Corporate Crime Reporter
19 Corporate Crime Reporter 48(11), December 12, 2005
INTERVIEW WITH MARY JO WHITE, PARTNER, DEBEVOISE & PLIMPTON LLP, NEW YORK,
NEW YORK
Mary Jo White has spent most of her public career prosecuting or defending corporate
criminals.
She now heads the 222 lawyer litigation group at Debevoise & Plimpton in
New York City.
Her practice is primarily the “big mess” practice for big corporations.
They create the mess, and then hire White to clean it up.
White was present at the creation of deferred prosecution agreements.
As U.S. Attorney, she negotiated one of the first in 1994 with Prudential Securities.
It took a while – ten years – but now DPAs are all the rage.
We interviewed White on December 1, 2005.
CCR: You graduated from Columbia Law School in 1974. What have you
been doing since?
WHITE: I spent my career – except for one year clerking for a
federal judge – either in the U.S. Attorney's offices of the Southern
District of New York, Eastern District of New York or at the law firm of Debevoise
& Plimpton.
After clerking, I came to Debevoise & Plimpton as a litigation associate.
I went to the U.S. Attorney's office in February 1978. I tried a number of criminal
cases – white collar, terrorism, drug cases. I became the chief of appeals
and then returned to Debevoise in June 1981. I was made a partner in 1983. My
practice was about 60 percent criminal, 40 percent civil, primarily representing
companies on the criminal white collar side and in SEC enforcement matters.
I returned to the government in March 1990, first as the chief assistant U.S.
Attorney and then acting U.S. Attorney in the Eastern District of New York.
Two highlights there – the trial of John Gotti and the indictment of Eastern
Airlines.
I then became the U.S. Attorney in the Southern District of New York June 1,
1993 and stepped down in January 2002. I returned to Debevoise in April 2002
as the chair of the litigation department here, which includes about 220 lawyers.
My practice today is predominately a "big mess" practice for companies
– on the SEC side, on the criminal side, and on the civil side. I do a
lot of internal investigations, but also some serious civil litigation.
CCR: What percentage of your practice now is criminal?
WHITE: Now, it is about 85 percent to 90 percent criminal and/or SEC
enforcement. In this particular climate, the demand for this particular expertise
is huge.
CCR: We are preparing a report on deferred and non prosecution agreements.
Here are a couple that I wanted to ask you about. One is Sequa Corporation.
WHITE: That was a non prosecution agreement.
CCR: Would you happen to have that agreement?
WHITE: We certainly have the press release announcing it.
CCR: Why are we seeing the up ticks in these agreements?
WHITE: First, let me say that the other agreement that I did involved
Prudential Securities. That was the first deferred prosecution agreement involving
a major company. That was in 1994. I don't think you saw very many after that
until the current climate.
Why the up tick? First, there is more activity in the arena in corporate crime
by U.S. Attorneys across the country. That is something that in the post-Sarbanes-Oxley,
post-Enron era is something that caught fire in offices that didn't do much
of that kind of work before. You have more people out there on the criminal
side. It is not just a matter of the SEC working on matters, and then referring
a few of those with criminal potential.
But a lot more matters today start with the U.S. Attorney's office and the SEC
working together from the get-go.
And again, all over the country a lot more people doing it.
The Justice Department came under a lot of criticism for indicting Arthur Andersen
and putting it out of business.
That was justified criticism.
What has happened is that since Arthur Andersen, the Justice Department, to
its credit, has focused on the awesome collateral consequences of moving against
an entire entity criminally. The stigma of that, the reputational hit of that
is too severe for most companies to survive. And so, they have turned to what
they consider to be a lesser sanction with lesser collateral consequences. And
that is the deferred prosecution agreement, which can take many forms.
CCR: Although, when you were U.S. Attorney, you didn't hesitate to
put companies out of business – Daiwa Bank, Republic Securities.
WHITE: Those companies didn't go out of business because of the criminal
charges.
Daiwa Bank couldn't do business in the United States, but they continued to
do business in Japan. Any prosecutor hesitates before bringing an action against
a company because of the fear that that company will go out of business. Now,
it is not impossible that you come to a situation as a prosecutor where because
you have a company that has a horrible regulatory history, horrible regulatory
reputation, that it could be in your judgment in the public interest that the
company shouldn't be in business any longer because it is likely to continue
to victimize the public.
But every prosecutor, certainly if they are doing their job right, is very concerned
about the impact on the innocent employees or shareholders, if you bring a corporate
charge. And certainly, I went through that analysis. I did indict a number of
companies when I was U.S. Attorney.
But I think if you look – none of them went out of business. It doesn't
mean they couldn't have. There were a couple of merger situations.
CCR: You mentioned the Andersen case. Columbia Law School professor
John Coffee says "Arthur Andersen committed suicide – it was not
murdered by prosecutors. . .It was a case of a company that was much too eagerly
in pursuit of consulting income to focus on its central job of auditing. I believe
the company was already dead" before the prosecution, he 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."
WHITE: I don't agree with that. Certainly, Andersen had some regulatory
situations that had damaged its reputation –
CCR: Actually, Andersen had another deferred prosecution from Connecticut
in 1996 –
WHITE: So, it's not the case that they had no problems when the indictment
came. But that is a very different thing than saying – because of those
problems, absent the indictment, they would have gone out of business or been
significantly damaged – I don't think that would have happened, partly
because of the marketplace. You had five of the Big Five. And that's not very
many for all of the big public companies in the United States to choose from.
And clearly Arthur Andersen had many, many able, high integrity auditors. They
were doing a lot of business when the indictment came down.
So, I don't agree with that comment. They had some issues they needed to deal
with on the reputational front and on the control front – no question
about that – which is probably true of other firms as well. But the indictment
is what killed them.
CCR: Were you involved with the KPMG case?
WHITE: No. But I can't comment on that case.
CCR: Some people believe that deferred and non prosecution agreements
are replacing straight out declinations. Others say – no, they are replacing
criminal charges. What's your take?
WHITE: For the most part, not exclusively, for the most part, I think
there would not have been, or at least should not have been, any kind of criminal
charge in most of the cases. In some of them, there might well have been.
Certainly, to the extent that you are substituting a deferred prosecution agreement
for a case where you have decided to otherwise indict, then the prosecutors
are appropriately limiting the use of deferred prosecution agreements. But it
is almost becoming an automatic reaction in many cases beyond those where it
should be used.
Prosecutors are thinking – before we close out this case that involves
any kind of corporate crime, we should get something from the companies.
And the something these days is a deferred prosecution agreement. In most of
the cases, the resolution should have been nothing on the criminal side, or
perhaps a cooperation agreement. Obviously, the government has an interest in
making sure that companies continue to cooperate in the investigation and prosecution
of individuals.
The prosecutors tend to think that there is no cost to the companies of deferred
prosecution agreements. It clearly doesn't carry the same stigma of an indictment.
But it has a tremendous reputational as well as monetary cost. The focus needs
to be narrowed somewhat to cases where you think it really is appropriate to
do something as to that company. The law allows you to proceed against the company
in virtually every case where you have a single employee who has committed a
crime. But clearly your exercise of discretion in the vast majority of cases
should involve nothing criminal vis-à-vis the company – assuming
the company has responded appropriately to the government investigation and
addressed the problem.
A settlement on the civil side should be a sufficient government response in
the vast majority of cases. And the Thompson memo, which governs federal prosecutors
in deciding what to do about a company, says – it will be the rare case
where a company should be indicted.
And it should also be the rare case where the government seeks a deferred prosecution
agreement from the company – you need to have a reason for doing that.
Is it an alternative to what you have already decided for sure would be an indictment
so you need some sanction? That's a situation that could lead to a deferred
prosecution agreement appropriately. Do you feel that this particular company
needs to have bells and whistles and enhanced`compliance programs supervised
by the criminal side of the government?
That situation could arise, but if you already have an SEC settlement that already
has all of those bells and whistles and safeguards, then what are the criminal
authorities really adding, other than to have something to show for their investigation
as to the company?
CCR: You mentioned Larry Thompson's memo. So, let me read to you part
of a speech he gave in 2002 to the American Bar Association:
"Large corporations develop their own methods and culture that guide employees
thoughts and actions. That culture is a web of attitudes and practices that
tends to replicate and perpetuate itself beyond the tenure of any individual
manager. That culture may instill respect for the law or breed contempt and
malfeasance. The organization itself must be held accountable for the culture
and the conduct it promotes. Without this tool, the public would have no adequate
deterrent to corporate criminal conduct because the culture that condoned, or
at least acquiesced in, that behavior would be beyond the criminal law's power
to correct. Only by prosecuting the corporation itself can we insure systemic
reform."
WHITE: I don't think it is an accurate statement. If you are trying
to affect future behavior, you are trying to go after a corporate culture that
is leading to employees or officers breaking the law. But what it misses is
that there are other more appropriate mechanisms to bring about those corporate
cultural changes.
Exhibit A would be a resolution with the SEC for a public company. The SEC requires
not just the payment of a fine or money, but also enhancements in controls,
reports to the SEC for a period of time in order to assure that the corporate
culture is attended to and altered as appropriate. For a prosecutor to get into
the business of changing corporate culture is skating on fairly thin ice.
CCR: You seem to be getting close to the line of saying – for
large publicly held companies, there shouldn't be corporate criminal liability.
WHITE: I'm not saying that, although many countries don't have corporate
criminal liability. It should be the very rare case where an entire entity is
subject to a criminal charge.
CCR: For a large U.S. based publicly held company, can you name a case
that you thought the corporate criminal charge was appropriate?
WHITE: Drexel Burnham Lambert.
CCR: Since then?
WHITE: You have to think of what the charges have been against U.S.
based companies – other than in the health care and environmental area.
CCR: In health care, it's death penalty – unless you negotiate
the debarment. Why not, instead of these deferred and non prosecution agreements,
have guilty pleas and negotiate the collateral consequences?
WHITE: Well, a criminal charge carries with it a more serious negative
stigma than anything else in our system. And it is a stigma that affects not
just the four or five corporate managers who may have brought about the wrongdoing,
but the entire entity. It hurts the entity. It costs a lot of money to right
the ship. You certainly will not hear me advocating for indictments instead
of deferred prosecution agreements.
My point is that the government should be more sparing in its use of deferred
prosecution agreements and limit those to situations where they certainly would
have indicted otherwise for all the right reasons on their part. Or limit use
to where the SEC or other civil regulators failed to act against the corporate
culture that the government feels needs to be fixed.
Prosecutors are at their best when they decide to charge or not and not get
into managing corporate America.
CCR: I was looking for the non-prosecution agreement in the Salomon
Brothers case. And apparently there isn't one. I wrote to Otto Obermaier, who
was the prosecutor in that case. And he wrote back saying: "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.
In Salomon's case that was the function of the SEC – who was better equip
to do so."
WHITE: As a general rule, I agree with him. You need to retain the
authority to be able to charge a corporate entity, but in virtually every case,
it is not the prosecutor's job to anything but charge or not.
CCR: Of any of these major deferred non prosecution agreement cases,
are there any that you think that the government should have charged when they
didn't?
WHITE: I'm not privy to the cases, other than the ones I'm involved
in – and in my cases of course, I don't think the government should have
charged. It is one of the most serious and awesome decisions a prosecutor makes
because of the collateral consequences. And they very carefully weigh the competing
interests there. Do you really need the cannon of criminal indictments? So,
I'm really not in a position to criticize any decisions where the government
didn't indict a company. My concern is that the automatic alternative is becoming
a deferred prosecution agreement much too often. The alternative instead should
be a decision not to proceed against the company.
CCR: If the government chooses to enter into one of these agreements,
should the agreement be made public?
WHITE: It ordinarily is. And it should be, sure.
CCR: Two of your clients – Shell and Hilfiger – got non
prosecution agreements. And both of those agreements are not public. Why was
that the case?
WHITE: I have to check into the particulars of those situations. In
Shell, there was no agreement and in Hilfiger, the terms of the agreement were
publicized in the government's press release. But it wouldn't be appropriate
for me to comment further.
CCR: Would you agree that it's a little strange for the government
to put out a press release saying – we today entered into a non-prosecution
agreement that accomplishes the following – and then not make the agreement
public?
WHITE: I'm not disagreeing with what the norm is. But usually it's
the government that dictates whether it is public or not. Sometimes you proceed
in a way – as in Salomon Brothers – where you don't have an agreement.
You just decide not to prosecute. But ordinarily, you do publicize one way or
another.
CCR: One of the criticisms from Professor Coffee is that deferred prosecutions
shift power to the prosecutor. The prosecutor has incredible power to make determinations
as to what they want in exchange for the deferred prosecution. You represented
Bristol Myers Squibb in the negotiations with the U.S. Attorney in Newark for
a deferred prosecution. And as a condition of that agreement, your client agreed
to fund a chair in business ethics at Seton Hall Law School – the law
school where the U.S. Attorney graduated from. Professor Coffee sees that as
the prosecutor crossing the line.
WHITE: It wouldn't be appropriate for me to talk about the Bristol
Myers case or any cases in which I have been personally involved.
But speaking generically, prosecutors have tremendous power period. They have
life and death powers over people and companies. They have tremendous leverage
to secure what they want to secure, particularly if what they are offering is
not to charge criminally.
Most people, most companies would like to avoid criminal charges and will agree
with the government as to various terms that in a objective world with a level
playing field they should not be asking for.
But prosecutors have tremendous leverage. As in any other kind of charging decision,
prosecutors need to exercise their discretion wisely and with restraint and
not have their power go to their head. Prosecutors have to take a step back
and decide what does the public interest dictate here? Do I need a deferred
prosecution agreement at all? Is it justified at all? If it is justified, you
need to think long and hard about what the appropriate terms are.
Company counsel also need to say – we don't think an agreement under these
circumstances is appropriate at all.
It needs to be a two way dialogue where the public interest is best served.
But there is no question that prosecutors have tremendous leverage. And by and
large, Otto Obermaier is right – prosecutors are at their best when it
comes to corporate criminal prosecutions when they decide either to indict or
not indict and not get into the management of a company.
CCR: While you were U.S. Attorney you said that obstruction of justice
can change a decision not to prosecute into a decision to prosecute.
WHITE: Yes.
CCR: And many of these deferred prosecution agreements involve obstruction
of justice – KPMG, Computer Associates – just go down the list.
And in these cases, the evidence of obstruction didn't convert into a decision
to criminally prosecute.
WHITE: In many of the deferred prosecution agreements, there was no
element of obstruction. If there is an element of obstruction dictated by corporate
management in any way, that clearly makes your decision-making more difficult.
No company is ever going to have no crime in it. It is impossible no matter
how good your compliance is to ever achieve that. So, what you as a prosecutor
are looking at is – when the company found out about the problem, what
did it do about the problem? Did it self report? Did it cooperate? Did it houseclean?
You are looking at – how the company as company at its highest levels
behaves. And if there is an element of obstruction in how a company responds
to a problem or a government investigation, you can't get much more serious
than that. It very often can convert a decision to do a deferred prosecution
agreement or nothing in most situations into a situation where you will end
up charging.
Obstruction by an individual has the same kind of effect. If there is an element
of obstruction or lying to the government, most prosecutors take that very seriously,
because it ends up undermining the whole system.
CCR: If you could put your prosecutor's hat back on. Apparently, there
hasn't been a conviction of a major company in an accounting or securities fraud
case since Arthur Andersen because of what happened in Andersen.
Some people believe that accounting fraud cases are best suited to these kind of alternative agreements. But you are seeing now other kinds of cases like bribery cases, hospital fraud cases – where these alternative agreements are being applied. Do you agree that deferred prosecutions are best suited for accounting and securities fraud cases and not bribery and hospital fraud, for example?
WHITE: You are always assessing the seriousness of the crime. How serious
is the crime? How pervasive is the crime? And you are looking at the real collateral
consequences, if you think otherwise the right decision is to indict the company.
And so there are some kinds of offenses – environmental for example –
where companies have been convicted and pled guilty for many years, where the
collateral consequences have not been as severe as in a situation of an Arthur
Andersen or a Drexel Burnham. So, there is a little bit of a sliding scale.
CCR: When you cut the Prudential Securities deal, did you see that
as a groundbreaking case?
WHITE: No. I thought it was the right result for that case. It may
have been the first deferred prosecution. It was certainly not something I thought
I was likely to do again. It was a very special situation. And in fact, other
prosecutors didn't jump on the bandwagon. And nor did I when I was U.S. Attorney.
We decided to indict or not. You may have a non-prosecution agreement, but not
a deferred. I did not think it would catch on.
CCR: But it did.
WHITE: Ten years later. It is a tool that prosecutors have. They clearly
reassessed themselves after Arthur Andersen. You saw the collateral consequences
coming to roost in Andersen. The Justice Department realized in very concrete
stark terms – do I really want these kinds of consequences. Are we really
serving the public interest? And so, the tool is available to them to go down
several notches. You combine that with the number of cases they are involved
in – and you get the results we have been seeing. And prosecutors are
like anybody else – when they devote a lot of time and effort to a case,
they want something to show for it.
And so I fear the deferred prosecution is becoming a vehicle to show results.
CCR: An alternative model would be the indictment your brought in Consolidated
Edison. It was one of the few cases of corporate probation – the company
was convicted, and there was a probation officer – a monitor – reporting
to a federal judge. In corporate probation, you get the
deterrent impact of the guilty plea. And you get the cultural change, through
the monitor.
WHITE: If it is a case deserving of indictment, and the prosecutors
have assessed that the collateral consequences are survivable, then yes –
you do send a stronger deterrent message by indicting a company. You have a
convicted company. A judge sentences the company. The judge can impose a fine,
or impose probation with all of the bells and whistles we have been talking
about through a deferred.
If the only choice is between a deferred prosecution agreement and an indictment,
the company is going to choose the deferred because it doesn't have the same
stigma and same collateral consequences.
CCR: Today, Con Ed would have gotten a deferred prosecution right?
WHITE: Not necessarily, no. It depends on who the U.S. Attorney is.
CCR: If you were the U.S. Attorney?
WHITE: That wouldn't be appropriate for me to comment on.
CCR: It puts a lie to – if you indict and convict a major
American company, you put it out of business. Con Ed is not out of business,
as I recall.
WHITE: They are thriving.
CCR: Probation saved the company.
WHITE: It did help it. Assume the SEC doesn't have a role in
a particular case. Nobody else is in the arena but the prosecutor. And you feel
that you want to do something that insures that this corporate culture rights
itself.
You don't have to either indict or get a term of probation, or file a deferred
prosecution agreement. You can just as easily do a cooperation agreement –
the terms are negotiated. And without the stigma of filing a criminal charge,
you can by a non-prosecution cooperation agreement bring about exactly the same
thing.
And a deferred by the way doesn't have to involve filing a criminal charge.
You can just agree that you are going to withhold the filing of charges assuming
the company complies with whatever the terms of your agreement are. So, there
are lesser alternatives to achieve the same thing as a deferred prosecution
agreement, without the stigma and inappropriateness of filing, even filing –
a criminal charge against an entire entity. It is not without cost to do that.
And it is certainly not without stigma to do that. And in the vast majority
of cases, it is certainly not appropriate to level that kind of stigma against
most companies in these situations.
CCR: You say that, but then you as U.S. Attorney decided to
level those charges against the corporate entity.
WHITE: For the most part, except for Prudential, I decided
either to charge or not. I did not instead file a charge, which carries stigma,
even though you are deferring it.
CCR: There were two non-prosecution cooperation agreements
– Sequa and Aurora Foods. For the vast majority of cases, bringing a criminal
charge against a major American corporation where there is evidence of serious
corporate wrongdoing is inappropriate?
WHITE: In the vast majority of cases, yes, because it is not
the entity that you should be aiming at – it is the guilty parties.
CCR: Many people say – a corporation is a legal fiction.
If you want to have an impact, throw the executives in prison.
WHITE: There is no question that the primary focus of prosecutors is
and remains guilty individuals. The entity is a corporate fiction. But it is
obviously an important entity to those who work in it and those who invest in
it.
Prosecutors should think – why is it that I need to do anything to this company? Why is this such a rare case of wrongdoing that it demands something on the criminal side?
But it is an arena where prosecutors are beginning to think much more routinely
– we need to do something. It is not an indictment. And our preference
is not to indict. We therefore need a deferred prosecution agreement. We need
something. And that is where they are going astray sometimes, in my view. In
the vast majority of cases, they should not be seeking anything from the company
itself except its cooperation.
[Contact: Mary Jo White, Debevoise & Plimpton LLP, 919 Third Avenue, New
York, New York 10022. Phone: (212) 909-6260. E-mail: [email protected]]
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