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Justice Tackles the Corporate Offenders, Or Perhaps Not


In one case I have been studying for some time, the Bush Justice Department had ramped up to begin a large-scale prosecution of two financial-services companies involved in what prosecutors concluded was a serious swindle. Suspicious financial deals had produced enormous losses for policyholders and state oversight authorities. In addition to jail time for a group of executives, the complaint, which was prepared and ready to file, sought $400,000,000 in damages for the alleged misconduct. One of the targets, knowing it was in the crosshairs, put a settlement deal worth “a nine-figure sum” (so at least $100,000,000) on the table, together with a monitored compliance program. Career prosecutors rejected it as too little.

Then strange things started happening. Control over the case passed entirely to political appointees in Washington, Criminal Division head Alice Fisher and her seniormost subordinates. The prosecutor was told that his boss “was concerned about his health.” He was dropped from the case. And the team learned from his greenhorn replacement that the whole prosecution was over. It was being dropped.

The move became public and produced arched eyebrows and rude inquiries in the local press which started asking questions Justice didn’t want to answer. The reaction from main Justice? Suddenly an order went out to collect all the documents from the case and have them immediately incinerated. Someone was extremely nervous about having the decision not to prosecute studied. They wanted to ensure that no prosecution would ever happen.

More details on this case will be emerging soon in a long-form piece. I’ll let you know when it’s out. But for the moment, the New York Times’s Eric Lichtblau is on to the phenomenon more broadly.

The Bush Justice Department has been portrayed as a group of hyperaggressive mean-ass prosecutors, determined to enforce the law with a vengeance. But it seems we’ve really misunderstood them. When the wrongdoing is done by corporate entities, they’re all sweetness and light, and eager to see reason. They’re particularly reasonable in dealing with companies which have the right political ties, it seems. “Boys will be boys” seems to be a guiding principle. Lichtblau writes:

In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years. Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.

Deferred prosecutions have become a favorite tool of the Bush administration. But some legal experts now wonder if the policy shift has led companies, in particular financial institutions now under investigation for their roles in the subprime mortgage debacle, to test the limits of corporate anti-fraud laws. . .

Some lawyers suggest that companies may be willing to take more risks because they know that, if they are caught, the chances of getting a deferred prosecution are good. “Some companies may bear the risk” of legally questionable business practices if they believe they can cut a deal to defer their prosecution indefinitely, Mr. Khanna said.

Legal experts say the tactic may have sent the wrong signal to corporations — the promise, in effect, of a get-out-of-jail-free card. The growing use of deferred prosecutions also suggests one road map the Justice Department might follow in the subprime mortgage investigations. Deferred prosecution agreements, or D.P.A.’s, have become controversial because of a medical supply company’s agreement to pay up to $52 million to the consulting firm of John Ashcroft, the former attorney general, as an outside monitor to avoid criminal prosecution. That agreement has prompted Congressional inquiries and calls for stricter guidelines.

I’m a corporate attorney who’s worked on the commercial side, i.e., not as a litigator. In fact at one point I advised a number of the European affiliates of Arthur Andersen, and spent many hours explaining to Europeans why their flagship business was being driven out of business based on allegations—that later proved unfounded—of a corporate decision to destroy evidence. The Andersen case was a wonderful demonstration of the ability of prosecutors gone wild to do serious damage to the livelihood of tens of thousands of innocent people and to destroy the nation’s economy in the course. So in fact my attitude is very sympathetic to the posture taken by the Justice Department on this front.

But Lichtblau is right to be asking questions, because there are some serious issues with the way this is being applied by the Bush Justice Department. The most fundamental questions go to equal and fair application of the rules. While Lichtblau starts his analysis of the Monsanto case, for instance, I have been studying a Foreign Corrupt Practices Act prosecution of corporate executives in New York in which prosecutors are advancing borderline preposterous arguments in a case in which the claims are far more modest and more doubtful than those involving Monsanto. Why the different standards?

In the end all of this raises the old question of “Who guards the guardians?” The possibility that prosecutorial discretion will be used to cloak intrigue and corruption inside the Justice Department is severe, and the use of monitor positions as sweetheart deals for political lackeys departing service—as demonstrated by the obscene gigs landed by John Ashcroft—is more than just a little troubling. Indeed, a number of deals that Justice has struck, and some of its non-prosecute decisions, reek of corruption and are at a minimum extremely unseemly.

The premises the Justice Department is operating on are reasonable. But the implementation raises no shortage of questions. This calls for sanitizing sunlight. Congress needs to take a deep look, including a careful examination of some of the specific deals that Justice has struck, and some of the cases in which it has stopped prosecutions in the tracks.

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