Bingham’s Michael Levy on the Rise of Prosecutorial Common Law
25 Corporate Crime Reporter 6, February 7, 2011

In the old days, the Justice Department would either indict a company or drop the case.

Now, there is a middle ground.

Deferred and non prosecution agreements.

And while settling corporate crime cases pre-indictment delivers benefits to both the corporation and the government, there is a down side.

The judiciary gets cut out.

Michael Levy calls the result prosecutorial common law.

Levy is a partner at Bingham McCutchen in Washington, D.C.

“Prosecutors confront companies,” Levy told Corporate Crime Reporter in an interview last week. “Companies don’t want to have to take a conviction. But companies don’t particularly have a strong incentive to fight on complex legal theories around jurisdiction and liability. What they care about is – what is going to be the dollar amount of the fine? Is it going to affect key employees? What is going to be the reputational damage?”

“The government on the other hand has a broader institutional interest. The government has consistently used the common law of settlement to push more and more aggressive interpretations of some of the laws it is interpreting, getting companies to agree to those aggressive interpretations, and then using the fact that a large company agreed that this was a violation of law to bring a similar case against other companies.”

“The fact that one company agreed that such and such was the law doesn’t make such and such the law. Only judges and courts can decide what the law is – not prosecutors and settling companies. “

Levy says that this winds up reinforcing a problem we saw in honest services fraud and in obstruction cases.

“In the Skilling and the Arthur Andersen cases, the Supreme Court decided 9 to 0 that the interpretation that the Department of Justice had been using for what those laws were was wrong and had been wrong for a number of years,” Levy said. “It is so difficult to get a judicial ruling on the scope and jurisdiction of these laws. No one is willing to challenge them and put them before a court. And the Justice Department winds up pushing more and more and more aggressive interpretations of the statutes – to the detriment of what Congress intended.”

“So, in the Foreign Corrupt Practices Act (FCPA) cases where so many of these cases are settled, the Justice Department, by means of this prosecutorial common law, is developing its own interpretation of what the FCPA really means and what the scope of its jurisdiction is. And that may go way beyond what the courts of this country would read the statute to actually require.”

“And that’s being done because the prosecutors and private companies are essentially cutting the judicial branch out of the process. And that’s the biggest problem with these deferred and non prosecution agreements. You are essentially cutting the judicial branch out of the development of the law. And that is a serious problem with this process.”

Levy says it took two prominent CEOs to challenge the Justice Department.

“Look who it took to take those cases all the way to the Supreme Court – Conrad Black and Jeffrey Skilling – two CEOs with substantial assets,” Levy said. “Look at the Stein case, where Judge Kaplan ruled that the Department of Justice had unconstitutionally deprived the defendants of their right to counsel by limiting their attorney’s fees. Without an individual defendant with the financial resources and the incentive to seriously challenge the government, or without a company that has similar incentives, you dramatically lose the incentive for the judicial branch to participate in the process of the development of the law in the white collar field.”

But corporations are risk averse.

“And that’s an enormous problem and one of the real negative legacies of the Andersen case,” Levy said. “Before Andersen, companies could be convicted and continue to do business.”

“I remember representing a company before the Andersen prosecution. And we came up, at their request, with a detailed spreadsheet of all of the major U.S. companies that had been convicted of crimes over the past ten or twenty years. And it was a laundry list of major U.S. corporations. The mere fact of a criminal conviction didn’t have the same stigma that it has had ever since Andersen went out of business after conviction – even though ultimately, the conviction was overturned 9 to 0 by the U.S. Supreme Court.”

“So no corporation wants to take that risk. And almost no individual has the wherewithal to fund that challenge.”

[For a complete transcript of the Interview with Michael Levy, see 25 Corporate Crime Reporter 6(12), February 7, 2011, print edition only.]



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