Swinging for the Fences

In the wake of Andersen's collapse, the government has several times returned to the option of corporate deferred prosecutions — agreements by which companies avoid prosecution if they comply with agreed-upon conditions, which typically include internal reforms. Increasingly, these agreements include more intrusive government involvement in corporate governance.

As these examples illustrate, the reality of business criminal enforcement since the promulgation of the individual and organizational sentencing guidelines (1987 and 1991, respectively) has evolved to the point that today the exercise of prosecutorial discretion, once relatively unfettered but now circumscribed by standards designed to produce uniformity, has tended to produce uniformly extreme results reflecting the passions of the day and the reality that being perceived as tough on crime is politically attractive for the people who wield the enormous power of government.

Individual Prosecutions

In 2003, official reactions to continuing corporate scandals prompted a significant increase in sentencing guideline penalties for fraud, legislative restrictions on judicial discretion, and Justice Department policies that limited the charging discretion of line prosecutors. For example, as Bernie Ebbers was later to find out, the 2003 guidelines amendments raised the potential penalty for a $100-million fraud to life imprisonment.

Moreover, as a result of the so-called Feeney Amendment to the 2003 Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today (PROTECT) Act, the discretion of federal judges to depart downward from the Sentencing Guidelines was dramatically restricted. The Feeney Amendment required the Sentencing Commission to promulgate guidelines and policy statements limiting departures, eliminated what Congress perceived as much abused grounds of departure such as “diminished capacity,” “aberrant behavior,” and “family and community ties,” and directed the Commission to reduce substantially the number of downward departures. It also required the courts of appeals to review departures de novo and, most chillingly, directed the Commission and the Justice Department to report all downward departures to the House and Senate Judiciary Committees. Before the bill was enacted, Chief Justice Rehnquist stated: “The Judicial Conference believes that this legislation, if enacted, would do serious harm to the basic structure of the sentencing guideline system and would seriously impair the ability of the courts to impose just and responsible sentences.”

Of course, application of the Sentencing Guidelines is critically dependent on the charging decision made by the prosecutor — a discretionary decision that traditionally has been dependent upon a variety of factors relating to the crime and the circumstances of its commission. Addressing that discretion on Sept. 22, 2003, then Attorney General John Ashcroft sent a memorandum to all federal prosecutors setting forth “Department Policy Concerning Charging Criminal Offenses, Disposition of Charges and Sentencing” (the “Ashcroft Memorandum”). Here again, the position taken was an extreme one. Federal prosecutors “must charge and pursue the most serious, readily provable offense or offenses that are supported by the facts of the case, except as authorized by an Assistant Attorney General, United States Attorney, or designated supervisory attorney in the limited circumstances described below. The most serious offense or offenses are those that generate the most substantial sentence under the Sentencing Guidelines, unless a mandatory minimum sentence or count requiring a consecutive sentence would generate a longer sentence” (emphasis supplied).

In other words, the question a prosecutor must ask in exercising his “discretion” is not “What is the right charge?” but “What charge carries the harshest penalty?”

Booker and Fanfan

This drive to go for maximum sentences — to swing for the fences — was also reflected in the many legislative proposals made in response to the Supreme Court's decisions in United States v. Booker and United States v. Fanfan, which invalidated the Sentencing Guidelines to the extent that they were mandatory. One bill (HR 1528) would create new mandatory minimum sentences and ban 36 specific grounds for downward departure. Attorney General Alberto Gonzales effectively endorsed such legislation on June 21, 2005, before the First National Conference of the National Center for Victims of Crime, stating that a system of mandatory minimum sentences but advisory maximum sentences was “deserving of serious consideration.”

The call for mandatory minimums, whether as statutory penalties or as part of a modified guidelines system, has generated distinguished opposition. Thirty-two former judges, U.S. Attorneys, and Justice Department officials wrote to the House Judiciary Committee opposing HR 1528 and characterizing it as “dangerously off the mark.” Many of those signatories were among the 163 individuals – including four former Attorneys General – who submitted an amicus brief to the Tenth Circuit in support of the appeal of Weldon Angelos, a first-time offender who was sentenced to a mandatory 55-year prison sentence for possessing a firearm during a number of marijuana sales.

The impact of such sentences on corporate crime is unclear. The business community has not yet had time to process and react to the fact that Andrew Fastow, who was Enron's chief financial officer, received a 10-year sentence on a guilty plea with cooperation, and that Bernie Ebbers and the Rigases faced life imprisonment. But one thing is clear: Given these trends, the United States is not about to relinquish its position as the world's leader in the rate at which it incarcerates its residents.

Prosecution of Companies

In criminal investigations of public corporations, the tendency to overkill shows up not so much in the sentences sought, but in the decision whether to indict not only targeted employees but also the company. An indictment often puts a corporation out of business, especially in the financial sector. Federal prosecutors are directed to follow the policies set forth in a memorandum issued on Jan. 20, 2003, by then Deputy Attorney General Larry D. Thompson (the Thompson Memorandum), which revised a memorandum initially issued in June 1999 by then Deputy Attorney General Eric H. Holder, Jr. Much has been written about the Thompson Memorandum, particularly insofar as it identifies “the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents … ” as a factor to be considered, and the resulting pressure for the corporation to waive privileges. But the Thompson Memorandum, undoubtedly reflecting the atmosphere of scandal in which it was issued, also made clear that the first factor it listed — the nature and seriousness of the offense — “ may be such as to warrant prosecution regardless of other factors.”

Whatever factors led to the indictment of Arthur Andersen, it produced the collateral damage most feared in corporate boardrooms — dissolution. Although it's cold comfort to the more than 80,000 people who lost their jobs, the Andersen saga may have the salutary effect of reminding prosecutors that the death of a prosperous company is not just the defense's nightmare. Perhaps in reaction to Andersen, in a recent a series of cases potential charges against corporations have been resolved through deferred prosecutions. Although the precise form of the deferred prosecution agreement has varied from case to case — in some cases a complaint is filed, in other cases there are no charges — the heart of the deferred prosecution is a commitment by the company to institute specific reforms and abide by specific restrictions for a specific period of time, at the expiration of which the corporation either will not be charged, or, if a complaint was filed, the charges will be dismissed. Clearly, this is a step back by prosecutors. But even here, the temptation to swing for the fences rears its head.

And so, in a recent case involving Bristol-Myers Squibb Company, the deferred prosecution agreement required the CEO to give up his position as chairman, the designation of his replacement, the payment of $300 million in penalties, the employment of a retired federal judge as a monitor of the company's operations, and the endowment of a chair in business ethics at the prosecutor's law school. Clearly, as Professor John C. Coffee, Jr. has recently observed, these prosecutorial intrusions into corporate decision-making have reached “a new high-water mark.”

On July 27, 2005, a Seattle federal judge sentenced the so-called “Millennium Bomber,” who was convicted of conspiring to bomb Los Angeles International Airport during the 2000 New Year's holiday season (and who cooperated with the government for a period of time and then stopped), to 22 years in prison. The government had sought a 35-year sentence for the 38-year-old defendant.

Only 2 weeks earlier, on July 13, 2005, a New York federal judge had sentenced Bernard Ebbers, the former CEO of WorldCom who was convicted of securities fraud in connection with the collapse of the multi-billion dollar telecommunications company, to 25 years in prison. The government had sought a life sentence for the 63-year-old defendant.

In March 2002, Arthur Andersen was indicted — a death penalty for financial institutions — under the federal witness tampering statute in connection with the government's investigation of Enron. Andersen's conviction led to its dissolution, with the result that tens of thousands of innocent Andersen employees lost their jobs. Andersen's conviction was ultimately reversed unanimously by the Supreme Court, because the charge to the jury did not make clear the knowledge element of the offense and was therefore broad enough to capture innocent conduct.

In the wake of Andersen's collapse, the government has several times returned to the option of corporate deferred prosecutions — agreements by which companies avoid prosecution if they comply with agreed-upon conditions, which typically include internal reforms. Increasingly, these agreements include more intrusive government involvement in corporate governance.

As these examples illustrate, the reality of business criminal enforcement since the promulgation of the individual and organizational sentencing guidelines (1987 and 1991, respectively) has evolved to the point that today the exercise of prosecutorial discretion, once relatively unfettered but now circumscribed by standards designed to produce uniformity, has tended to produce uniformly extreme results reflecting the passions of the day and the reality that being perceived as tough on crime is politically attractive for the people who wield the enormous power of government.

Individual Prosecutions

In 2003, official reactions to continuing corporate scandals prompted a significant increase in sentencing guideline penalties for fraud, legislative restrictions on judicial discretion, and Justice Department policies that limited the charging discretion of line prosecutors. For example, as Bernie Ebbers was later to find out, the 2003 guidelines amendments raised the potential penalty for a $100-million fraud to life imprisonment.

Moreover, as a result of the so-called Feeney Amendment to the 2003 Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today (PROTECT) Act, the discretion of federal judges to depart downward from the Sentencing Guidelines was dramatically restricted. The Feeney Amendment required the Sentencing Commission to promulgate guidelines and policy statements limiting departures, eliminated what Congress perceived as much abused grounds of departure such as “diminished capacity,” “aberrant behavior,” and “family and community ties,” and directed the Commission to reduce substantially the number of downward departures. It also required the courts of appeals to review departures de novo and, most chillingly, directed the Commission and the Justice Department to report all downward departures to the House and Senate Judiciary Committees. Before the bill was enacted, Chief Justice Rehnquist stated: “The Judicial Conference believes that this legislation, if enacted, would do serious harm to the basic structure of the sentencing guideline system and would seriously impair the ability of the courts to impose just and responsible sentences.”

Of course, application of the Sentencing Guidelines is critically dependent on the charging decision made by the prosecutor — a discretionary decision that traditionally has been dependent upon a variety of factors relating to the crime and the circumstances of its commission. Addressing that discretion on Sept. 22, 2003, then Attorney General John Ashcroft sent a memorandum to all federal prosecutors setting forth “Department Policy Concerning Charging Criminal Offenses, Disposition of Charges and Sentencing” (the “Ashcroft Memorandum”). Here again, the position taken was an extreme one. Federal prosecutors “must charge and pursue the most serious, readily provable offense or offenses that are supported by the facts of the case, except as authorized by an Assistant Attorney General, United States Attorney, or designated supervisory attorney in the limited circumstances described below. The most serious offense or offenses are those that generate the most substantial sentence under the Sentencing Guidelines, unless a mandatory minimum sentence or count requiring a consecutive sentence would generate a longer sentence” (emphasis supplied).

In other words, the question a prosecutor must ask in exercising his “discretion” is not “What is the right charge?” but “What charge carries the harshest penalty?”

Booker and Fanfan

This drive to go for maximum sentences — to swing for the fences — was also reflected in the many legislative proposals made in response to the Supreme Court's decisions in United States v. Booker and United States v. Fanfan, which invalidated the Sentencing Guidelines to the extent that they were mandatory. One bill (HR 1528) would create new mandatory minimum sentences and ban 36 specific grounds for downward departure. Attorney General Alberto Gonzales effectively endorsed such legislation on June 21, 2005, before the First National Conference of the National Center for Victims of Crime, stating that a system of mandatory minimum sentences but advisory maximum sentences was “deserving of serious consideration.”

The call for mandatory minimums, whether as statutory penalties or as part of a modified guidelines system, has generated distinguished opposition. Thirty-two former judges, U.S. Attorneys, and Justice Department officials wrote to the House Judiciary Committee opposing HR 1528 and characterizing it as “dangerously off the mark.” Many of those signatories were among the 163 individuals – including four former Attorneys General – who submitted an amicus brief to the Tenth Circuit in support of the appeal of Weldon Angelos, a first-time offender who was sentenced to a mandatory 55-year prison sentence for possessing a firearm during a number of marijuana sales.

The impact of such sentences on corporate crime is unclear. The business community has not yet had time to process and react to the fact that Andrew Fastow, who was Enron's chief financial officer, received a 10-year sentence on a guilty plea with cooperation, and that Bernie Ebbers and the Rigases faced life imprisonment. But one thing is clear: Given these trends, the United States is not about to relinquish its position as the world's leader in the rate at which it incarcerates its residents.

Prosecution of Companies

In criminal investigations of public corporations, the tendency to overkill shows up not so much in the sentences sought, but in the decision whether to indict not only targeted employees but also the company. An indictment often puts a corporation out of business, especially in the financial sector. Federal prosecutors are directed to follow the policies set forth in a memorandum issued on Jan. 20, 2003, by then Deputy Attorney General Larry D. Thompson (the Thompson Memorandum), which revised a memorandum initially issued in June 1999 by then Deputy Attorney General Eric H. Holder, Jr. Much has been written about the Thompson Memorandum, particularly insofar as it identifies “the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents … ” as a factor to be considered, and the resulting pressure for the corporation to waive privileges. But the Thompson Memorandum, undoubtedly reflecting the atmosphere of scandal in which it was issued, also made clear that the first factor it listed — the nature and seriousness of the offense — “ may be such as to warrant prosecution regardless of other factors.”

Whatever factors led to the indictment of Arthur Andersen, it produced the collateral damage most feared in corporate boardrooms — dissolution. Although it's cold comfort to the more than 80,000 people who lost their jobs, the Andersen saga may have the salutary effect of reminding prosecutors that the death of a prosperous company is not just the defense's nightmare. Perhaps in reaction to Andersen, in a recent a series of cases potential charges against corporations have been resolved through deferred prosecutions. Although the precise form of the deferred prosecution agreement has varied from case to case — in some cases a complaint is filed, in other cases there are no charges — the heart of the deferred prosecution is a commitment by the company to institute specific reforms and abide by specific restrictions for a specific period of time, at the expiration of which the corporation either will not be charged, or, if a complaint was filed, the charges will be dismissed. Clearly, this is a step back by prosecutors. But even here, the temptation to swing for the fences rears its head.

And so, in a recent case involving Bristol-Myers Squibb Company, the deferred prosecution agreement required the CEO to give up his position as chairman, the designation of his replacement, the payment of $300 million in penalties, the employment of a retired federal judge as a monitor of the company's operations, and the endowment of a chair in business ethics at the prosecutor's law school. Clearly, as Professor John C. Coffee, Jr. has recently observed, these prosecutorial intrusions into corporate decision-making have reached “a new high-water mark.”