Some corporations have become so large or so systemically important that when they violate the law, the government cannot credibly threaten them with efficient criminal sanctions.

That’s according to Nick Werle, a recent graduate of Yale Law School and the author of an upcoming law review note – Prosecuting Corporate Crime When Firms are Too Big To Jail (Yale Law Journal, 2019.)

Werle shows how the too big to jail problem reduces prosecutors’ ability to deter corporate crime just by fining a defendant corporation without any accompanying prosecution of culpable individuals.

Werle shows how the risk of corporate criminal liability alone cannot incentivize a too big to jail firm to invest in internal controls or cooperate with government investigations.

Werle argues that in the presence of too big to jail firms, prosecutors must adopt a strategy that credibly threatens culpable managers with monetary and non-monetary penalties and that eschews excessive reliance on corporate defendants’ cooperation.

Werle puts forth a structural explanation for the relative dearth of individual prosecutions relative to negotiated criminal settlements with too big to jail companies.

He says that prosecutors rely on an institutional apparatus for investigation that can produce the information necessary for corporate settlements but will not reliably produce the kind of information necessary to bring charges against culpable individuals.

And he proposes to enlist the courts as a bulwark against the tacit collusion in which prosecutors can agree to a large corporate settlement without insisting on an investigation that can produce a coherent theory of the underlying individual responsibility.

Werle’s legislative reform would authorize judicial review of federal deferred prosecution agreements to ensure that prosecutors have collected sufficient evidence prior to entering corporate settlements.

In high school, Werle aspired to be a scientist.

“In my high school, I was named future lawyer,” Werle told Corporate Crime Reporter in an interview last week. “I was upset about it because I wanted to be a scientist. If you are a precocious kid, doctor and lawyer are the uninspired options. I knew I didn’t want to work in finance.”

“I had spent my summers in high school and college working as a dock hand at a luxury marina on Long Island where many of the boat owners worked in finance.”

“This was during the height of the finance boom – 2005 to 2008 or so. It was at the height of the bubble. I found these people who were spending so much money to enjoy themselves. And they didn’t even seem to be enjoying themselves when they were there at the marina. They didn’t seem to me to be happy and fulfilled people. I knew that it wasn’t an industry that I wanted to be part of.”

Earlier this year he graduated from Yale Law School. Now he says he aspires to be a corporate crime prosecutor.

It’s rare to have a young lawyer aspiring to be a corporate crime prosecutor.

“In the fall of 2008, I was looking at some big problems I could work on that I was sure would not go out of style,” Werle said. “The first was climate change. And the other was the problem of corporate crime and corporate power and the relationship between corporations and society. I have just been fascinated with that since 2008. I have friends who are interested in corporate and white collar crime. But I am also surprised that more of the people my age who came of age during the financial crisis are not fascinated by the topic.”

Do you have a prosecutor who is a role model for you?

“I really admired Judge Jed Rakoff. He was formerly with the Southern District. He was head of the securities unit. I’m not in favor of super aggressive prosecution. Prosecutors have too much power.”

“The criminal justice system is far too big and many people are in prison too long. What I admire about Judge Rakoff is that he is very circumspect about the exercise of prosecutorial power – not just in the white collar area –  where many former prosecutors turned defense attorneys are skeptical – but also in other areas of law enforcement, such as drug crimes.”

Werle says his paper was influenced by Judge Rakoff, Duke Law Professor Brandon Garrett and Jesse Eisinger, author of the book The Chickenshit Club.

He puts forward a specific legislative reform to cure the problem of prosecuting too big to fail companies – judicial review of deferred and non prosecution agreements.

“My reform is actually to make it a bit harder for the government to reach these settlements,” Werle said. “There has been ongoing litigation in the Second Circuit and the DC Circuit regarding the authority of the courts to review the substantive terms of deferred prosecution agreements.”

“Both circuits have found that the district courts lack that authority under the Speedy Trial Act. This reform is modeled on some of the parts of the British deferred prosecution agreements regime, which was responding to the lack of review in the United States.”

“The reform would expressly authorize substantive and procedural judicial review of these settlements. The court would be required to verify the sufficiency of the pleadings and the statement of facts to support the charges that are being settled or being deferred.”

“Under federal criminal law, a corporation is only criminally liable as a derivative matter of the criminal liability of an individual. The government would have to put forward a theory of some individual liability in order for the corporation’s deferred prosecution to be approved.”

A theory of individual liability or would the individual actually have to be charged?

“By charging theory I mean a statement of facts and criminal information to support the charges being deferred on the court’s docket.”

Would the Justice Department have to name the individuals? Would they have to criminally prosecute the individuals?

“There is a major separation of powers issue with having the judiciary compel the executive to prosecute individuals. My proposal doesn’t do that.”

“My proposal requires actual evidence of individual criminal liability. And that must be pled as part of the papers submitted in the deferred prosecution approval process. And if the government can’t point to at least one criminally liable individual, then the corporation under my proposal would be able to move to have the case dismissed.”

“This proposal takes the Department of Justice at their word in saying that if the evidence against individuals exists, they will bring charges. The proposal tries to make it more difficult for the executive to claim the political victory of the corporate settlement, which of course grabs headlines, without having first generated evidence against individuals.”

Do you believe it to be the case that there was not sufficient evidence to bring a criminal charge against any high level executive in connection with the 2008 financial crisis?

“Two questions – could there have been evidence found that would have been sufficient to bring a case? And then – was that evidence ever collected in a usable way by prosecutors?”

“I’m arguing that the institutional apparatus for the investigation and production of evidence is not fit for purpose when it comes to corporate crimes committed by too big to jail companies.”

“The government has extremely powerful – in many cases far too powerful – tools for collecting evidence of complex criminal conspiracies and pressuring actors within those conspiracies to testify.”

Why aren’t they using those tools in major corporate crime cases?

“I don’t know the answer.”

You wanted to study political economy. Is that it? Is it just a question of brute political power? “It is. I don’t think it’s that individual line prosecutors don’t want to bring these prosecutions against their future clients because they think they wouldn’t be marketable after they leave government service. That’s the way the revolving door problem is usually discussed. The problem is more of an acculturation to the over reliance on the sufficiency of internal investigations alone.”

“From a political economy perspective, it’s clear that someone’s social standing and economic and political power obviously influences how the criminal justice system treats them. That starts far before the charging phase and has to do with the investigative phase.”

“I don’t think it is a stretch to say that when prosecutors interview employees involved in corporate malfeasance and those interviews only come under the supervision of corporate defense counsel and after the company’s explanation for events has been put together by corporate counsel, those are not going to be as effective as the type of interviews that the government employs in what you call street crime contexts.”

[For the complete q/a format Interview with Nick Werle, see 32 Corporate Crime Reporter 38(12), October 1, 2018, print edition only.]