing defense work.

CCR: How and when did you become interested in this issue of corporate deferred prosecutions?

GREENBLUM: I was taking a class last fall with Professor John Coffee and Judge Jed Rakoff – both of whom are experts in white-collar criminal law. The class was called “The Black Letter Law of White Collar Crime.” I had read in the newspaper as well as in your publication about the deferred prosecution given to Computer Associates. Though I began by looking at it from your angle – that this is a free ride for companies – after a closer look at the agreements I reached a different conclusion.

I also noticed that few in the academic world had written much about it. In fact, no one else was writing about it, except your publication. No one had anything particularly interesting to say about it. That seemed kind of odd for a practice that seemed to becoming somewhat prevalent.

The other thing that perked my interest was that the newspaper reporting that did exist – from the New York Times to the Wall Street Journal – was very shoddy.

Sometimes the deferrals were reported as settlements. Sometimes they were reported as plea agreements. But they in fact were neither. The reporters had no grasp as to what these agreements were about, what the significance was for corporations. It seemed like an area where someone with a limited background like myself could write something that would be a primer for people who don't know a lot about it.

CCR: When was all of that percolating?

GREENBLUM: Last fall – somewhere in September, October 2004. I finished a draft of the paper in December.
CCR: One of your earlier notes refers to a classic law review article by John Coffee from 1981 – No Soul to Damn, No Body to Kick – An Unscandalized Inquiry into the Problem of Corporate Punishment.

This problem goes back to the time when former U.S. Attorney Rudolph Giuliani began prosecuting these big cases. But only recently have we seen deferred prosecutions become the standard. Why didn't it develop earlier?

GREENBLUM: There has been a lot of political pressure swelling up from below, both from voters and from shareholders, saying that corporations need to be held responsible for their actions, and that punishing executives while merely fining the company is an insufficient deterrent to future wrongdoing.

At the same time, there was pressure coming from white collar defense counsel and from industry, arguing that indicting a corporation is tantamount to a death sentence. And do prosecutors want to be in the business of putting 28,000 people out of work like they did Arthur Andersen for the malfeasance of a few people?

When those two pressures converged, deferred prosecution emerged as a middle path that allowed prosecutors to punish corporations without dooming them in the long term. In the corporate context, deferred prosecutions are very different from civil settlements or criminal plea bargains.

What's happened is that a mechanism that was traditionally used for petty crimes was adapted to a much larger and different kind of offender.

CCR: We ran a piece quoting your professor, John Coffee, as saying that Andersen committed suicide. It wasn't the prosecution of Andersen that killed it. It was the fact the company "was much too eagerly in pursuit of consulting income to focus on its central job of auditing." And there was a previous criminal prosecution of Andersen in Connecticut that was resolved by a deferred prosecution agreement.

GREENBLUM: I'm not familiar with the Connecticut prosecution, although I am aware that in many circumstances, corporations that are subject to federal criminal liability wind up also having to deal with states individually.

With respect to Professor Coffee's point that Andersen did itself in, I agree that the firm made a mistake to pass up deferral. My understanding – based on newspaper reporting – is that prosecutors were demanding unfettered access to outgoing Andersen executives for purposes of cooperation, testimony and so forth.

Internally, the partners at Andersen realized that the firm might not make it, and that they might have to go to another of the major accounting firms, none of whom would be willing to take on people who were potentially subject to subpoena or even prosecution.

We could have a separate debate about whether the prosecutors had a right to ask for that and whether Andersen made the right call by deciding not to accept that particular demand. Maybe they didn't realize that that was going to be a hard and fast requirement that the prosecutors wanted to impose. Maybe they were trying to call their bluff – I don't know.

But I think that Professor Coffee's point supports my argument that because companies know they can do themselves in by not accepting the prosecutor's terms for deferral, the deferral negotiation isn't really a negotiation. The prosecutor effectively has unilateral power to impose the terms of the deferral.

CCR: But Coffee's point wasn't that Andersen killed itself by not accepting the deferral. In fact, he told us that a deferred prosecution agreement would not have saved the company at that point.

"I believe the company was already dead at that point," Coffee said. "Remember, an auditor is in an exposed position. You are being brought in so that shareholders will trust the company's financial statements. If you bring in a company that has become notorious for Enron, that doesn't enhance the shareholder trust. It probably diminishes it. There was negative value to Arthur Andersen's name at that point. And that destroyed it. The brand was simply killed."

GREENBLUM: There's no question that Andersen's wrongdoing was particularly detrimental to its future.
But I think that Andersen might have survived had it received a deferred prosecution, which would have saved it the devastating adverse publicity of a prolonged investigation and trial.

And there are many who believe that Andersen's downfall at the hands of prosecutors was the primary motivation for the Justice Department's increased use of deferred prosecution in the corporate context.

CCR: In your article, you write about the Salomon Brothers agreement. I e-mailed the prosecutor – Otto Obermaier – at the time, asking for a copy of the agreement. And he wrote back the following: "My memory's not perfect – but I don't think there was an agreement in Salomon. I viewed my function as prosecuting or declining – period. I did not view myself as a quasi-probation officer to see that persons/entities were obeying the law."

Why not just go back to where a prosecutor’s job is to prosecute a case or decline to prosecute a case and take the prosecutor out of the business of regulating?

GREENBLUM: The problem is that this ignores the political pressure to punish corporations themselves. If you only leave the prosecutor with a choice between prosecuting or declining to prosecute the corporation, you are effectively telling a prosecutor – you either have to kill it, decline to prosecute altogether or slap it on the wrist with a civil penalty. And when prosecutors had only these choices, they almost always chose not to kill the company.

CCR: You write that deferral saved Banco Popular from the collateral consequences of a conviction which could have barred it from the highly regulated banking sector. But in another case involving a big bank – Riggs – which involved money laundering – the prosecutors insisted in a guilty plea. And the company plead guilty. The company remained in business. There are ways to deal with debarment. You have fake debarments. You can plead out a shell. You can get an agreement not to debar in lieu of a conviction. So, there are ways to get around it.

This idea that if a company is convicted, it will automatically be put out of business might not be true.

GREENBLUM: My understanding was that Riggs was in negotiations to be acquired. The guilty plea substantially lowered the price that the other bank was willing to pay. So, it didn't bankrupt Riggs, but it reduced its value as a going concern.

I believe that companies are deathly scared of a conviction, or a plea bargain, which is functionally the same as a conviction, because of the prospect of forfeiture and debarment. I don't think they could feel safe just because of a prosecutor's assertions that they won't be subjected to those additional penalties after they plead guilty. In many cases, the administrative agencies in charge of making those kinds of decisions are not part of the agreements signed with the Department of Justice. And just as importantly, none of the fifty states would be bound by such agreements. And of course, there's no way to contract around adverse publicity.

CCR: And adverse publicity might be the bigger deal. You can get around debarment. But you can't get around adverse publicity. That's what this is all about. Companies don't want to be known as convicted criminals.

A few years back, we came out with a report on the Top 100 Corporate Criminals of the 1990s. This was a list of major companies convicted of crimes and ranked by the amount of the criminal fine. Now, with all of these deferred prosecutions, that kind of list for this decade might not be possible. These major companies won't have guilty pleas or convictions.

So, what are companies getting? They are getting out of the convictions.

GREENBLUM: Before deferred prosecutions were popular among prosecutors, very few companies were convicted or plead guilty. But prosecutors no longer have to choose between declination and plea bargaining and convicting. I suspect that the aggregate amount of fines imposed has increased because deferred prosecution is available.

Part of that increase is of course due to the wave of corporate crime. But I do think that the statistics suggest that companies have to be concerned that they are going to have a deferral imposed on them because the prosecutor no longer has to fear that to actually punish them, he is going to have to bankrupt them – he now has this middle road alternative.

CCR: In your paper, you write that deferral of prosecution is replacing declination, not prosecution. But from my own reporting, my guess is that in fact it is replacing prosecution more than it is replacing declination. My sense is that many of these cases would have resulted with some kind of negotiated guilty plea – where the debarment and suspension is mitigated. You would see more of these fake debarments. Maybe not the corporation itself pleading, but a shell pleading.

GREENBLUM: We are looking at the same set of data. And you can draw two sets of conclusions from that data because it is impossible to get into the minds of the prosecutors. But my article did document anecdotal evidence of prosecutors saying – yes, now I have another tool at my disposal, I don't have to be worried about causing another Andersen, but at the same time I can satisfy the cries for "justice."

I take your point that technically a prosecutor could always have contracted around debarment and license forfeitures, but I don't think its that simple, and so I think its likely that the availability of a new mechanism that gets around these problems has increased the amount of criminal liability imposed on corporations, rather than decreased it.

CCR: Is there a chance that there are deferred prosecutions and non prosecution agreements that we don't know about?

GREENBLUM: Yes. These agreements are very difficult to find. In many cases they are only available at the district court in the jurisdiction where they were filed. In some cases, there are a lot of obstacles before someone who is interested in knowing how the government has dealt with a major multinational corporation that does business in this country.

CCR: The Banco Popular agreement was announced by the Justice Department through a press release that was posted on its web site.

GREENBLUM: That's right, but getting a copy of the actual agreement is a different matter. The Justice Department will only talk with you if you are a reporter, which I'm not. Getting a copy of the agreement itself shouldn't be as hard as it was.

Furthermore, the Department of Justice is under no obligation to put out a press release announcing any of these agreements. And if they don't, we would never know about these agreements.

CCR: Why would a prosecutor choose to enter a non prosecution agreement, as opposed to just decline to prosecute a case and not announce anything?

GREENBLUM: From the prosecutor's perspective, they want to memorialize the terms on which they are agreeing not to prosecute, so that in the event the offender doesn't live up to the terms of the agreement, they have a theoretical basis on which to prosecute. How enforceable these agreements are, since they are not filed with the court, isn't clear. That has yet to be tested.

CCR: We asked the U.S. Attorney in Manhattan for the non-prosecution agreements in Shell and Hilfiger. The U.S. Attorney said they were not public agreements. Shouldn't these agreements be made public?

GREENBLUM: Yes. There is a serious transparency concern here. I can't think of a legitimate reason why they shouldn't be required to make those agreements public. Since there is no indictment filed along with nonprosecution agreements, there is no other public record of the wrongdoing. The public is not going to be as informed, and more importantly, the legal profession is going to be hamstrung in answering important questions about the degree to which deferred prosecutions reduce recidivism, or the extent to which there is favoritism in handing them out.

CCR: Did you see the New York Times profile of Daniel Bayly?

GREENBLUM: I did not, but I'm familiar with his case.

CCR: He was sentenced to 30 months in prison for his role as a Merrill Lynch banker in the Nigerian barge Enron deal. Merrill got a deferred prosecution agreement, and the mid-level executives went to jail. Executives are now facing a joint strike force of corporate attorneys and government prosecutors. And this seems unfair.

GREENBLUM: That unfairness is created in part by the fact that prosecutors are able to impose the terms of deferral. Even in cases like Merrill Lynch, where no waiver of attorney client privilege was forced on the offender, corporations are put in a position of doing anything and everything to procure a deferral and avoid an indictment.

There are many people who believe that this jeopardizes executives in a way that makes it harder for them to fully trust their employer. When you add in the possibility of forced waivers of the privilege, the problem is only exacerbated. Not only can employees be subjected to separate liability, but the corporation itself can be subjected to civil suits based on these sorts of compelled waivers.

Of course, part of the problem in a case like Mr. Bayly's is the fact that a corporation is inanimate and can't be put in prison.

But the solution to this incongruence isn't to demand that the corporation be prosecuted instead of going through a deferral. The solution is to have a judicial actor in place so that corporate offenders don't have their backs completely up against a wall in negotiating their deferral agreements with prosecutors in the first place.

CCR: There are a number of cases where prosecutors abuse the power they get under these agreements. There is the Bristol Myers Squibb agreement where the company was forced to pay to endow a chair in business ethics at Seton Hall University School of Law – the law school where U.S. Attorney received his law degree.

The second is the Attorney General of Oklahoma required the company, MCI, to create jobs as a condition of the deferred prosecution agreement.

And the most egregious one was the New York Racing Association, where as a condition of the deferred prosecution, the Association was required to put slots in at all of its tracks.

You argue that these and other cases represent a shift of power to prosecutors. How do you deal with it?

GREENBLUM: If you try and deal with it by having a judge up front to approve the terms of the agreement, you may be jeopardizing prosecutorial discretion and intruding on very sensitive negotiations between a prosecutor and a defendant. And before an agreement is filed, what judge would have the authority to intervene?

Instead, I argue that the judge should serve as a backstop against the actual enforcement of these obligations, after the agreement has been filed.

The judge should have the opportunity to step in and say – it doesn't matter than they didn't meet the terms of the agreement, you can't make them create jobs, that's not what criminal liability was intended to do – it was intended to deter. It was intended to punish, not to create jobs.

CCR: What about a judge stepping in and saying – deferred prosecution agreements were intended for minor offenses, not major offenses. And these are major offenses. They were never intended for major corporate crimes like these. So, you are not going to do it. You either prosecutor or decline to prosecute. That's possible, right.

GREENBLUM: It is definitely possible. And I wouldn't be surprised if you see a judge in some jurisdiction where many people were harmed by a company's malfeasance step in and reject a deferral, which technically the judge has the right to do. But judges have never exercised that power in the corporate context, and have been loath to do so in the petty offender context.

I believe that deferred prosecution can be a good thing, and so I'm not urging judges to reject them. I'm urging them to ensure that the mechanism isn't abused, particularly where obligations completely unrelated to the underlying criminal activity are being imposed on the corporate offenders.

CCR: A prosecutor can impose a monitor. And if there is a violation of the agreement, the prosecutor will fine the company, as in WorldCom/MCI, or bring the prosecution. Let's say the judge says that's an abuse. That can't happen. The company will go before the judge and say – hey judge, I want this, I agreed to it. Anything is better than a conviction. Can the judge still say – whether you want it or not, I'm saying it's an abuse. Or – this crime is so bad, I'm not going to accept a deferral.

GREENBLUM: Technically, the judge could do so. But there is no such precedent, and the judge would be on shaky ground. Without a major change in thinking from above, I don't see how this could happen.

CCR: There are many business lawyers who want to end corporate criminal liability.

One such person is Jeffrey Parker, a Professor of Law at George Mason University.

"Crime exists only in the mind of an individual," Parker told us a couple of years ago. "Since a corporation has no mind, it can commit no crime." Parker argues that a since a corporation is not a living breathing human being, it should not be treated as living breathing human beings are treated in the criminal law arena.

In August 2002, Robert Bennett, a partner at Skadden Arps in Washington, D.C. and a leading white-collar criminal defense lawyer put it this way: "The concept of corporate criminal liability has not gotten enough attention. When you indict a company, you are doing enormous damage to its stock. You are doing enormous damage to innocent people. When a company gets indicted it has a real impact on them. I really question the value of that. . . Is it just this macho – we indicted so and so? Why do that harm?"

So, historically, there has been a move to get rid of corporate criminal liability. And it seems as if corporations are doing it now without going to Congress.

GREENBLUM: Deferred prosecution probably winds up imposing those same harms that Bennett is seeking to avoid, but in a different way. The innocent shareholders are still getting harmed.

CCR: Is it fair to call the shareholders innocent – they too benefitted from the fruits of the crime.

GREENBLUM: In some instances they do, but in many instances they don't. In an internal accounting fraud situation like that of Computer Associates – I don't see how the shareholders would necessarily benefit, unless they happen to have bought before the fraud and sold during it.

CCR: The share price is inflated as a result of the fraud.

GREENBLUM: True. But they if they didn't sell, they didn't benefit.

CCR: Do you know of any secret deferred prosecution agreements?

GREENBLUM: I don't. Because there is not a database of these cases, and they are not publicly available, there are likely a number of them floating beneath the surface.

CCR: In the Hilfiger and Shell non pros cases, they announced them in a press release, but then refused to release the actual documents.

GREENBLUM: That's not particularly helpful. Particularly for a non-prosecution agreement, where there is no indictment or information, it might be hard to get a full picture of the illegal activity that took place.

CCR: There hasn't been a case yet of a judge stepping into one of these agreements. You have to believe that sooner or later it is going to happen.

GREENBLUM: Right now, most of these agreements are still alive. And there's enough at stake in a corporate deferral agreement that there could well be a dispute between a prosecutor and an offender over the substance of a deferral obligation, and once the Department of Justice finds the company in breach of the agreement and moves ahead with prosecution – without any judicial review – I think its likely that the company would challenge the legality of circumvention of judicial review in the deferred prosecution process.

At that point, for fear of creating adverse judicial precedent, the prosecutor could back off and agree to the company's interpretation of the agreement. If not, a judge is then going to be in the position of deciding whether or not it a company, facing the threat of an indictment, can legitimately forego its right to judicial review over a deferral agreement. In the petty offender context, judges have avoided intervening in deferred prosecution agreements in order to protect prosecutorial discretion and to respect the separation of powers. It remains to be seen whether judges will offer so much deference in the corporate context, where so much is at stake.

CCR: Do you have a sense as to why deferred prosecutions hasn't become a bigger issue among business reporters?

GREENBLUM: I think the media may not understand the complex difference between deferred prosecutions and settlements or plea bargains. There are important differences, and you have to understand those differences in order to understand why the Justice Department's shift towards deferred prosecution is a newsworthy one.

CCR: You portray these agreements as shifting power to prosecutors. But in terms of straight raw power, are the corporations saying – this is almost too good to be true for their corporate clients.

GREENBLUM: The defense attorneys probably view deferral as on the whole positive for their corporate clients, because it's better than getting indicted.

But I suspect that defense counsel felt more confident before deferral was option, when prosecutors didn't have a middle road which offered them the opportunity to criminally punish the corporation without bankrupting it.

CCR: Take a look at the Top 100 Corporate Criminals of the 1990s. There is a track record of major corporations taking the hit.

GREENBLUM: The Justice Department's statistics make it hard to determine whether corporations are in fact getting off "easy" with deferred prosecution. My research led me to conclude that the newfound possibility of deferral in the corporate offender context has actually increased the amount of criminal liability imposed, but an opposite conclusion is also defensible.

[Contact: Benjamin Greenblum, 225 West 83rd Street, New York, New York 10024. Phone: (212) 724-3693. E-mail: [email protected]]

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