CORPORATE CRIME REPORTER
Eighty
Percent of White Collar Criminal Defense Attorneys Would Preserve Corporate
Criminal Liability
21 Corporate Crime Reporter 37, September 19, 2007
Eighty percent of white collar criminal defense attorneys favor preserving corporate criminal liability, according to a survey released today by Corporate Crime Reporter.
But a majority of those who would preserve it would strictly limit its application.
The survey question – Should corporate criminal liability be eliminated? – was e-mailed to partners at the nation’s top 100 law firms who practice in the field of white collar criminal defense.
Of the 157 attorneys who responded, 126 (80 percent) said no, corporate criminal liability should not be eliminated – while only 31 (20 percent) said yes, they would eliminate it totally.
But of those who answered “no, it should not be eliminated” – the vast majority said that corporate criminal liability should be restricted or narrowed.
Typical was the response of Judson Starr, a partner at Venable Baetjer in Washington, D.C.
“The exposure of a corporate entity to criminal liability serves the larger societal purpose of encouraging lawful behavior by its employees,” Starr wrote. “Monetary fines do not distinguish the criminal case from the civil case – but other collateral consequences do as well as social opprobrium. What should change, however, is the concept of vicarious liability. That the lowest level employee can expose a corporation to criminal liability only ridicules the system. The traditional concepts binding a corporation for the acts of employees are outmoded and do not work.”
A few expressed a view that no doubt was on the minds of many of these lawyers, whose bread and butter is defending large multinational corporations against Justice Department attack.
Bruce Pasfield, a partner at Alston & Bird in Washington, D.C. said that “as both a taxpayer and defense attorney” he would not eliminate corporate criminal liability.
“As a taxpayer white collar criminal liability is part of what provides certainty to our financial markets and makes our economy chug along,” Pasfield wrote. “Eliminate liability and we risk the corruption that plagues third world countries. As a defense attorney, I'd be out of business!”
“The belief that those who seriously game the system and abuse their positions of trust will be brought to justice is essential to the long-term health of our market system,” wrote Spencer Barasch, a partner at Andrews Kurth in Dallas, Texas. “However, the government wields great power, and it is essential that the government attorneys and leaders armed with such power use it consistently, fairly and justly, and not for political gain or other selfish or irresponsible purposes. Unfortunately, that is not always the case.”
Kelly Kramer, a partner at Nixon Peabody in Washington, D.C. also thought enterprise liability should be preserved but restricted.
“Restricted, perhaps, because corporate criminal liability exists in theory even when a corporation makes substantial, good-faith efforts to comply with the law,” Kramer wrote. “But there are times when corporate liability is both necessary and appropriate.”
Timothy Coleman, a partner at Dewey Ballantine in New York, wants Congress to act to narrow the scope of corporate criminal liability.
“Corporate criminal liability should be preserved, but it should be used very sparingly in those rare cases that call for ‘deterrence on a massive scale,’ Coleman said. “Congress should enact legislation to narrow the scope of corporate criminal liability, so that the factors that warrant a conviction are decided by a jury, and not left to the unfettered discretion of the government.”
Jan Handzlik, a partner at Howrey in Los Angeles, says that criminal sanctions should be imposed on corporations “sparingly and only in those few cases in which it's truly warranted.”
“It's true that ‘Corporations Don't Defraud People, People Defraud People,’” Handzlik wrote. “In some cases, however, a lack of adequate internal controls, lax oversight by the board and a failure of ethics and governance lead to corporations being used a vehicles for fraud. Criminal prosecution is appropriate in that narrow band of cases in which company personnel exploit the weaknesses of the company and shareholders benefit handsomely from the fraud, as well as when a company fails to properly investigate and remediate after the problem is uncovered.”
Mark Biros, a partner at Proskauer Rose in Washington, D.C. made the point made by many of the respondents – that corporate criminal prosecution can adversely affect innocent individuals.
“Arthur Andersen and KPMG reveal potential areas of abuse where innocent persons suffer greatly,” Biros writes. “Focus the potential liability on those whose specific actions violate the law. Where organizations tolerate, encourage or recklessly fail to detect, prevent and remedy violations by their agents then liability should be imposed. I am not in favor of eliminating organizational liability. But conduct a fresh analysis of the use of respondeat superior given the prosecutorial and legal environment today.”
Scott Harshbarger, a partner at Proskauer Rose in Boston and former Attorney General of Massachusetts, made perhaps the strongest case for preserving corporate criminal liability.
“The law should apply equally to everyone,” Harshbarger wrote.
Corporate criminal liability preserves a level playing field “for vast majority of corporations who compete fairly and play by the rules.”
And it protects “innocent, vulnerable consumers and investors who depend on integrity of markets and honest, open disclosure for choices, and corporations can afford to retain competent counsel to represent and advocate for them in all three branches.”
Steven Molo of Shearman & Sterling in New York agreed. “Society benefits when the essential purposes of the criminal law – deterrence, punishment, retribution, rehabilitation – apply to corporations as well as individuals,” Molo wrote. “We need to promote ethical and law abiding behavior and enterprise liability allow another means of doing so.”
But Barry Hartman, a partner at Kirkpatrick & Lockhart in Washington, D.C., said that while it shouldn’t be eliminated, it should be “more specifically defined.”
“If the consequences for corporate criminal conduct are severe, then the standards defining corporate criminal conduct must be very clear,” Hartman wrote. “By way of example, consideration should be given to defining corporate crimes as specific intent crimes. This would justify imposing more severe fines and punishment.”
Robert Litt, a partner at Arnold & Porter in Washington, D.C. also wants to preserve but limit the use of corporate criminal liability.
“There are cases in which a corporate disposition is appropriate, for example because the criminal activity was a corporate policy for which no particular individual bore responsibility or received any particular benefit,” Litt wrote. “But I think that it should be the exception rather than the rule, and should never be ‘extorted’ by virtue of the extensive leverage prosecutors have over corporations.”
James Robinson, a partner at Cadwalader, and former chief of the Justice Department’s Criminal Division, strongly defended corporate criminal liability.
“It would be a serious mistake to eliminate all corporate criminal liability,” Robinson wrote. “A major incentive for corporate compliance with the law would be eliminated. This may well result in some corporations encouraging their employees to achieve ‘at any cost’ results, knowing that if the message results in illegal conduct by employees in furtherance of the interests of the corporation, the ‘costs’ to the corporation will not include potential a potential criminal investigation, indictment and conviction of it. Removing the risk of criminal investigation and prosecution of the corporation from the cost/benefit analysis is highly likely to result in more criminal activity in the corporate context – it will certainly not help deter such activity. A more nuanced standard of criminal liability, however, might be worth considering – an approach that would provide a defense that would protect a corporation from criminal liability in cases where, despite reasonable efforts by the corporation to prevent it, criminal actions are committed by rogue employees.”
Sam Buffone, a partner at Ropes & Gray in Washington, D.C. would modify organizational liability.
Buffone calls for a “reexamination of vicarious corporate liability and its limits.”
“There is an outmoded intellectual rationale for corporate criminal liability that is now out of step with more contemporary compliance and self reporting standards,” Buffone writes.
Lawrence Barcella of Paul Hastings says “there are a variety of legal and societal reasons for keeping the concept.”
“Over the years, however, the threshold standard for invoking corporate criminal liability has continually lowered to the point now where it can be triggered by even a low-level employee out for his or her own gain and only collaterally and marginally benefitting the company,” Barcella says. “That puts entirely too much pressure on companies, particularly in regulated industries, to have to capitulate to government pressures.”
One former high level Justice Department official, now a partner at a major corporate law firm, who asked that his name not be used, was emphatic in his defense of criminal liability for corporations.
“There are some companies that truly are bad apples and behave in irresponsible ways,” he wrote. “The prospect of criminal liability is the only thing that keeps some of these companies on the straight and narrow. SEC or other civil regulatory sanctions are sometimes viewed by these companies as a mere costs of doing business. There are some recidivist companies whose behavior did not change after regulatory sanctions had been imposed, repeatedly, in some cases.”
Others, like Elliot Silverman, a partner at McDermott Will & Emery in Irvine, California, said – “not eliminated, but limited.”
“The federal rule, which permits a corporation to be prosecuted for the acts of even a low-level employee, is too broad,” Silverman wrote. “The better rule is that in the Model Penal Code and in the New York Penal Law, which subjects a corporation to prosecution only for the acts of upper management.”
Those
defense attorneys who want to eliminate corporate criminal liability, while
in the minority, were uncompromising.
“Fictitious persons don't commit crimes,” wrote Roger Magnuson,
a partner at Dorsey & Whitney in Minneapolis. “People do. Punish criminals,
not stakeholders.”
Ditto Harold Ruvoldt, a partner at Nixon Peabody in New York.
“Corporate crime is a fiction, as is the corporation itself,” Ruvoldt said. “Those that are punished the most? The stockholders.”
“Why punish shareholders?” asked Michael Barta, a partner at Baker Botts in Washington, D.C. “Criminal liability is a personal matter, appropriate – if at all – only for human beings.”
Mark Flessner, a partner at Sonnenschein Nath in Chicago believes there is “a strong case for eliminating corporate criminal liability.”
“While a corporation is legally a separate entity, it can take action only through its officers, agents and employees,” Flessner wrote. “A corporation does not commit crime, its agents – officers and employees – commit crimes. Corporate criminal liability is akin to agency law, which is not a legal theory commonly applied to criminal law. Individuals who commit corporate crimes can and should be charged, but to punish the corporation is draconian and perhaps unconstitutional. Few people today argue that justice was served by destroying Arthur Anderson. Thousands of people were put out of work, and it was a huge disruption to the business community. Millions of dollars were lost by innocent partners and employees. All of this because of a few people were dishonest. Ninety-nine per cent of those who suffered from the indictment of Arthur Anderson did nothing more than work for a company that had a handful of people who committed some crimes. This is not justice.”
Walter Jospin, a partner at Paul Hastings in Atlanta, put it this way:
“Corporations are merely pieces of paper. They do not commit crimes, only individuals commit crimes. Why penalize employees and stockholders by destroying the company, a la Arthur Andersen? The SEC's approach of assessing a monetary penalty against a company, to the extent it has benefitted from the misconduct, makes more sense.”
Tai Park, a partner at Shearman & Sterling in New York, said that “the notion of wilful misconduct by an artificial entity makes no sense.”
“The legal fiction premised on a theory of respondeat superior might fit classic tort law, but does not fit a theoretic framework that is premised on the assumption that the defendant is able to choose to do good rather than evil,” Park wrote. “In addition, the injury to vast numbers of innocent shareholders and employees caused by a mere indictment is unjustified. Moreover, the distortions to our criminal justice system – degrading the attorney client privilege and work product doctrines, the huge imbalance of the adversarial process – would be largely removed if a threat of indictment of the entire company were removed.”
Corporate
Crime Reporter
1209 National Press Bldg.
Washington, D.C. 20045
202.737.1680