When can a corporation be prosecuted for a crime? One of the most remarkable stories in all of American criminal law is the recent rise of the corporate prosecutions. From last week’s announcement of new Department of Justice policies on corporate prosecutions, to the billions of dollars of currency fixing settlements in prosecutions of major banks, to the campaign trail speeches of candidates calling for more prosecutions of bad corporate actors, to the concern that “too big to fail” institutions can avoid justice for the harm they caused to our economy, corporate crime has never been more central to the national debate. It should be a greater part of the law school discussion too and there is wonderful work that law students can get involved in.
In criminal law, you learn that to convict a person of a crime, prosecutors must prove that she committed the acts described in the elements of the statute, or the actus reas, with the requisite state of mind, or mens rea. Corporations are artificial entities, however, and they have no mind, except maybe a hive mind, and they can only commit acts through their agents. In the United States, federal prosecutors have a powerful weapon: respondeat superior liability of corporations for crimes. The standard, as you may recall from Torts, is broad, and so long as an employee is acting in the scope of employment, the corporation is liable—criminally, under the federal statutes. Many are familiar with arguments about the Supreme Court’s ruling in Citizens United v. Federal Election Commission that the First Amendment protects corporations against regulation of election spending. But the flip side of corporate rights are corporate responsibilities, and a far more obscure 1909 Supreme Court case, New York Central & Hudson River Railroad v. United States approved the constitutionality of a broad respondeat superior rule for corporate criminal liability. Federal prosecutors have more than that. Federal crimes like wire fraud and mail fraud are incredibly broad. And although these cases are not normally assigned in law school, every year, corporations are prosecuted for crimes like accounting fraud, banking fraud, environmental violations, foreign bribery, money laundering, price fixing, securities fraud, and wire fraud.
A clash between prosecutors and a corporation is like a battle between David and Goliath—but with the federal prosecutor as the little guy in the fight. To be sure, over the past dozen years, there has been a remarkable increase in the size and importance of federal prosecutions of corporations. I describe in my new book, “Too Big to Jail,” how billion dollar fines have become normal events. However, more companies are not being prosecuted each year; actually fewer and fewer have. Still more important, prosecutors have also extended new forms of leniency to corporations, entering out of court deals called deferred prosecution agreements and non-prosecution agreements, so that corporations can avoid criminal convictions. This is where the concern with “too big to jail” enters into the picture. More and more of the most important corporate offenders, particularly the public companies, have received such out of court deals. No one was tracking these corporate prosecutions, and so with the help of many hard-working law students, and the UVA Law Library, I amassed a collection of hundreds of these agreements, and thousands of outright convictions of corporations, to better track what happens when companies are prosecuted. You can read those agreements online and use them as a research resource. You will recognize the names of many of those companies, many of them Fortune 500 or Global 500 firms. They agree to pay fines, improve compliance (but often with quite generic agreements to adopt some “best practices”), assist in investigations, and if they follow those terms, the case is dismissed after two or three years. If it commits crimes in the future, it is no recidivist. After all, the company avoided a conviction and has no criminal record. That alone raises “too big to jail” concerns, since federal prosecutors do not extend that kind of leniency routinely to individual defendants.
Speaking of individual defendants, almost two-thirds of those corporate prosecutions were not accompanied by any charges filed against employees. Now that is a puzzle. After all, the entire basis for corporate criminal liability is that an employee, acting in the scope of employment, committed a crime. Even when charges are filed, over half the time, no jail-time results. Few of those charged were higher ups like CEOs or CFOs or Presidents. To be sure, assessing and investigating who did what in a complex corporate environment raises great challenges for prosecutors. There may be millions of pages of documents involved, and the corporations can and do hire entire law firms in their defense. There are wonderful job opportunities for lawyers working on these investigations, with rewarding opportunities to help companies repair serious problems. There is another part of the puzzle. Practically speaking, these companies unfailingly commit in writing to fully cooperate in any investigations of individuals, and to provide documents, emails, and records that might assist prosecutors. A company is a powerful cooperator, given information collected about day-to-day activities of employees and officers. Yet so often, no employees are charged. When politicians and the public use the expression “too big to jail” they have also been talking about this separate concern: that while the company may be prosecuted and pay a fine, the people who literally can be sent to jail are somehow being insulated from harm. In a forthcoming Virginia Law Review article that analyzes the outcomes in individual cases accompanying deferred and non prosecution agreements with organizations, I call this the concern that the corporation may be a scapegoat.
In response to criticism, the Department of Justice in early September announced in a new memo that there will be far more focus on individual prosecutions. I applaud the DOJ for responding to these concerns and making a strong statement that individual accountability matters in corporate investigations. One can be forgiven for being surprised that this was not the policy all along. The memo largely says what should have been obvious, that cooperation means saying who was responsible for the crimes. In any other type of criminal case, it would not be enough to say, “someone committed a crime, but I can’t say who.” And of course, many prosecutors did focus on individuals. In recent years, though, there have been troubling and high-profile cases where corporations paid large fines and settled their cases out of court, and despite having described and admitted to crimes by employees, none were charged. Will this change?
The new DOJ memo states corporate cooperation will only be credited if a company fully cooperates in identifying the relevant individuals. But what if a company is not fully cooperative? What if low-level employees are thrown under the bus, but the role of higher-ups is kept vague? Will prosecutors have any way of knowing? What if they do know a company was downright uncooperative? Even if so, cooperation is only one of many factors that prosecutors consider. The guidelines are multi-factored and vague. Could prosecutors still give leniency to an uncooperative company? They have done so in the past. Could judges nevertheless approve such a corporate settlement? It remains uncertain what the standard of review is for a deferred prosecution, and non prosecution agreements are not filed in court and no judge has anything to review. Hopefully this memo sends a message that serious cooperation comes first. We still may not see any sharp change or uptick in individual charges in the near term.
If these developments interest you or concern you, you are not alone. Corporate prosecutions are challenging, fascinating, and allow lawyers to wrestle with questions at the core of the future of our economy. If you want to follow that path, sign up for courses on the subject, seek out corporate investigation or prosecution work during the summer, read books and articles on these cases, or pursue research projects. Corporate prosecutions are themselves too important to fail. Future prosecutors, defense lawyers, judges, and legislators will be the ones to decide how to respond to the ever-present “too big to jail” problem.
Brandon Garrett is the Justice Thurgood Marshall Distinguished Professor of Law, at the University of Virginia School of Law. His first book, “Convicting the Innocent: Where Criminal Prosecutions Go Wrong,” was published by Harvard University Press in 2009, and his most recent book, “Too Big to Jail: How Prosecutors Compromise with Corporations,” was published in 2014.