Corporate Crime Reporter

18 Corporate Crime Reporter 5(9), February 5, 2004

INTERVIEW WITH STEVEN P. SOLOW, PARTNER, HUNTON & WILLIAMS,

WASHINGTON, D.C.

The idea of criminal negligence has always stuck in the craw of defense attorneys.

I mean – its either an act of negligence or it’s a crime. Right?

Wrong. Under many federal laws, including the Clean Water Act, you can go to jail for simple negligence.

Steven Solow, former head of the Justice Department’s Environmental Crimes Section, says negligence convictions are rare – they represent less than seven percent of all the federal environmental criminal cases, around 86 out of some 1350 cases in that time.

“The negligence provision could be seen to reflect a demand by the government that when you are operating in a regulated area that could result in discharge into waters of the United States, you should act as a reasonable person would act in those circumstances, or you face potential liability,” Solow told us. “The negligence provision should not, however, be used to impose criminal liability for accidents -- acts that were unwanted and unintended.”

Solow is a partner at Hunton & Williams in Washington, D.C.

We interviewed Solow on January 27, 2004.


CCR: How long have you been with Hunton & Williams?

SOLOW: I have been with the firm since 2002.

CCR: What law school did you graduate from and what have you been doing since?

SOLOW: I graduated from New York University School of Law in 1985. I served as a federal district court law clerk for two years. I then served as a prosecutor with the New York State Organized Crime Task Force. I then became the co-director with Bobby Kennedy Jr. of the Pace University School of Law Environmental Litigation Clinic.

I came to Washington in 1994 to become the assistant chief of the Environmental Crimes Section at the Justice Department, and I became the chief of the section in 1997.

When I left the Department in 2000, I accepted a two-year position as a Visiting Professor at the University of Maryland School of Law. I joined Hunton & Williams in 2002.

CCR: What is your practice at Hunton & Williams?

SOLOW: I practice primarily in the areas of white collar defense, corporate compliance, and internal investigations, obviously with some emphasis on environmental law, because of my background. Increasingly, I’m working on compliance matters related to homeland security. I also counsel clients on other compliance issues.

It helps to have had a background as a prosecutor, because you have the experience of having seen examples of compliance failure, and of knowing how their failures may be perceived by those in the government. What my clients want to know is why those prior failures occurred and how to prevent them from happening at their own companies.

CCR: You were at the Environmental Crimes Section for six years. While you were there, there was an uptick in criminal prosecutions. Prosecutors like to say that politics plays no part in criminal prosecutions, they are going to call cases as they see them. But a number of reports now show that under the Bush administration, criminal prosecutions for environmental crimes have dropped to all time lows.

SOLOW: To borrow from Tip O’Neill, like politics, all prosecutions are local.

And in this area, almost all the investigators and prosecutors are local and/or career government attorneys. For example, if you look at the Top 100 Corporate Criminals of the 1990s on your web site – and I know many of those cases, because I was at the Department at the time – you’ll see that almost all of those cases originated with a career prosecutor or investigator.

And the work of those enforcers has almost nothing to do with any of the noise you are hearing inside the beltway. That’s not to say that the administration can’t have an impact in some instances.

For example, in the District of Maryland, the new United States Attorney, Thomas DiBiagio, eliminated the environmental enforcement unit in that U.S. Attorney’s office. That obviously would have an impact.

On the other hand, among my former colleagues there are new U.S. Attorneys who have developed a reputation as being supportive of the criminal enforcement program, such as Kevin O'Connor in Connecticut, James Letten and David Dugas in Louisiana, Glenn Suddaby in the Northern District of New York and Debra Yang in Los Angeles. For the most part, these cases are brought by career people who keep doing them without too much regard for who is in office.

There is no question that resources are an issue – and they were an issue in the prior administration, and are throughout many government programs. But when you are dealing with the environmental criminal enforcement program, the numbers are small to begin with. So, if someone points to a shift in five or ten cases, that might be a large number percentage-wise, but that number doesn’t really reflect much that is meaningful.

CCR: Public Employees for Environmental Responsibility (PEER) has put out a number of reports showing that there is a drastic decline in environmental enforcement, there is mismanagement and misuse of funds at the Department, cronyism and a pervasive fear of retaliation. Is that your sense of what is going on with the Bush Administration?

SOLOW: No.

CCR: Is PEER off base?

SOLOW: They sometimes carry their analysis to a degree that the information doesn’t support.

CCR: Another report that they put out shows that the EPA referrals for federal prosecutions dropped dramatically under Bush.

SOLOW: The whole referral process in this area is beside the point. The referral process is a formal process in which a request is made for the Justice Department to work on a case. In practice, that has almost nothing to do with how many cases get worked. Agents and prosecutors generally work together from the inception of many types of white-collar cases.

The referral process is a holdover from the environmental civil program, where the agency would work up a case, develop a complete file on the case, and then bring it over to the Department for civil judicial enforcement. It has little application in the criminal context, and the statistics that follow it are not particularly useful.

If you look at the actual numbers of cases brought to resolution year by year, they are pretty consistent. The fact that the levels go up or down over the years doesn’t indicate very much.

For example, if you have a large case, involving a huge corporation, that prosecutors have spent a couple of years developing, you will count that as one case. If you did four cases within the same period of time against four small operators, does that mean you were doing four times as much work? It is a very poor way of evaluating the program.

Moreover, there have always been some very large cases that cross administration lines.
The Department recently announced a Department of Transportation Hazmat enforcement initiative with the Environmental Crimes Section. They trumpeted that initiative with a case against an air carrier of cargo. That is a case that began in the prior administration. Will there be more cases like that? The Administration stated there would be additional resources to pursue these cases, we will have to see.

It is often misleading in this area to just count up the numbers. The numbers don’t give you much of a meaningful story.

CCR: That case was Emery Worldwide. We interviewed the defense attorney in that case, Douglas Fellman of Hogan & Hartson. Fellman helped negotiate a criminal plea of Emery, a now defunct unit of CNF Inc. and helped negotiate an understanding with debarment officials that no suspension and debarment action would be taken against CNF as a result of the guilty plea by its Emery unit. Is that common practice?

SOLOW: That is probably the rule, and for good reason. The interest of the debarment officials is that the government not do business with a company that doesn’t have in place the requisite controls to prevent fraud, waste, and abuse of their government contract. If you are a good attorney for a company that is about to resolve a criminal case, you want some guidance that the kind of compliance plan to which you are about to agree will be satisfactory to the debarment officials.

It would be very much not in a company’s interest to come to a resolution with the government on an enforcement proceeding and have the debarment official turn around and say “that’s not enough to assure us that we ought to be doing business with you.” It would be not a very good practice to go ahead and cut a deal and then see what the debarment officials are going to do. It’s important to put together a plan that will address the underlying concerns of the debarment officials.

CCR: This case also raises the issue of having a defunct or failing subsidiary to enter the plea, so that the criminal charge doesn’t adversely affect the parent. Is that a common practice?

SOLOW: I couldn’t say.

CCR: Have you seen that practice?

SOLOW: I have seen pleas by the subsidiary located where the violation occurred. But you have to be careful to see the whole picture. While the subsidiary unit may plead out, the compliance program may apply to more than just the subsidiary company. In some ways, it begs the underlying issue behind these cases: what causes some companies to comply with the law while others break it?

Frequently you see companies with almost identical compliance plans in place. What we have not had is a sufficient effort to look at this problem in an empirical way, rather than as a political football. Sometimes, in companies that are similarly situated, one is finding a way to comply while a second is not.

CCR: Why do some companies succeed and some fail?

SOLOW: In my practice I can try to get inside a company and see where there are problems to help clients answer that question. For example, sometimes a company will put in place a bonus program that provides a financial incentive for employees to cut costs. If that is done at the expense of compliance – if the employees don’t understand that the company does not want them to cut costs to the point where they undermine their compliance obligations – then the company is making a mistake that could become extraordinarily costly. That’s one small example.

When we see a problem reported in the media about corporate crime, the knee jerk response is to say “let’s have some greater level of sanction to get us where we want to go.”

Paul O’Neill– who now has greater currency than perhaps he did a while ago – made a very interesting comment when Sarbanes-Oxley was first proposed. He was asked about the criminal sanctions in the law, and the possibility that they could result in life sentences. He’d asked, jokingly – why don’t we go right to public flogging?

There is an element of truth in his attempt at humor. In the 1980s, we had the financial scandals at Drexel Burnham for which people were prosecuted and went to prison. Then, as now, the presumption was that prosecution would deter further wrongdoing. But then we turned around and found even greater financial scandals at Enron and WorldCom.

Which raises the question: why are we seeing those kinds of failures of compliance?

We need a long-term effort to look at the stresses that cause problems. That is not a sexy thing to do. It is a lot easier to seize on a few anecdotes and view them as a basis for changing the law. But that is not a very sound way to make policy changes.

CCR: Let’s take another crack at the question you posed earlier – why do some companies comply while others don’t?

SOLOW: If you have a situation where the head of an otherwise legitimate company wants to pursue criminal activity, that attitude is going to influence the entire company and be difficult to do something about. The potential for new solutions is where there is some failure to screen out people who are inappropriate for a position of responsibility, or there is a failure to convey to people the intention of the company to comply with the law effectively because of some mixed message.

Companies sometimes unwittingly put themselves in that position. Post-facto, it looks bad. And folks like myself have to come in and try and explain to a prosecutor what the company’s intent was going into the situation.

Having seen that kind of failure, I recognize that it is sometimes difficult for the government to take into account all of the compliance challenges.

A mid-sized petroleum refinery faces some 500,000 potential environmental violations per day. Every valve is regulated. In the context of the potential for harm, from the outside, the failure to achieve 100 percent compliance is serious.

From the inside, when you are trying to manage 500,000 compliance obligations a day, and if you achieve a 99.44 percent compliance rate, and you don’t have reason to think you have caused any harm, you can understandably see yourself as more like Ivory Snow, than a violator.

Unfortunately, it can take a lot of explaining for both sides to see each other, and their respective goals, with greater clarity.

CCR: Are you saying that there are a lot of unjustified prosecutions?

SOLOW: What I am saying is that the unanswered question that underlies the prosecutions themselves is this: why is there failure?

And rather than trying to answer the question – why is there failure? – there is a search for a cure without having researched prevention sufficiently.

CCR: Let’s take a specific case, the prosecution of Arthur Andersen. Should the criminal charge have been brought?

SOLOW: I think it is widely known now that there was a tremendous debate within the government over whether to bring that prosecution. The question was – are we better off with an even smaller number of big accounting firms? Is that an improvement in service being provided? It was clear that a criminal prosecution would bring an end to that company – and it did.

That is a legitimate question, one that is addressed by the former Deputy Attorney General Larry Thompson’s memo on the prosecution of organizations. You have to question whether, now that we have a smaller number of accounting companies, that is the type of result we want.

CCR: As a prosecutor, could you tell whether a company engaged in serious wrongdoing or not by the way they reacted to a prosecutor after the wrongdoing was exposed?

SOLOW: That is a very good question, and one which gave me pause as a prosecutor.
Once you have doubt in the good intentions of the individual or a corporation, all the evidence can line up to make the person or corporation look bad. Even when I was a prosecutor, I recognized that there are simply things that go bad without bad intent, and things that go bad despite efforts of companies to comply. The challenge for prosecutors is to try to keep an open mind, bearing in mind that their obligation is not to win, but to do justice. If you keep that in mind, you have as good a chance as any at deciding how best to exercise discretion.

CCR: A company comes to you as a prosecutor and says – we found some violations, we are reporting these to you voluntarily, have mercy. Do the voluntary reporting programs work?

SOLOW: Yes. There are programs at the EPA, at the Pentagon – throughout the government – to encourage companies to self-report in exchange for leniency.

My experience is that those companies that do self-report are treated more leniently, as they should be. The government cannot be everywhere. I wouldn’t want to live in a society where the government could be everywhere, and all sides agree that we should do what we can to encourage companies to voluntarily disclose problems or violations.

Again, there is a lot of heated rhetoric over the ability or success of these programs to work. There is legitimate work that needs to be done to make them work better. But you want the government to give a break to someone who is willing to come forward. The government cannot find all of the instances of violations alone – there is no way.

CCR: While you were at the Justice Department, you were critical of state self-audit laws. You called them “a stealth attack on the ability of the Department to enforce environmental protections.”

SOLOW: The problem that the Department had with audit and immunity laws is that they become a substitute for the exercise of discretion by the government. The Department’s view is that an audit privilege and immunity law would constitute an automatic bar to the use of certain information without regard to the circumstances.

Here’s a stark example: New York has transactional privilege in its grand juries. There was a famous case where a wife arranged to have her husband killed, and the individual who committed the act was caught. The wife testified before the grand jury at a time when the government didn’t realize that she was part of the conspiracy to kill the guy. When that came out later, she couldn’t be prosecuted, because she had immunity.

So, the concern of prosecutors with these self-audit and immunity laws is that they eliminate the exercise of discretion. That is the tug-of-war on that issue.

CCR: In cases where companies do report, what kind of leniency do they get?

SOLOW: As you can imagine, it is going to be entirely case specific. It will turn on the nature of how much overall involvement there was from management, how much gain there was from the activity.

Those are the kinds of things that prosecutors will look at to determine what degree of leniency there will be. Sometimes leniency turns on other factors. The company may be able to show that the law or regulations may be unclear. Such legal issues when raised by the company may cause the government to recognize that there are risks in going forward with a prosecution where the government faces a high burden of proof and the rule of lenity applies.

The bottom line is that having a company come in and accept responsibility and get started with a program to address the problem is as important to many prosecutors as whatever additional sanction they might get by pressing forward with the case.

CCR: While you were with the Environmental Crimes Section, you initiated many oil spill cases. How did those cases come in the door? And why did it seem that those cases dominated the docket during that period?

SOLOW: They did not dominate the docket. They were notable because it was the first time those cases had been brought. Once the program reached a level of civil enforcement, the next step was criminal enforcement. This was an area in which the Coast Guard had been undertaking various kinds of outreach, education, and administrative enforcement efforts. And the natural next step is criminal sanctions. These cases were noticed, in part, because they were the first.

Similarly in that time, there were some of the first criminal cases brought under the Hazardous Materials Transportation laws. The fact that they were the first cases didn’t represent some huge change in policy, as much as it reflected a development of the program over time.

CCR: Under the Clean Water Act, you can get a conviction of a corporate official for simple negligence. That’s counterintuitive. Most people believe that negligence is different from crime.

SOLOW: You’re right, many people question the use of the criminal negligence provisions of the Clean Water Act.

Because there was so much concern about these cases, Ron Sarachan, who is now in private practice and who was my boss at the Department of Justice, worked with me on an article published in the Environmental Law Reporter in 2002.

We looked at every single one of the negligence Clean Water Act prosecutions brought between 1987 and 1997. Our first finding was that the negligence provision is rarely used. Negligence convictions are less than seven percent of all the federal environmental criminal case, around 86 out of some 1350 cases in that time.

We also found that they fall into a four categories that help explain the use of the provision.
First, cases of extraordinary harm, such as the Exxon Valdez.

The second are cases where there is a combination of environmental harm and gross negligence.

The third is a category of so-called “compromise cases” where the negligence crime serves as a basis for a plea bargain, because it allows a defendant to plead to a misdemeanor rather than a felony.

Finally, there are cases where the government charges a combination of knowing and negligent conduct, where the negligence cases are “add-on” charges as a lesser offense.

The negligence provision could be seen to reflect a demand by the government that when you are operating in a regulated area that could result in discharge into waters of the United States, you should act as a reasonable person would act in those circumstances, or you face potential liability.

The negligence provision should not, however, be used to impose criminal liability for accidents -- acts that were unwanted and unintended.

CCR: The New York Times last month ran a three part investigative series on worker death cases. They were critical of the federal government for its failure to bring criminal charges in worker death cases.

SOLOW: Those articles focused primarily on OSHA matters, and I believe it is widely known that there is a significant federal criminal investigation ongoing that is focused on some of the behavior that was covered by those articles. I guess we will see what comes out of that.

CCR: Post 911, many white collar resources were shifted to internal security. What effect did that have on environmental crimes investigations?

SOLOW: No question that it had an effect on everything that happens in our society and it continues to have an effect. Among other things, September 11 was a horrible and telling illustration of what can happen when there is a failure of government agencies to work together. One of the things that happened right after September 11 was the anthrax attack.

One of the agencies with the largest number of agents capable of suiting up in protective gear and conducting forensic investigations was the EPA. The FBI had to rely on the EPA to help out with the Capitol Hill investigations. On the one hand, it was a sign of the kind of cooperation that is needed, on the other, it lead to questions about what would be the role of the EPA in the area of homeland security.

However, in December 2003, the administration announced that EPA’s role in the homeland security context is mostly limited to water treatment facilities. Also in December, the now-outgoing EPA enforcement chief, J.P. Suarez, announced that his criminal investigators were going to move away from homeland security and back to environmental crime enforcement.

CCR: You use the phrase “heated rhetoric” to describe the rhetorical attack on corporate crime. Some Democrats say this administration isn’t serious about corporate crime.

SOLOW: When the Enron scandal broke, and there weren’t immediate prosecutions, some people said “this is proof that the government is not serious about this prosecution.”

Now that key figures have pled guilty and agreed to cooperate with the government, we may see additional cases. This was an extraordinarily complex matter. It would have been amazing for the government to dig through and get convictions immediately.

Sarbanes-Oxley has provided powerful new criminal tools to prosecutors, and it will be surprising if career investigators and prosecutors fail to use them aggressively.

CCR: Isn’t it a question of resources? If the Environmental Crimes Section had five times as many resources as it has today, wouldn’t they be bringing far more prosecutions than they bring today?

SOLOW: The question is: is that alone going to get the program where we want it to go?

CCR: But let’s answer this question – if they had the more resources, they would necessarily bring more prosecutions, right?

SOLOW: Yes. You are of course likely to see more prosecutions coming out of an office with more resources. But just adding money presents the question raised by the independent counsel terms of both Lawrence Walsh and Ken Starr: When you have a single purpose and unlimited resources, does that have a bad effect on the use of discretion and how you decide what cases to bring? Simply providing more resources to the enforcers while keeping the focus on numbers – Are your numbers up? Are your numbers down? – has a terrible warping effect on how the programs are perceived and the pressures to have “numbers” rather than “results.”

What I am trying to convey is that we also need to step back and ask “what is our goal here?” Our goal is to attain compliance with laws designed to protect human health, our financial markets, and worker safety. Why is there a failure in these laws? Is it because of management problems? Is it because of regulatory uncertainty and confusion? Is it because of a lack of enforcement?

Rather than looking at compliance failures empirically and over time , the enforcement program tends to be this football that gets kicked around for political purposes. And that is unfortunate from my point of view.

These are very serious issues. They are serious to prosecutors and regulators. And they are serious for companies, most of whom are making a good-faith effort to comply – who care about the employees, about the communities where they operate. It is only going to get worse as we go through 2004. It gets clouded by the desire to find weaknesses politically on one side or another without regard for the underlying reality.

On your web site, you have a listing of corrupt states, ranked by the number of corruption convictions per 100,000 population. One way of looking at those numbers is to say that a state that is so corrupt that it does nothing to prosecute corruption would be ranked as the least corrupt state in the country. Whereas a state with a rigorous prosecution team is going to be ranked as corrupt.

That illustrates part of the problem of relying on numbers alone.

CCR: Okay, but surely as a prosecutor you believed in bringing corporate criminals to justice. What role should prosecutors play in deterring corporate wrongdoing?

SOLOW: When you look at the facts of many criminal cases, there is usually agreement on all sides that prosecution was appropriate.

Prosecutors however can play an even greater role, as problem solvers, by not simply prosecuting the same cases over and over again, but by seeking to find more far-reaching solutions.

That was the lesson of the Organized Crime Task Force under Ron Goldstock, which identified ways in which the New York City contracting rules favored racketeers.

Instead of just bringing more cases, the Task Force advocated changes in the way the system operated.

There is also no question that corporate managers go to their employees and say, “I want you to comply.” And they use the criminal laws to drive home the point: “if you don’t comply, you can hurt our company – you will be in trouble with me, as your boss, but you also may be in trouble with the government.”

So, there is no question criminal liability serves as a tool to get companies into compliance.

CCR: Unless the people at the top are moving in the other direction, as we have seen in these slew of corporate crime cases.

SOLOW: It’s not so much a question about whether or not we should have criminal liability and enforcement. But before we start saying that we should increase the enforcement and penalties five fold, there should be the investment of time and money to look at root causes.

Why do two Fortune 50 companies with similar compliance programs and resources devoted to those programs have differing compliance rates?

What’s going on? And until there is an effort to answer those questions, we will have this cycle of scandal, but little in the way of answers.

When I was at the Department of Justice, the National Institute of Justice began a process to try and fund that kind of research. It is not as sexy as saying “let’s put more investigators and prosecutors out there,” but it might yield better information about what actually would be an effective tool to curb wrongdoing.

CCR: The Sentencing Guidelines actually implement this carrot and stick approach – if a corporations puts in place an effective compliance program, but nonetheless a conviction results, there will be a downward departure at sentencing.

SOLOW: And there is no question that the guidelines serve a purpose beyond sentencing. Regulators, enforcement officials, prosecutors look at these provisions. When a company goes to the government and says “we have been making best efforts, but despite this, we have some problems,” the government will look at the guidelines to determine whether the company has actually implemented a serious program.

CCR: Some say that the only thing that works in deterring corporate wrongdoing is strict enforcement of the laws. If a corporate executive commits serious wrongdoing, criminally prosecute and put the executive in prison. If a corporation engages in serious wrongdoing, criminally prosecute and impose the death penalty. Do you agree?

SOLOW: No. Most problems have multiple solutions. The government has a range of tools – education, bully pulpit, administrative sanctions, civil sanctions, and criminal sanctions as well as changes in law and regulation. Having that range of tools available for enforcement is an
important part of obtaining compliance.

But the notion of a death penalty for an otherwise legitimate organization fails to consider the human consequences – regular people who have families, children, who depend on them – and who have done nothing wrong whatsoever – who depend on that business, as does the community where it operates.

And if the acts of a few people put an end to that business, then their livelihoods and their community are at risk.

When I was an organized crime prosecutor, a tool like a corporate death penalty was exactly what we were looking for to put an organized crime group out of business – to take an entire crew out of commission, taking away their assets, breaking down their ability to operate.
In the case of otherwise legitimate entities, there should be very few instances where you would
want that to occur because of all of the collateral damage that would result to people and communities that are completely innocent.

CCR: What is it like going from actively criminally prosecuting companies engaged in wrongdoing to defending them, seeking to ward off the government?

SOLOW: It has been a fascinating and rewarding experience. I have worked with clients who are seeking not only to comply, but who are actually seeking to go beyond what the law requires .

There is a tendency to beat up on the government in a way that is unfair and inaccurate.
In the same sense, there is a tendency to paint with too broad a brush on the issue of corporate
wrongdoing.

For the most part, we reasonably rely on voluntary compliance. The Clean Water Act has been a tremendous success.

Look at the nation’s water 30 years ago compared to today. That improvement has been brought about largely by voluntary compliance. So, it is a tremendously effective program, even as enforcement has been an important part of that program.

CCR: Have the post Enron/Worldcom/Adelphia reforms tipped the balance too far to the regulatory side? Or do we need new laws and more enforcement?

SOLOW: There are some aspects to Sarbanes Oxley that raise some troubling issues.
Look at the obstruction provision.

Under the old provision, if you knew of a government inquiry, or had reason to know of it, and you destroyed a document with the intent of keeping information from that inquiry, that could be deemed “obstruction,” even if you hadn’t been subpoenaed or asked to supply that information.

Under the new provision, it is possible to be charged with obstruction if you were to destroy a document – even pursuant to an otherwise legitimate records retention program – and at the time you could have conceived of the fact that someone might want it.

That’s true even if no one was looking for the information at the time and there was no sense that this was something that was going to arise and be an issue.

That makes it almost impossible for people to understand their obligations under a record retention program.

Again, though, I would go back to what is obviously my favorite point.

The answer cannot always be to say “we simply need greater sanctions.”

We need to look empirically at why there is failure to comply and then consider all the steps that can best help to solve problems and to achieve the goals of fair markets, safe workplaces and a healthy environment.

[Contact: Steve P. Solow, Hunton & Williams, 1900 K Street, Washington, D.C. 20006. Phone: (202) 419 2065. [email protected]]

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