Prosecutions of corporate crime pose unique challenges for the government, including the growth and complexity of modern corporations, the fractured nature of the global financial system, and the asymmetry between under-resourced federal prosecutors and a very well-funded corporate defense bar.
The subject is an area of considerable sensitivity for the Biden administration, since the Obama DOJ was widely criticized for its performance in this area — particularly the dearth of high-level corporate prosecutions coming out of the Great Recession. As one study from 2020 explained, there is good reason to believe that corporate crime has been “on the rise” for decades.
The department’s senior leadership is clearly right to want to do better this time around. Still, a close look at the actions that the department has so far announced — which were most comprehensively outlined in an October speech by Deputy Attorney General Lisa Monaco — suggests that they may not fully appreciate the scale of the problems that they face.
Monaco announced, for instance, that the department was reinstituting a policy from the tail end of the Obama administration that required companies that want “cooperation credit” in a criminal investigation of its employees to disclose information about everyone who was “involved in or responsible for the misconduct at issue,” rather than simply those who were “substantially involved” in the conduct. The Obama-era version of the policy was often criticized by the defense bar as requiring disproportionately intrusive and costly internal investigations. That is not likely to concern many members of the public, but a bigger problem is that there was no real evidence that the difference between the two standards had any practical effect on the quality or quantity of the government’s cases.
That is largely because, whatever the standard, corporations and their law firms wield extraordinary power in structuring and limiting the scope of their (and of prosecutors’) inquiries, using subtler means that capitalize on their easier access to employees (which means they are often the first ones interviewing people whose conduct is at issue), as well as their greater understanding of the company and its structure (for instance, which business lines or trading desks are relevant to an inquiry, and which communications platforms should be reviewed). It is a problem that has gotten worse over time, as the frequency and sophistication of internal corporate investigations — now a significant practice area for many corporate litigators and a major source of revenue for large firms — have grown. This often puts the government in an unduly passive role in a relationship in which the corporation has substantial control — a dynamic that led one judge in 2019 to criticize the department for “outsourcing” its investigation of a large bank to the company’s outside lawyers in order to “save itself the trouble of doing its own work.” (I was on that team of outside lawyers representing the bank that conducted the internal investigation at issue.)
Monaco also announced that prosecutors considering how to resolve a criminal investigation of a corporation will now be required to consider the company’s full criminal, civil and regulatory record — as opposed to just similar conduct — when deciding what form of resolution is appropriate. This is hard to argue with, but here, too, it’s not clear this will result in any significant practical difference.
The real news was that the department will continue to resolve corporate investigations using so-called “non-prosecution agreements” — out-of-court settlements in which the government agrees not to file criminal charges in exchange for the payment of a fine — albeit perhaps more sparingly. Some legal scholars have criticized these deals because they are not subject to court supervision in the same way as “deferred prosecution agreements” — settlements in which the government files a criminal charge in court against the company that it agrees to hold in abeyance for the duration of the deal — or more straightforward guilty pleas. These are sound concerns, but it should be noted that courts are not particularly well-equipped to police the soundness of these deals or companies’ compliance with them, in large part because the government can control the information that is made available to judges through court documents that are negotiated with the company before they are filed.
Monaco’s explanation that the department will account for a broader range of prior misconduct when settling corporate cases also implied that there will be a general increase in fines, particularly for corporate recidivists, but a modest increase in fines — perhaps coupled with more deferred prosecution or plea deals, as opposed to nonprosecution agreements — is not likely to achieve much either. As a study from 2020 explained, the government’s fine levels are far lower than necessary to provide a serious economic deterrent to corporate wrongdoing, and of course, they are paid by shareholders, not executives. (Indeed, the Obama DOJ obtained record amounts of corporate criminal penalties, and yet corporate crime continued to rise.) Moreover, even if the department increases its use of corporate resolutions that appear to be more punitive, there is good reason to be skeptical about how much this would actually achieve. That is because the government and defense lawyers often structure these deals to eliminate the most serious collateral consequences for the company — like the loss of lucrative regulatory benefits that would otherwise apply in the absence of an agreement.
The department also intends to increase the use of outside “corporate monitors” as a condition for settlements. These are independent third parties that are supposed to provide a further check for misconduct with the corporation. Companies generally hate them, so it is easy for prosecutors to feel like they are doing something important when they require one, but there are serious questions about the efficacy of these arrangements.
Instead of straightforwardly calling for more government personnel and resources devoted to pursuing corporate crime, Monaco announced that the department is “going to find ways to surge resources to the department’s prosecutors” — whatever that means. As the sole example, she announced that “a new squad of FBI agents will be embedded in the Department’s Criminal Fraud Section” — the office in Washington focused on white-collar crime, where I used to work — on the theory that “putting agents and prosecutors in the same foxhole can make all the difference, particularly in complex cases.”
This was perplexing for several reasons, including, not least of all, that in normal times prosecutors in the office are often traveling to other parts of the country, so any suggestion that that they will be continuously working side-by-side in a “foxhole” with investigators is not consistent with the reality of their work. Of course, these are not normal times, which made it all the stranger to tout a plan that relies on the physical proximity of government employees in the midst of a pandemic that continues to rattle the country.
Monaco also announced the formation of a Corporate Crime Advisory Group within the department that would “develop recommendations and propose revisions to the department’s policies on corporate criminal enforcement” — yet another echo of the Obama years. Of course, these sorts of task forces come and go all the time in the government, with widely varying results, so there is good reason for skepticism. A great deal will turn on how seriously and broadly those involved take their mandate, how clear-eyed they are about the department’s own shortcomings and how willing they are to consult with outsiders — not to mention whether the department ultimately acts on their recommendations.
Perhaps the biggest problem in my old office is a lack of high-level prosecutorial talent and leadership — a deficit of competence and ethical comportment that, coming out of the Trump administration, may be worse than ever. Academics and commentators have been writing about problems with the department’s approach to corporate crime for years, and although their ideas are not all good, some of them — like proposals for alternative fine structures and methodologies and ways to ameliorate the government’s reliance on internal investigations — deserve serious consideration. So do improvements to the department’s coordination with civil regulators, as well as a comprehensive reevaluation of the “collateral consequences” to companies that should be relevant in settlement discussions.
It would not be hard to improve upon the disastrous Trump years, but the department needs to aim much higher. As with so much else, and as recent events have made clear, “better than Trump” is not good enough.
