Corporate Crime: Execs Taking Fall While Corporations Go Free

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Published on Tuesday, January 3, 2006 by OneWorld.net

Corporate Crime: Execs Taking Fall While Corporations Go Free

by Niko Kyriakou

SAN FRANCISCO - With help from the U.S. Justice Department and state

prosecutors, corporations are getting away with serious crimes by using

their executives as cannon fodder, according to a new report, which

questions whether this new legal strategy is hindering or enabling corporate

malfeasance.

Corporate Crime Reporter released the report Wednesday documenting 34

special deals in which major U.S. companies have escaped lawsuits through

so-called deferred prosecution and non-prosecution agreements. Under these

deals, prosecutors agree not to file suits against corporations in exchange

for the company's cooperation in convicting their own executives.

Not since the loudly publicized Arthur meltdown in 2002 has a

corporation been convicted of a crime.

Many corporate defense lawyers argue the shift represents a wider

recognition that individuals--not corporations--think-up crimes, and thus,

individuals should pay for them.

A few years ago, most advocates of corporate social responsibility agreed

that an end to the impunity of corporate executives was a good thing, but

now some observers are beginning to question whether shifting the blame away

from the company as a whole leads to meaningful institutional reform.

" There has been a sea change in corporate criminal prosecution over the last

couple of years, " says Mokhiber, editor of the Corporate Crime

Reporter, a 19-year-old legal newsletter, and author of the report.

Today corporate defense lawyers work with federal prosecutors to send

executives to jail, the report explained. " In return, federal prosecutors

are agreeing not to convict the corporation. This has undermined corporate

criminal liability and may be doing serious damage to the federal campaign

to deter corporate crime. "

The report, " Crime Without Conviction: The Rise of Deferred and Non

Prosecution Agreements, " includes many of the actual agreements bartered

between lawyers in high-profile cases like those involving Adelphia,

Computer Associates, KPMG, Merrill Lynch, Monsanto, Sears, Shell, and

WorldCom/MCI.

http://www.corporatecrimereporter.com/deferredreport.htm

The study finds that prosecutors have entered into twice as many

non-prosecution and deferred prosecution agreements with major American

corporations in the last three years (23 agreements between 2003 and 2005)

than they had in the previous eleven years (11 agreements between 1992 and

2002).

Part of the reason companies are going unpunished is that prosecutors and

the Justice Department have supported the use of side-agreements.

Prosecutors, for one, are usually happy to defer attacks onto executives

because it gives them leverage in cases.

" Corporations faced with serious wrongdoing by corporate executives must

promptly accept full responsibility, discipline wrongdoers, institute

serious institutional reform and fully cooperate with the government. If

they do, they may escape institutional indictment. If they do not, they face

the risk of indictment, conviction, and corporate death, " Leonard Orland, a

professor at the University of Connecticut's Law School said in the report.

A felony conviction for accounting crime is viewed as a death penalty for

some companies because it can lead to debarment of government contracts,

says Weissman, co-director of Essential Action, a non-profit founded

by Ralph Nader that encourages citizen action.

But according to the report, prosecutors were effectively told by the

Justice Department to opt for deferred and non-prosecution agreements.

This possibility of death to the company may have been what initially

sparked Justice Department official Larry to issue a memo in 2003

recommending prosecutors to rely more heavily on such agreements.

The memo lays out nine qualifiers prosecutors should consider before

deciding to criminally prosecute a corporation, including the nature and

seriousness of the offense, the pervasiveness of wrongdoing within the

corporation, the corporation's history of similar conduct, collateral

consequences, and the corporation's willingness to cooperate.

" The Justice Department came to believe that cooperation from corporations

wasn't real cooperation. And so the Department, in the memo,

demanded 'authentic' cooperation from corporations. And now it's getting

it, " says Ted Wells, a leading corporate and white collar crime defense

attorney and a partner at Weiss in New York.

" Part of it is that there is a lot of fear after Arthur being put

out of business that sanctions may be too harsh. It's widely understood that

the industry accounting firms are so concentrated that in a sense the

remaining few are too big to be prosecuted, " says Weissman.

" The country can't afford to restrict the number of large accounting firms,

partially for competition, partially for distinct and overlapping

functions, " Weissman, who edits the Multinational Monitor, a monthly

publication that reports on the activities of U.S. multinational

corporations, told OneWorld.

Corporate defense attorneys have also argued that corporations should not be

held responsible for actions taken by individuals.

In August 2002, , a partner at Skadden Arps in Washington,

D.C. and a leading white-collar criminal defense lawyer, put it this way:

" When you indict a company, you are doing enormous damage to its stock. You

are doing enormous damage to innocent people. When a company gets indicted

it has a real impact on them. I really question the value of that. "

ph Savage, a criminal defense attorney at Goodwin Procter in Boston,

told Corporate Crime Reporter that " there can be no crime of a corporation

without an individual act. "

But last week's report argues that if corporations are not people for

purposes of criminal law, then they shouldn't be considered a person for the

purposes of constitutional law.

Like people, corporations are currently granted First Amendment guarantees

of political speech and commercial speech, Fourth Amendment safeguards

against unreasonable searches, Fifth Amendment double jeopardy and liberty

rights, and Sixth and Seventh Amendment rights to trial by jury.

Without the ability to prosecute corporations, the report argues that it

becomes difficult to change the corporate culture that may perpetuate bad

behavior.

" Without this tool, the public would have no adequate deterrent to corporate

criminal conduct because the culture that condoned, or at least acquiesced

in, that behavior would be beyond the criminal law's power to correct. Only

by prosecuting the corporation itself can we ensure systemic reform, " said

then Deputy Attorney General Larry in a 2002 speech to the American

Bar Association.

The report argues that deferred prosecution and non-prosecution agreements

were originally intended for minor drug cases and juvenile delinquency

cases.

The U.S. Attorney's manual is explicit in this regard, stating that a major

objective of these agreements is to " save prosecutive and judicial resources

for concentration on major cases. "

The solution to the dilemma should be to have lawsuits against both

corporations and their executives, depending on the case, according to

Weissman.

" The lesson from the report is that there has to be both accountability for

the execs and for the institution--that both are culpable. You need to have

accountability punishment and deterrents applied to both. "

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