US: Corporate Crime: Execs Taking Fall While Corporations Go Free

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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 Anderson 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 Russell 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.

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 Robert 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 Thompson 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 Thompson 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 Paul Weiss in New York.

"Part of it is that there is a lot of fear after Arthur Anderson 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, Robert Bennett, 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."

Joseph 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 Thompson 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."

AMP Section Name:Corruption