Duke Law Professor Sam Buell On Corporate Criminal Liability

Corporate criminal liability is under attack.

Corporate lobbyists, right wing academics, and many in the media say that corporate criminal liability is the wrong way to control corporate wrongdoing.


They say — better to punish the individual corporate managers than the corporation itself. It’s the individuals who commit the crime. The corporation has no mind. And no mind, no crime.

Up steps Duke University School of Law Professor Samuel Buell and says — not so fast.

Buell says — individual executive liability is not the most promising method of deterring corporate wrongdoing — and that corporate criminal liability is a better way to deter what he calls “criminally bad management.”

Buell is completing his first book — Capital Offenses: Business Crime in America’s Corporate Century (W.W. Norton & Co. 2016).

“I’m a pragmatist, even though I work in the ivory tower,” Buell told Corporate Crime Reporter in an interview last week. “I come from the real world. The question is — what are the feasibly available options? What has promise at this time in the system that we have?”

“We could start imposing criminal responsibility on corporate managers for negligence or reckless behavior. There are some serious implementation problems that you would have to work out. You would need a sea change in criminal law philosophy to get there. But we can go there if we want to. Congress could go there.”

“In the legal system that we currently have, we don’t have it — with some minor exceptions like the responsible corporate officer doctrine in the pharmaceutical industry — which is a misdemeanor crime only. We don’t have those kinds of legal tools in our system.”

And you are arguing that we shouldn’t have them?

“I’m arguing that we ought to think a lot harder than those who are advocating for those measures,” Buell says. “We ought to think a lot harder about what is entailed in going there. Unless and until we make that decision — which is a decision I am quite skeptical about — then what tools do we have to influence management behavior?”

“Corporate criminal liability is one of those tools. I’m not saying it’s the best tool. I spend a lot of time in and out of academia where I listen to, read and hear a lot of criticism of corporate criminal liability. Most people in the legal profession in the United States these days, and maybe even in the political space, and a lot of people in the journalism space, are not fans of corporate criminal liability.”

What is driving that?

“There is almost a kind of accidental coalition,” he says. “Corporations and their policy arms and lobbying arms don’t like it for obvious reasons. It’s the government coming into their business and it is expensive. On the other hand, there are a lot of people who don’t like it because they feel it is a poor, if not completely ineffective, substitute for individual criminal liability. They would like to see more managers in prison.”

“And the third factor here is the settlement process. And in general, people outside the legal system don’t like settlements. They feel as if it’s not the way the law is supposed to work. It’s not a full airing of the case.”

“I don’t think there is just one contingent that doesn’t like corporate criminal liability. It’s a little bit of an accidental coalition.”

“Corporate criminal liability has been coming under a lot of heat for a long time now. And it’s not just the public sphere. Many academics criticize corporate criminal liability. These are all good points. Corporate criminal liability is far from perfect. But the point I’m trying to make is the people who have been collectively responsible for creating this system over the last twenty years are trying to accomplish something. They are trying to find a tool that will leverage better corporate management when it comes to prevention of harms.”

“Some of the reasons why we have been reaching so hard for that kind of a tool for so long is that many of our traditional methods of regulation have proved ineffective or they have been dismantled in various ways that have made them less effective. We don’t have a tool of individual criminal liability to do this. There isn’t a crime of — you should have managed GM better.”

There could be. Buell raises a new UK law, which he calls the reckless bankruptcy of a bank law. That law would put in jail a bank manager — it’s almost strict liability, isn’t it?

“I don’t read it that way,” Buell says. “The statute would require the prosecutor to point to a particular decision by the bank manager that was causative of insolvency. You have to be able to pinpoint a business decision that led to bankruptcy.”

“But I would take the point that you would hear from the corporate sector on this as a fair point. Don’t corporate managers have to make decisions all the time in the management of businesses that raise the question of insolvency risk? And in fact, part of the engine of the limited liability corporation is so that it can fail — and a certain number of them will fail — particularly in the entrepreneurial sector. In the entrepreneurial sector — there is an incredibly high percentage of startups that don’t make it. And that’s a good thing. We want that.”

“Are we now going to start saying to entrepreneurs — if you make a decision that could cause the business to fail, you could go to jail? That’s a different kind of criminal liability for risk than some ordinary or regulatory statute that we have in the pharma context. In the pharma context, the law says — if you are making a decision that could cause your product to be adulterated and hurt people you could be held criminally responsible — that’s different.”

Why haven’t any Wall Street bankers been criminally prosecuted for the 2008 financial collapse? Prosecutors say — show us the case. Whistleblowers like Alayne Fleischmann say — here’s the case — JPMorgan Chase. She says — she laid it out for the prosecutors. It wasn’t just that they were there, it’s that they were involved in the fraud.

“If you are involved, you are a co-conspirator to securities fraud. And you should go to prison,” Buell says. “That’s what we prosecuted in Enron.”

But how do you come down on that question — how come no Wall Street executive went to jail for the 2008 financial crisis?

“Read my book next year,” he says. “I’m working on that issue now. It’s complicated. To some extent the criticism turns on the facts, some of which we have, some of which we don’t. To some extent, it turns on people’s misunderstanding of the law of fraud.”

The corporate crime industry doesn’t like corporate criminal liability.

“They say they don’t like corporate criminal liability,” Buell says. “But the law firms are getting a lot of practice out of this. You have the privatization of the investigative function. It’s not ideal. Would it be better if we had a much larger bureaucracy in Washington to investigate corporate crime? Maybe. But we don’t have those resources, especially not from this Congress. What we have is corporate criminal liability used to leverage the incentive to get private lawyers to investigate, disclose, root out corporate crime. And then we have these settlements in which we attempt to take remedial measures to deal with the problem in the future.”

“There are many defense lawyers working in this space. And they are well compensated. When lawyers for corporations go to conferences and they write pieces in bar journals criticizing corporate criminal liability, you have to be skeptical. The client doesn’t like corporate criminal liability. But I’m not sure it’s bad for the bar. When these folks are not working for their corporate clients and they are off the record — not all of them, but an awful lot of them will say — this is not an ideal system, but it is accomplishing something.”

“I can’t tell you the number of lawyers who have told me that they have seen a sea change in the last ten years in the conversation going on in the corporate space on FCPA enforcement and corruption. It is making a difference. Is it solving the problem? Far from it. But it has changed the conversation. And the attorneys who work in this space will admit that. And some of them will say that’s because corporate criminal liability is a threat and having an impact.”

“Defense lawyers always complain about prosecutors. They are going to say — in theory the system is okay, but the problem is the prosecutor with blinders on, they won’t listen, and they are making too big of a deal on these cases. That’s just standard practice talk. That’s always going to be the case.”

“Industry doesn’t like corporate criminal liability. What’s to like?”

“But I don’t think that these lawyers who have been in the Justice Department suddenly have had an epiphany and realize that everything they were working on was completely counterproductive.”

If not deferred and non prosecution agreements, what is the optimal system for controlling corporate crime?

“The finding and admission of the facts of the wrongdoing is extremely important,” Buell says. “I applaud the SEC for moving in the direction of requiring admissions in some of their settlements. It always bothered me that the SEC would do these neither admit nor deny settlements in matters of high public interest, when the role of the enforcement by the government was to send a message and get deterrence. I don’t know how you fully send a message about what is wrong and why it needs to be penalized unless you have the responsible party admitting what they did. I do think you can have admissions in settlement agreements that can be quite significant. But there is something about the solemnity of the plea in court that adds a little juice to the case. It’s preferable to have a guilty plea.”

“I would like to see a law reform project — and this is pie in the sky given where Congress is at now — that went in a comprehensive way through the federal regulatory state to get all of these parts working together in a more coordinated fashion.”

[For the complete q/a format Interview with Samuel Buell, 29 Corporate Crime Reporter 16(10), April 20, 2015, print edition only.]

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