The failure to prosecute corporate crime undermines U.S. justice
Imagine you are driving down the highway at 90 mph where the posted speed limit is 55 mph. As a result of your speeding, you lose control of your vehicle. And you cause a wreck that kills people.
Here’s a sure bet ‑ you will be convicted of a crime. You will admit wrongdoing. And you will be punished.
Here’s another sure bet ‑ that corporation will not be convicted of a crime. And it will not be punished.
The reality is that we live in a two-tier criminal justice system in America, with one level for corporations and one for living, breathing humans.
It’s a system that undermines deterrence and allows corporate criminals to inflict their damage ‑ pollution, corruption, fraud, worker and consumer injury and death ‑ unchecked.
The coal mine corporation is a real one, Massey Energy. In April 2010, a huge explosion at Massey’s Upper Big Branch mine in West Virginia killed 29 workers.
In December 2011, the U.S. Labor Department issued a 972-page report concluding that “unlawful policies and practices” were the “root cause of this tragedy.” The company had a long history of skirting the law and in the Upper Big Branch case kept two sets of books ‑ one for internal use, which identified workplace hazards at the mine, and one to show law enforcement, which didn’t.
David Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section and currently a professor of law at the University of Michigan Law School, says Massey should have been criminally charged in the Upper Big Branch case. Uhlmann says that while at the Justice Department, his unit criminally prosecuted hundreds of corporations in cases that were arguably less serious.
But on the same day that the Labor Department issued its report, the Justice Department decided to instead enter into a “non-prosecution agreement” with the company. The company was not required to admit to wrongdoing.
The two most important law enforcement entities in Washington ‑ Justice and the Securities and Exchange Commission ‑ have taken a kid-glove approach to the corporate criminal activity that arguably inflicts far more damage on society than all street crime combined.
For years the SEC has allowed major corporations to settle cases of serious wrongdoing with consent decrees in which they “neither admit nor deny” violating the law, agree to obey the law in the future and consent to sanctions, including multimillion-dollar fines.
A number of federal judges ‑ most notably Jed Rakoff, Richard Leon and Victor Marrero ‑ have recently challenged the SEC’s neither-admit-nor-deny settlement practice. A group of law professors has weighed in on the side of these judges, arguing that judges have the authority to challenge the SEC’s “practice of settling enforcement actions alleging serious fraud without any acknowledgment of facts, on the basis of a pro forma ‘obey the law’ injunction, a commitment to undertake modest remedial measures and insubstantial financial penalties.”
Dennis Kelleher, president of the Washington-based nonprofit advocaty organization Better Markets, says the SEC’s neither-admit-nor-deny settlement practice has had the effect of enshrining a “double standard where the law is aggressively enforced on Main Street and the wealthy and well-connected of Wall Street get away with meaningless slaps on the wrist.”
“This SEC practice only rewards, incentivizes and guarantees more crime on Wall Street,” he said. “That must end.”
Over the past 20 years the Justice Department has slipped down the slope of corporate crime deterrence, from guilty pleas to deferred prosecution agreements to non-prosecution agreements to “declinations.”
Twenty years ago, when a major corporation engaged in criminal wrongdoing, a good bet was that the company would plead guilty, admit wrongdoing and be punished.
In 2000, my publication Corporate Crime Reporter went through our files and compiled a list of all major corporations convicted of criminal activity and ranked them according to the amounts of their criminal fines and cut the list off at the top 100.
We released a report titled “The Top 100 Corporate Criminals of the 1990s.”
It’s an open question whether there were 100 major convicted corporate criminals from 2000 to 2009.
Around 2000, in the wake of the criminal prosecution and the demise of Arthur Andersen, the Justice Department decided that it would begin to lean toward not criminally prosecuting major corporations. Instead, it instituted a policy of resolving such crimes with deferred and non-prosecution agreements.
In a deferred prosecution agreement, the company is criminally charged. But if the company abides by the agreement ‑ pay the fine, appoint the monitor, enhance the company’s compliance program ‑ then after a period of time ‑ usually three years ‑ the criminal charges will be dropped.
No crime. No admission of wrongdoing.
A non-prosecution agreement ‑ the kind Massey Energy got ‑ is an even better deal for the company. Under that kind of agreement, there is no criminal prosecution. The company agrees to pay the fine, appoint the monitor and enhance the compliance program.
But there is no criminal charge. And no admission of wrongdoing. And no threat that it will ever be prosecuted for that wrongdoing.
At the bottom of the slope are declinations.
And here, the record is murky, because the Justice Department has no obligation to make public declinations. Lanny Breuer, the Justice Department’s former chief corporate crime law enforcement official, is now back at Covington & Burling, taking down a reported $4 million defending accused corporate criminals.
While in office, Breuer was the target of two broadcast newsmagazine pieces — one by 60 Minutes titled “Prosecuting Wall Street” and one by PBS’s Frontline titled “The Untouchables.” These brought into sharp focus arguably his most important decisions, in which he chose to not criminally prosecute any big Wall Street banks or high-level executives for the 2008 financial meltdown.
These were bottom-of-the-slope declinations.
On May 3 at the National Press Club, top SEC and Justice Department officials will be featured speakers at a conference titled “Neither Admit Nor Deny: Corporate Crime in the Age of Deferred Prosecutions, Consent Decrees, Whistleblowers & Monitors.”
They will be pressed to dismantle our two-tier justice system. And replace it with a system that embodies what Attorney General Eric Holder calls “our nation’s enduring pursuit for equal justice for all.”
PHOTO: Mourners comfort each other during a candle light vigil in Montcoal, West Virginia April 10, 2010. REUTERS/John Gress