Julie O’Sullivan on Corporate Crime and Corporate Power

Corporate crime prosecutors and defense attorneys like to say that politics plays no role in decisions whether or not to prosecute a major American corporation.

Julie O’Sullivan
Georgetown Law

Maybe so. 

But corporate power surely does play a role.

And it is rarely talked about in academic circles.

Last month, Georgetown Law Professor Julie O’Sullivan addressed the issue at a conference – Imagining a World Without Corporate Criminal Law.

At the conference, O’Sullivan presented a paper titled – Is the Corporate Criminal Ecosystem Defensible?

“What is truly discouraging is evidence that corporate power and influence – exercised through corporate counsel’s connections – have considerable sway at Main Justice,” O’Sullivan wrote.

O’Sullivan gives two glaring examples.

“First, federal line prosecutors in Texas, supported by their Republican U.S. Attorney, spent two years putting together a case against Walmart for violating the Controlled Substances Act,” she writes. “The prosecutor believed that they had put together ‘damning evidence’ showing that Walmart pharmacists throughout the country had lodged objections with the company to filling prescriptions from doctors running pill mills.”

“Walmart pharmacists in fact internally reported hundreds of thousands of suspicious or inappropriate opioid prescriptions. Walmart compliance officials, however, told pharmacists that they could not cut off these doctors. Rather, one opioid compliance officer sent an executive an email saying that Walmart’s focus should be on ‘driving sales.’ Before the prosecutors could indict the company and this compliance official, Walmart, which purported to be cooperating with the investigation, repeatedly appealed to high-ranking Department of Justice officials. The Department of Justice told the line prosecutors to stand down and, in 2018, Walmart was told that the Department of Justice was declining both cases.” 

“If press reports are to be believed, this declination had everything to do with political influence, not the strength of the case. Finally, in December 2020, the Department of Justice filed a civil suit alleging that Walmart did that which prosecutors unsuccessfully sought to pursue criminally: It unlawfully dispensed controlled substances from its pharmacies for years.”

The second case O’Sullivan points to is the Purdue Pharma case. 

“Purdue Pharma engaged in decades of criminal misconduct in support of its zealous efforts to rake in billions through sales of its highly addictive opiate drug, OxyContin. As is detailed by Patrick Radden Keefe in Empire of Pain, in the early 2000’s a couple of line prosecutors in the Western District of Virginia, with support of their Republican U.S. Attorney, put together a criminal case against Purdue and three of its top executives. Notably, a small office did this without a task force – they found a way to review millions of pages of documents yielded by over 600 subpoenas and interviewing some three hundred people.”  

“The prosecutors planned to charge the company and the three executives with misbranding, wire and mail fraud, and money laundering and to ask for a fine of $1.6 billion, given that Purdue had already more than $9 billion in OxyContin sales. A lawyer at the Department of Justice tasked with evaluating the line assistants’ prosecution memo concluded that the evidence was ‘rock solid’ and recommended that the case go forward.”

“But Purdue hired as defense counsel a number of former prosecutors, two of whom had served as the U.S. Attorney in the Southern District of New York. These defense lawyers used their connections at Justice to push for leniency at the highest levels. After their interventions, the Department of Justice decreed that the line prosecutors could only proceed against the company for one count of misbranding, not fraud or money laundering, and that the individuals could only be charged with a single misdemeanor.”

What was the genesis of the paper?

“I teach criminal procedure, which is primarily the Fourth, Fifth and Sixth Amendments to the Constitution,” O’Sullivan told Corporate Crime Reporter in an interview last week. “Those are primarily street crime cases. I also teach federal white collar crime. And I might as well be teaching two entirely different criminal systems. It is stunning when you step back and think about it.”

“How did we get here? What is the corporate ecosystem? And what does it do?” 

“We have a system where there is an easy way to satisfy corporate liability – respondeat superior. It’s like shooting fish in a barrel with a cannon. And that reality dictates that corporations virtually have to cooperate with the government. These are large corporations. They hire outside counsel to investigate. These internal investigations are often undertaken with the guidance of the government. The results are reported to the government in some form or another. These investigations can cost hundreds of millions of dollars. The Siemens investigation reportedly cost $1 billion.”

“During these investigations, the corporations take extraordinary steps. Sometimes they waive attorney client privilege or work product doctrine. They will willingly remediate the harm. They will pay enormous amounts of money in disgorgement, fines or remedial measures. They will sometimes submit to government oversight of their compliance efforts. And they will spend a ton to put in place enhanced compliance programs.”

“And why do they do this? They do this because they do a cost benefit analysis and come to the conclusion that the cost of a criminal sanction is greater than these costs, whatever they may be.” 

“The government has an interest in this. Corporate criminal cases are hard to make. It’s hard to come in from outside the black box of a corporation and figure out what went on inside the corporation. Corporations have the resources to hire outside counsel who can linger, delay and wait. They can make it very difficult for the government to find out what happened.”

“Rightly or wrongly, the government has concluded that to optimize the level of cooperation and the establishment of compliance programs, they have to reassure the corporations that these extraordinary measures are going to be worth the corporation’s efforts.” 

“They have adopted things like deferred prosecution agreements. And they have instituted practices in specific areas like the Foreign Corrupt Practices Act (FCPA) and antitrust programs that will insure a declination for certain types of cooperation. They have allowed corporations to avoid the collateral consequences, such as debarment, that will otherwise flow from a criminal conviction.” 

“All of these circumstances have led to a circumstance where very few corporations are criminally convicted and very few individual executives are criminally convicted.” 

“This seemingly works for everybody. That’s the cynical view. Somebody called it a racket. I actually think that the state of affairs has evolved organically and people at the Justice Department believe that there that the requirement of compliance programs and monitors is an effective way to deter future criminal wrongdoing. They really do not want to be responsible for another debacle like the implosion of Arthur Andersen. And they don’t want the debarment of delicensing of companies that provide essential products such as pharmaceuticals to Medicaid or Medicare. They don’t want to debar Boeing because then they wouldn’t be able to provide planes to the government.”

“There are a lot of reasons this has evolved. But it has resulted in a situation where there is very little criminal liability for corporations or their executives compared to the apparent costs of their wrongdoing and the apparent scope of their wrongdoing.”

“People at the Justice Department sincerely believe that this is the best way to proceed, or it’s the best way to proceed consistent with their limited resources. Corporations love it because, although it’s expensive, it’s better than a criminal conviction. Corporate defense lawyers are making a fortune as are compliance professionals.” 

“I have a couple of problems with it. It doesn’t seem to be doing much of anything in terms of the purposes of the criminal law. I have a hard time believing that this system deters any amount of corporate wrongdoing by corporate America. Certainly it doesn’t satisfy those who believe just desserts are appropriate in this sphere.” 

“There is an awful lot of money sloshing around here, but it is not clear to what end.”

“The second problem I have with it is that it creates a legitimacy crisis. And we see where a legitimacy crisis can lead.”

You say that it seems to work for everyone – but it doesn’t work for many of the victims, like the Boeing victims.

“Let me clarify. It seems to work for everyone within the ecosystem. The Boeing case is awful. The Purdue Pharma case is awful.”

“I spent much of the paper on the costs of corporate crime. The costs are enormous. And it is absolutely incomprehensible to me why we do not prioritize white collar enforcement.”

You are a former federal prosecutor. What would you do differently?

“I would substantially increase the resources available to investigate and prosecute white collar criminality. Only about ten percent of the cases sentenced in the recent past have been white collar cases, despite the fact that corporate criminality imposes enormous costs in terms of money.”

“And it imposes enormous costs when it comes to legitimacy. People believe that corporate elites are getting a pass while poor people are going to jail. And it imposes enormous costs including environmental damage and public health and safety.”

When I ask corporate criminal prosecutors and defense attorneys – does politics play any role in the prosecution of corporations – and universally they say – no it doesn’t. They say – you can’t find a prosecutor who makes a political judgment.

“I never saw it on the line, but unless all of these news reports about Wal Mart and Purdue Pharma are wrong, it is happening at the Justice Department,” O’Sullivan said.

Other than Wal-Mart and Purdue Pharma, do you know of any cases?

“I’m not talking about President Trump making a call. I’m talking about something more subtle. People appealing it up through the Justice Department and making arguments that persuade policy makers. It’s not necessarily a political threat. But it certainly is the power and influence of a corporation operating within Main Justice.”

“I also know of a couple of instances that I can’t talk about.”

From your own practice?

“From things I learned through practice over the years. I’m not saying a politician called up and said – kill this investigation. To my knowledge, that has not happened. But corporations exert influence to get meetings to make arguments that your average defendant would never have the possibility of securing. And of course, they can make arguments that your average defendant cannot make. And some of them are legitimate arguments.” 

If the Justice Department continues to play the compliance game, increasing the resources alone will not make a difference.

“In my paper, I mention that there also has to be alternative ways of getting information so that the Department of Justice is not so heavily reliant on cooperation. And to me that is doing things like expanding the information flow from qui tam and whistleblower cases so that you can make cases without the cooperation of the corporations. You are not reliant on that ecosystem.”

How do you counter the exercise of corporate power within the Justice Department? That’s the core of the double standard. Poor people, people without power, get thrown in jail for minor offenses. The powerful engage in crimes that cost tens of thousands of lives and get off. It’s more a power game than a compliance game. 

“Some administrations have politicized justice. I don’t think all administrations are like that. I do think most prosecutors try to do the right thing. If you adopt policies that say that former U.S. Attorneys cannot just call the Deputy Attorney General to get a meeting to get a review of their cases. Or if they can, so should federal public defenders all over the country.” 

“The Deputy Attorney General or people high up in the Justice Department cannot just extend these courtesies to former high ranking officials at the behest of their corporate clients. It just can’t happen.” 

Why is this issue of corporate power not an issue with academia?

“We tend to want to rely on data, not anecdotes. And much of that is not public. God bless the newspapers and authors who are digging this up. But that’s not information that is readily available. Because it’s hard to quantify, it’s hard to discuss.”

[For the complete q/a format Interview with Julie O’Sullivan, see page 35 Corporate Crime Reporter 43(12), Monday November 8, 2021, print edition only.]

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