Scapegoating is rampant in corporate crime cases.

Scapegoating occurs where corporate wrongdoing is instructed more or less overtly by senior management or imbedded in a company’s business model and corporate culture, and implemented by lower level executives as part of their duties.

Prosecutors and the company’s senior management are under pressure to identify sanctionable individuals who may not be those ultimately responsible.

That’s according to a recent article by Laurent Cohen-Tanugi titled Scapegoating: A Structural Risk in Current U.S. Cross-Border Corporate Crime Enforcement (NYU Compliance and Enforcement Blog, May 17, 2019).

Cohen-Tanugi argues that “corporations have a strong incentive to charge implementing mid-level managers as part of their cooperation with the prosecutors, in order to obtain a negotiated resolution as well as to protect senior management.”

“As a result, both parties have a common interest in charging the implementers, if only by default as far as the prosecution is concerned. This structural bias against individual mid-level implementers in corporate crime enforcement  is deeply problematic in terms of justice.”

“Let’s consider the following, hardly uncommon, hypothetical situation. A European multinational is being investigated by the U.S. authorities for misconduct discreetly directed by its senior management and implemented by lower level managers. The company is invited to conduct an internal investigation and submits evidence incriminating individual implementers. The prosecutors indict those individuals while the company gets away with a deferred prosecution agreement and a fine, and senior management with, at most, a few punitive dismissals.”

“Prosecutors’ traditional response to such criticism  is that they follow the evidence, and are unable to charge those ultimately responsible for the misconduct for lack of sufficient evidence. This overlooks the facts that senior executives are in a better position than their subordinates to leave no trace of their instructions, and, most importantly, that they control the internal investigation that will serve as the primary basis for the individual prosecutions, especially when the misconduct takes place outside the U.S.”

“If one adds that in many countries, U.S.-style internal investigations are a novel feature, that are often poorly understood by the employees they target and are hardly regulated, the potential for abuse is substantial. One frequent example is the tendency of corporate employers, if and when an investigated employee realizes that he or she needs ‘independent’ legal representation, to provide one of its regular law firms as the employee’s counsel, without disclosing the obvious conflict of interest and while subjecting it to budgetary restrictions.”

What can be done about this kafkaesque situation?

“First we need to recognize that it is a structural problem built into the system,” Cohen-Tanugi told Corporate Crime Reporter in an interview last week. “Then, if you are going to target individuals, you should target the right people, because otherwise it is an issue of fairness. Then, on the practical level, it’s important to have a better control of the internal investigation. Either have the board involved if a senior manager may be implicated — have directors review this. Then, give an individual who may have been scapegoated the right to challenge the resolution. Individuals have no say in the negotiations over a deferred prosecution settlement. But once it is concluded, there is no way to challenge it in court or with the prosecutors. There should be a way for individual defendants to challenge the outcome.”

“Next is the need for prosecutors to be less reliant on internal corporate investigations, which they tend to be for practical reasons in complex cross-border cases, and even to assume that such investigations will inevitably be biased in favor of protecting senior management.”

Cohen-Tanugi points out that in the Deutsche Bank Libor rigging case, despite her ultimate validation of the Department’s convictions, U.S. District Judge Colleen McMahon criticized the Department for outsourcing the investigation to the bank, which compelled employees to undergo questioning, and for  then conducting its own investigation into targeted employees based on the foundation constructed for it by the bank and its lawyers.

Cohen-Tanugi was the monitor in the Alcatel FCPA case and in a World Bank case.

At a conference in 2012, he stood up and began questioning then Justice Department FCPA official, Chuck Duross. Cohen-Tanugi said the Justice Department had been “a bit generous” by declining prosecution of Morgan Stanley. And in the NYU Compliance blog article, he’s questioning the unfair scapegoating of lower level corporate executives.

These are positions you won’t see corporate defense attorneys in the United States taking.

“My background is not of a traditional white collar defense lawyer,” Cohen-Tanugi said. “I started out as a corporate lawyer. When I came to the field of compliance, I approached it as a monitor – that is someone helping justice – in between the government and corporations. I have also done political science from a government mindset, a public policy mindset. It also put me at odds with the French defense bar. It’s not what a traditional French defense lawyer would think. Even when I was a monitor I was criticized – how can you be a monitor? It was something new in France.”

“There is a real structural problem in the way this is done. You have examples in the public domain about how people who are charged and sometimes jailed even though the corporation admitted in a deferred prosecution agreement that it was an institutional problem, whether of corporate culture or a business model. I wanted to highlight this issue, which I thought was underestimated or overlooked by academics, the defense bar and prosecutors.”

Do you buy the argument that it is very difficult to prosecute top level executives in these cases?

“It is probably right. It’s easier for top management to leave no trace. They are particularly careful. Second, they are in charge of the internal investigation. To the extent prosecutors have to rely on the company’s investigation, especially in cross-border investigations, the company is far away. And there is an inherent conflict of interest.”

“My response is – if you are going to target individuals, they have to be targeted at the right level. If you can’t get the right people, is it fair to get lower level people?”

What can you say about your experience as a monitor?

“It’s an effective tool to bring reluctant companies to the level where they need to be in terms of compliance. If it is well done, a monitor can achieve what nobody else can – not the chief compliance officer, the general counsel or the outside counsel. They don’t have the leverage that the monitor has through the certification process and the recommendation process. Some companies will do it themselves. But other companies won’t do it until they are pushed to do it. Nothing can replace the monitor.”

“There is a misconception about the cost of monitors. My experience is that if it is efficiently done, it is far less costly than an internal investigation. A U.S. style internal investigation costs a lot of money. But a well run monitorship can be very effective at a very a reasonable cost.”

[For the complete Interview with Laurent Cohen-Tanugi, see 33 Corporate Crime Reporter 21(13), May 27, 2019, print edition only.]