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Duke Law School Professor Samuel Buell on the Law of Corporate Investigations and the Global Expansion of Corporate Criminal Enforcement

Duke Law School Professor Samuel Buell has co-authored a paper along with NYU Law School Professor Jennifer Arlen titled The Law of Corporate Investigations and the Global Expansion of Corporate Criminal Enforcement.

Samuel Buell
Professor of Law
Duke Law School

“The United States model of corporate crime control, developed over the last two decades, couples a broad rule of corporate criminal liability with a practice of reducing sanctions, and often withholding conviction, for firms that assist enforcement authorities by detecting, reporting, and helping prove criminal violations,” they write. “This model, while subject to skepticism and critiques, has attracted interest among reformers in overseas nations that have sought to increase the frequency and size of their enforcement actions.”

“In both the U.S. and abroad, insufficient attention has been paid to how laws controlling the conduct of corporate investigations are critical to regimes of corporate criminal liability and public enforcement,” Buell and Arlen write. “Doctrines governing self-incrimination, employee rights, data privacy, and legal privilege, among other areas, largely determine the relative powers of governments and corporations to collect and use evidence of business crime, and thus the incentives of enforcers to offer settlements that reward firms for private efforts to both prevent and disclose employee misconduct.”

Buell and Arlen argue that “both broad organizational liability and enforcement policies that enable companies to enter into corporate criminal settlements short of conviction if they self-report or cooperate are effective tools for reducing corporate crime.”

But there is no good way to determine whether all of these deferred and non prosecution agreements have had a deterrent effect.

“It’s very difficult,” Buell told Corporate Crime Reporter in an interview last week.

There is no good way to determine whether on the whole there is more or less bribery going on, even among the largest American companies.

“It’s a fundamental problem for the scholarship of white collar crime,” Buell said. “It’s a problem that hit me in the face very quickly after transitioning from practicing it to studying it. This is not like murder. We can’t go around and count the dead bodies and come up with a reasonable estimate of how much crime is out there and then look at how many cases we are prosecuting, watch that go up and down, and watch the murder rate go up and down.”

“You can’t do that with white collar crime because they are often not reported offenses. Most of the ones we are interested in – accounting fraud, insider trading, foreign bribery, misconduct in pharmaceutical marketing – these are all things that happen behind closed doors. They don’t leave dead bodies behind. If you don’t have the whistleblower, or the reporter who uncovers it, or the victim who figures something out and gets an investigation started, you don’t know that it happens. You have no denominator against which to measure the numerator of known cases to see whether the numbers of going up or down. And even if you could, think of all the factors that could be causing the rise and fall in white collar crime rates other than enforcement. Enforcement is one factor. But there are other factors as well.”

The way we handle corporate crime has changed significantly over the past twenty years. It used to be – let’s investigate, if there is a case, let’s bring it to conviction. If not, let’s drop it. Now it’s – convictions are rare, let’s bring this thing and settle it with a deferred or non prosecution agreement.

I sensed over the years that you felt uneasy about the shift early on, but now you seem to feel less uneasy about it.

“You have to separate the ideal from its implementation. In contrast with some other legal scholars, I am reasonably enthusiastic about the idea of corporate criminal liability as a lever that can be used to deal with the problem of corporate crime.”

“Having liability for companies, not just individuals, is a way to create leverage over corporations. And corporations are often very difficult to influence and get leverage over, particularly in an environment where even prior to the Trump administration, we had a strong movement in this country to roll back regulation.”

“The non criminal legal tools to deal with some corporate problems have been weakening overall. But we still have corporate criminal liability. And it scares companies. It has real leverage. The use of that leverage ought to be handled in ways that produce better outcomes – specifically good compliance and less crime.”

“Not to say – here is a bad corporation, let’s take it to court and flog it. To some extent, the Justice Department’s program as designed is meant to exploit that leverage in a way that is promising. Jennifer Arlen and I have both had that view throughout our scholarship. We both had that instrumental view of corporate criminal liability – that it can be used in a beneficial way. That’s the idea.”

“The implementation is a separate question. Then it is a question of – are you using the leverage often enough, in the right kinds of ways, powerfully enough. And that presents a set of difficult empirical questions. It’s hard to measure. You can look at the enforcement program and say – it looks like there is recidivism going on. That’s a sign that enforcement might not be working. The same companies are ending up in multiple enforcement actions.”

HSBC just got its third deferred prosecution agreement.

“That raises the question of whether these settlements are actually hanging the company and reducing corporate crime. If it turns out that they are not, I don’t think the answer is to say – the use of corporate criminal liability as a lever is a bad idea. Instead, you back up and say – maybe we are not doing it the right way. Maybe the settlements should be structured differently. Or they need to be tougher.”

“It may be the case that occasionally a company being prosecuted all the way to court and even being put out of business is not a bad thing in the appropriate case where you don’t create too much waste. That does enhance deterrence. But at the same time, it would be silly to have corporate criminal liability just so that we could put a whole bunch of companies out of business.”

“The implementation questions are very difficult. It is something we all need to be talking about, looking at and working on. My colleague Brandon Garrett at Duke has probably done the most on this — keeping track of the settlements, what is coming out of them. He looked at how many cases have changes in senior management as a result of a prosecution. More empirical work will be helpful. But just because we have doubts about the system doesn’t mean we should chuck the whole thing out.”

“We don’t know the counterfactual. We don’t know what compliance in the Fortune 100 sector would look like today if we hadn’t had twenty years of FCPA enforcement with settlements. You talk to the lawyers in the field and they will tell you anecdotally that their clients spend way more time worrying about this problem and spending money on this problem than they did twenty years ago. And that’s just because of what the Department of Justice has been doing. There is surely some effect there.”

Your paper is essentially saying – the model we have to deal with corporate crime is pretty good and it is being exported around the world. We are accepting that this model, while not perfect, is pretty good.

We posted on Twitter yesterday a story from Dylan Tokar at the Wall Street Journal who interviewed the head of the Criminal Division. He reported the head of the Criminal Division saying that companies with strong compliance programs should be given special consideration when facing criminal investigations by the Justice Department.

Then I got a response from a whistleblower lawyer who wrote – “Internal compliance programs do nothing to address pervasive wrongdoing central to a company’s business model as in Enron, Tyco, WorldCom. This I know from 30 plus years of litigation against corporate wrongdoers.”

Buell says – “He is saying – I’ve seen companies spend lots of money on compliance and it didn’t make a difference because they were thoroughly corrupt and everyone in the company didn’t care about compliance. But other people will say – I’ve seen companies with good compliance who generally stayed away from enforcement actions. Or I’ve seen companies with bad compliance but they got better; and their problems with the government decreased. Everyone is talking anecdotes. Companies are enormously complex. They are the most complicated things we have in our society. They become extremely difficult to study empirically.”

“That commentator is taking an implausibly extreme position if he’s saying compliance doesn’t matter. But he’s probably right that there have been companies where the broken culture and pervasively bad behavioral problems are going to overwhelm any effort by lawyers or compliance personnel to try and put procedures in place.”

“This is why you have the Department of Justice talking about that amorphous tone at the top. They recognize that there are going to be some cases where you might have a lot of compliance bells and whistles but the message in the company is – you better make your numbers or you are out of here. Everyone who works at the company understands – that is what the management really cares about. They don’t really care about compliance.”

“What do you do with a company like that? It’s a bit of an amorphous thing. Nobody is going to write that down anywhere. You have to identify that you have a company with that level of a problem. You have to talk about changing management. And in some of these cases, you might have to talk about — this is a company that shouldn’t exist anymore.”

“Enron was a moot case. They drove themselves into bankruptcy before the prosecutors even got on the scene. Enron might have been an example of a company where it would have been appropriate for the Department of Justice to say – this can’t be fixed. In some cases, we have to ask other questions – are they just too big and should they be broken up? Scale sometimes intersects with the problem of bankrupt culture. You wonder – is this a company that can function anymore? Or should it be dismantled and broken up in some way and should there be a start over?”

“Anybody who has read Bad Blood would say – Theranos was never going to be a functional company. But I’m not sure you want to say the same thing about General Motors after the ignition switch scandal. You read the report and see that GM was pretty broken in a lot of ways. But it is still a company that you might want to keep going. It’s not a one size fits all approach.”

[For the complete q/a format Interview with Samuel Buell, see 34 Corporate Crime Reporter 2(11), Monday January 13, 2020, print edition only.]

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