Should the Justice Department Prosecute More Individuals?

The drumbeat of criticism continues – companies pay huge fines for illegal behavior and no individuals are prosecuted for criminal offenses.  The political left and right are there to criticize every prosecutorial decision.  Headlines are made when a case is closed without individuals being prosecuted and then politicians and political interest groups line up to launch new criticisms. 

I have a lot of sympathy for prosecutors these days.  Every action or inaction results in criticism.  Someone is always unhappy.  Luckily, most prosecutors adhere to professional standards and ignore these complaints.  But do not let their silence fool you – they listen and sometimes they bristle to their colleagues. 

Lawmakers started to criticize prosecutors in 2010 when Senator Specter carped about the absence of individual prosecutions in the Siemens FCPA case.  As the former Philadelphia DA, Senator Specter knew what he was talking about – why in the biggest FCPA prosecution ever did the Justice Department avoid charging any individuals?  His questions range true and clear.

The Justice Department responded eventually to Senator Spector by prosecuting eight individuals related to the Siemens case for their activities in Argentina.  The eight individuals have never been apprehended and the case sits on the docket gathering cobwebs.

Senator Specter’s criticism of the FCPA prosecution program has spread now to the Justice Department’s False Claims Act enforcement program.  GlaxoSmithKline recently paid a $3 billion fine – consisting of a criminal fine and civil penalties, and no individuals were prosecuted.    Again, the left and right were at the microphone to criticize the deal to criticize the Justice Department for its failure to prosecute any individual officer or manager of the GSK.

If you consider the theories underlying corporate criminal liability, you would be more sympathetic to these criticisms.  With one theoretical exception, a company cannot be held criminally liable unless the government can prove that one or more employees violated the law, meaning that they satisfied all the elements of the criminal offense.  The employee need s to have violated the law in the scope of his or her scope of duties and did so to further, in part, the company’s business interests.  In most cases there are more than one employees who satisfy the test for corporate criminal liability. 

There is one exception to this doctrine – in some cases, the government may rely on the doctrine of “collective knowledge,” meaning that there is no one employee who had the requisite intent to violate the law, and the government will alternatively rely on the “collective knowledge” of a group of employees to argue that the company had the requisite intent to violate the law.  This is a difficult prosecution theory to pursue and prosecutors are reluctant to rely on it.

Putting aside the “collective knowledge” theory of criminal intent, the question comes down to this – of the company has sufficient evidence to prosecute a company based on at least one individual actor, why do they not prosecute the individuals who satisfy the elements of the criminal offense?

There can be a number of reasons for exercising prosecutorial discretion and not charging the individuals who satisfy the elements of the criminal offense. 

1.  The evidence relating to the individual may not be sufficiently strong to prosecute the individual – meaning that while the elements are satisfied, the evidence is not compelling to show that the individual engaged in criminal behavior. 

2.  The individual has certain personal circumstances – illness, age, or other personal characteristics which would make the prosecution of the individual unfair and not compelling to a jury.

 3.  The individual’s history shows that while he violated the law on occasion, on numerous other occasions he complied with the law.  Such evidence may make it difficult to establish beyond a reasonable doubt that he acted with the requisite intent to violate the law.

4.  The individual has left the company and is now in a jurisdiction which is unlikely to extradite to the United States.

It is easy to criticize the government on the individual prosecution scorecard but in fairness there are a number of considerations which may explain why the government has exercised its discretion not to charge individuals.  Until we know those reasons, political criticisms ring hollow in today’s political atmosphere.

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2 Responses

  1. Michael,

    The answer to your question:

    Should the Justice Department Prosecute More Individuals (for violating the FCPA)?

    is Yes.

    The vast majority of business people who handle international business for US companies still do not take the FCPA seriously. The threat of prosecution is so extremely remote they do not have to care. This applies to both the US citizens and others working in the US and the employees and third parties on the ground overseas at all levels in companies.

    In virtually every FCPA case, company employees clearly know that bribery and falsification of records is happening – usually because they are involved in it. Senior management has preserved a comfortable level of plausible deniability, but would certainly know what was going on it they took a little time to look. From the few FCPA cases that are reported each year, it is easy to conclude that US prosecutors are powerless to find the facts about which individual company employees knew and participated in the violation and which executives ignored the red flags and provided cover.

    Prosecutions like Siemens and BAE and the rest of the top 10 gigantic fines are so remote from day to day business that they are not relevant to business people. The fact is business people see companies prosecuted then “let off” with cost-of-doing-business level fines and no executives prosecuted – and realize they have almost nothing to lose by violating the FCPA.

    There should be some way the DOJ and SEC and make the FCPA real to US business people. Maybe every DPA and other form of plea bargain should require the company to include a list of the names and titles of the individual employees of the company and at the company’s contractors, agents and intermediaries who participated in the violation, covered it up or was responsible but did nothing. If the government is not willing to allocate the resources to prosecute these people, at least compel the company to name and shame them.

  2. Rajat Soni says:

    Dear Michael:

    Very interesting. Now full disclosure, Tom Fox accused me of being a member of your mocked “FCPA Papparazi” and called me a fool recently, but I’d still like to answer your question as best as I can.

    Yes. I think the verdict exonerating Brian Stoker in the Citi case tells us the complexity of the calculus at issue here. The jury acquitted Stoker but told the SEC to keep digging and going after the higher-ups. I think the public feels that the justice system simply lets off the wealthy and well connected and thus the mid and low level employees targeted seem to be sympathetic scapegoats.

    I think prosecutors are open to the concerns of the public. Prosecutions of the likes of Rajat Gupta help to restore public confidence. But these most often happen in the realm of insider trading, where regulators have long felt far more confident. But there is so much more than insider trading and stock backdating cases. And that is a big blind spot for the SEC and other agencies.

    What about the mortgage crisis? MF Global? CDO deals? Massive bribery cases? In all those it seems the target is a monetary penalty because the entities are too powerful or well-connected.

    What message is really sent by saying that billions of dollars in legal violations have occurred and yet no one is accountable and everyone is being scape-goated? I think it sends a message that corporations will shield the senior executives from responsibiity. Most corporations are structured such that plausible deniability exists. Yet, the Stoker jury has spoken, perhaps for more than a few Americans, and their message to regulators is clear.

    Keep digging to get to the individuals responsible.

    I hope the LIBOR scandal offers an opportunity to target specific traders beyond merely the banks. This could be a barometer of whether the SEC, DOJ, SFO, etc. take up the jury’s encouragement to keep looking for the individuals responsible.

    Best Regards,
    R. Soni