Corporation Admits to Serious Wrongdoing But Individuals Aren’t Prosecuted. Why Not?

You know those pesky statements of facts in deferred prosecution agreements?

Where the corporation agrees that it did all those bad things?


Well, actually, in many of those cases, the corporation doesn’t actually believe that it did all those bad things.

It just agrees to the statement facts — and to pay the millions of dollars — sometimes hundreds of millions of dollars — just so it can move on.

That’s the take of Matthew Fishbein.

He’s a partner at Debevoise in New York.

“If the companies are doing such terrible things and admitting to such egregious conduct and paying such penalties, why aren’t any individuals being prosecuted?” Fishbein asks.

“My view is that many of these cases are marginal cases,” Fishbein told Corporate Crime Reporter in an interview last week. “The prosecutors understand that if they were tested and they had to defend their legal theories or persuade a jury that the facts supported a conviction, then they would have tremendous challenges in succeeding.”

“Individuals, unlike corporations, have different calculations to make when they are faced with the prospect of a criminal prosecution. They face jail time. They often face the loss of livelihood and loss of reputation.”

“So, it’s much more likely that an individual is not going to enter into the types of agreements that prosecutors are going to extract from corporations.”

“I don’t think prosecutors are ever reluctant to go after individuals when they have the legal theory and when they have the facts.”

“They are portraying these as egregious cases. But they are not going after individuals — not because they are reluctant to prosecute individuals — it’s because the cases are marginal, the sorts of cases they very well could lose if they moved forward.”

“But when it comes to the corporation, prosecutors are never faced with the prospect of actually having to litigate and defend their legal theories because nine times out of ten — or maybe more than that — the corporations ultimately are going to settle.”

Are you saying that companies agree to a statement of facts that they disagree with?

“Absolutely,” Fishbein says. “I’m not saying it happens in every case. But it happens more frequently than people realize. Often the government will say — as part of this deal, here is the statement of facts that we are going to require you to agree with. And there may be some limited ability to push back on that. Let’s say they have the name of someone wrong. But there is not a lot of ability to say — here is what we would argue to a jury as to why you are wrong on that statement of facts.”

“Some prosecutors are more flexible than others. But generally, it’s a take it or leave it situation.”

Why don’t we see companies taking the government to court?

“There are certain businesses where the mere fact that you are indicted can result in loss of licenses,” he says. “There are other factors as well. These cases are not ones which are going to trial in 30 days. You may have a two year or longer time period where the case is ongoing, it’s in the news, employees are distracted, they might have to be witnesses at trial, it’s obviously very expensive in terms of legal fees.”

“Companies just want it to end. They are willing to pay a lot of money to make it end. And they are willing to do that even in circumstances where deep down they may believe that they are not guilty. Even in circumstances where they feel they could prevail in court.”

Fishbein said that the populist rage against prosecutors for not criminally prosecuting corporate executives is being fueled by this practice of forcing companies to admit to wrongdoing the companies themselves don’t believe they committed.

In an article published recently in the New York Law Journal — “Why Individuals Aren’t Prosecuted for Conduct Companies Admit” — Fishbein says that “the leverage the government can exercise over companies has tipped the scales to a troubling degree.”

“By using their considerable leverage to induce companies to enter into settlements in increasingly marginal cases and forcing them to admit to egregious conduct to settle charges that likely would not survive a legal challenge or be proved to a jury, prosecutors have created a situation where the public is deceived into thinking that the individuals involved in corporate criminal conduct are receiving a free pass,” Fishbein writes.

Fishbein is saying that the public outrage is being fueled by these statements of facts that the companies sign on to but in reality don’t agree with.

Can he provide an example from his own experience?

No. He has many such examples, but he can’t speak of them.

“One reason I can’t speak of these cases is because one of the conditions of these settlements is that the company cannot challenge the statement of facts,” Fishbein says. “The company cannot say — we agreed to this settlement, but we don’t agree with the statement of facts, which is almost always drafted by the government.”

“I do cite the ADM case — a Foreign Corrupt Practices Act case. It’s involves conduct not covered by the FCPA — paying a bribe to get an official to do something they are legally obligated to do. Some Customs official holds up your shipment even though there is no reason to hold it up. The company may pay something to get them to do what they are supposed to do.”

“The resolution in that case has been criticized for that reason. And it made me think of this quote from Mark Mendelsohn, who used to head the FCPA unit at the Department of Justice.”

“In the article, I write that The ADM non prosecution agreement appears to reflect what Mark Mendelsohn has described as the ‘danger’ of deferred prosecution agreements — “it is tempting for the [Justice Department] or the SEC…to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law,” Mendelsohn said.

How widespread is this practice of agreeing to statements of fact that the company doesn’t agree with?

“It’s hard for me to say,” Fishbein says. “I only know of cases that I’ve been involved with and some that others have talked to me about. It’s hard to put a number on it. But you have a growing number of corporate settlements with larger and larger penalties. And in those cases, hardly any individual is ever prosecuted.”

“Given the nature of the conduct described in the statement of facts, given the penalties that are extracted, and given the fact that companies only act through their individual employees, how could this conduct be so terrible if no individuals are charged?”

How is this all going to shake out?

“There is a great deal of pressure on the Department of Justice to prosecute individuals,” Fishbein says. “That is what they would like to be able to do. It’s somewhat embarrassing — particularly given how these big corporate settlements are being portrayed in the press. They would like to be able to prosecute individuals. But there is still going to be tremendous constraints on their ability to bring those individual prosecutions in some of these marginal cases.”

“And when I say marginal cases, I mean cases where maybe the company did something that deserves some sort of regulatory sanction, or some civil penalty. But the instinct these days is — no, this has to be a criminal investigation. As long as there are these tremendous incentives for prosecutors to bring these criminal cases against companies, even in marginal cases, you are still going to have a tough time getting pleas from individuals.

Prosecutors are going to be reluctant to bring those cases because prosecutors don’t like to go into court and lose.”

[For the complete q/a transcript of the Interview with Matthew Fishbein, see 28 Corporate Crime Reporter 37(12), September 29, 2014, print edition only.]

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