[ Signed on June 16, 1999 ] |
M E M O R A N D U M
TO: All Component Heads and United States Attorneys
FROM: THE DEPUTY ATTORNEY GENERAL
SUBJECT: Bringing Criminal Charges Against Corporations
More and more often, federal prosecutors are faced with criminal conduct committed by or on behalf of corporations. The Department is committed to prosecuting both the culpable individuals and, when appropriate, the corporation on whose behalf they acted.
The attached document, Federal Prosecution of Corporations, provides guidance as to what factors should generally inform a prosecutor in making the decision whether to charge a corporation in a particular case. I believe these factors provide a useful framework in which prosecutors can analyze their cases and provide a common vocabulary for them to discuss their decision with fellow prosecutors, supervisors, and defense counsel. These factors are, however, not outcome-determinative and are only guidelines. Federal prosecutors are not required to reference these factors in a particular case, nor are they required to document the weight they accorded specific factors in reaching their decision.
The factors and the commentary were developed through the hard work of an ad hoc working group coordinated by the Fraud Section of the Criminal Division and made up of representatives of United States Attorneys' Offices, the Executive Office of United States Attorneys, and Divisions of the Department with criminal law enforcement responsibilities. Experience with these guidelines may lead to changes or adjustments in the text and commentary. Therefore, please forward any comments about the guidelines, as well as instances in which the factors proved useful or not useful in specific cases to Shirah Neiman, Deputy United States Attorney, Southern District of New York, and Philip Urofsky, Trial Attorney, Fraud Section, Criminal Division. I look forward to hearing comments from the field as to the application of these factors in practice.
Encl.
I. | Charging Corporations: General |
A. | General Principle: Corporations should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment. Vigorous enforcement of the criminal laws against corporate wrongdoers, where appropriate, results in great benefits for law enforcement and the public, particularly in the area of white collar crime. Indicting corporations for wrongdoing enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, and prevent, discover, and punish white collar crime. | |
B. | Comment: In all cases involving corporate wrongdoing,
prosecutors should consider the factors discussed herein. First and
foremost, prosecutors should be aware of the important public benefits
that may flow from indicting a corporation in appropriate cases. For
instance, corporations are likely to take immediate remedial steps when
one is indicted for criminal conduct that is pervasive throughout a
particular industry, and thus an indictment often provides a unique
opportunity for deterrence on a massive scale. In addition, a corporate
indictment may result in specific deterrence by changing the culture of
the indicted corporation and the behavior of its employees. Finally,
certain crimes that carry with them a substantial risk of great public
harm,e.g., environmental crimes or financial frauds, are by their
nature most likely to be committed by businesses, and there may,
therefore, be a substantial federal interest in indicting the corporation.
Charging a corporation, however, does not mean that individual directors, officers, employees, or shareholders should not also be charged. Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation. Further, imposition of individual criminal liability on such individuals provides a strong deterrent against future corporate wrongdoing. Corporations are "legal persons," capable of suing and being sued, and capable of committing crimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To be held liable for these actions, the government must establish that the corporate agent's actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation. In all cases involving wrongdoing by corporate agents, prosecutors should consider the corporation, as well as the responsible individuals, as potential criminal targets. Agents, however, may act for mixed reasons -- both for self-aggrandizement (both direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. Thus, in United States v. Automated Medical Laboratories, 770 F.2d 399 (4th Cir. 1985), the court affirmed the corporation's conviction for the actions of a subsidiary's employee despite its claim that the employee was acting for his own benefit, namely his "ambitious nature and his desire to ascend the corporate ladder." The court stated, "Partucci was clearly acting in part to benefit AML since his advancement within the corporation depended on AML's well-being and its lack of difficulties with the FDA." Similarly, in United States v. Cincotta, 689 F.2d 238, 241-42 (1st Cir. 1982), the court held, "criminal liability may be imposed on the corporation only where the agent is acting within the scope of his employment. That, in turn, requires that the agent be performing acts of the kind which he is authorized to perform, and those acts must be motivated -- at least in part -- by an intent to benefit the corporation." Applying this test, the court upheld the corporation's conviction, notwithstanding the substantial personal benefit reaped by its miscreant agents, because the fraudulent scheme required money to pass through the corporation's treasury and the fraudulently obtained goods were resold to the corporation's customers in the corporation's name. As the court concluded, "Mystic--not the individual defendants--was making money by selling oil that it had not paid for." Moreover, the corporation need not even necessarily profit from its agent's actions for it to be held liable. In Automated Medical Laboratories, the Fourth Circuit stated: [B]enefit is not a "touchstone of criminal corporate liability; benefit at best is an evidential, not an operative, fact." Thus, whether the agent's actions ultimately redounded to the benefit of the corporation is less significant than whether the agent acted with the intent to benefit the corporation. The basic purpose of requiring that an agent have acted with the intent to benefit the corporation, however, is to insulate the corporation from criminal liability for actions of its agents which be inimical to the interests of the corporation or which may have been undertaken solely to advance the interests of that agent or of a party other than the corporation.Id. at 407 (emphasis added; quoting Old Monastery Co. v. United States, 147 F.2d 905, 908 (4th Cir.), cert. denied, 326 U.S. 734 (1945)). |
II. | Charging Corporations -- Factors to Be Considered |
A. | General Principle: Generally, prosecutors should apply the same factors in determining whether to charge a corporation as they do with respect to individuals. See U.S.A.M. § 9-27.220, et seq. Thus, the prosecutor should weigh all of the factors normally considered in the sound exercise of prosecutorial judgment: the sufficiency of the evidence, the likelihood of success at trial, the probable deterrent, rehabilitative, and other consequences of conviction, and the adequacy of non-criminal approaches. See id. However, due to the nature of the corporate "person," some additional factors are present. In conducting an investigation, determining whether to bring charges, and negotiating plea agreements, prosecutors should consider the following factors in reaching a decision as to the proper treatment of a corporate target: |
1. | The nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime (see section III,infra); | ||
2. | The pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management (see section IV, infra); | ||
3. | The corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it (see section V, infra); | ||
4. | The corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of the corporate attorney-client and work product privileges (see section VI, infra); | ||
5. | The existence and adequacy of the corporation's compliance program (see section VII, infra); | ||
6. | The corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies (see section VIII, infra); | ||
7. | Collateral consequences, including disproportionate harm to shareholders and employees not proven personally culpable (see section IX, infra); and | ||
8. | The adequacy of non-criminal remedies, such as civil or regulatory enforcement actions (see section X, infra). |
B. | Comment: As with the factors relevant to charging natural
persons, the foregoing factors are intended to provide guidance rather
than to mandate a particular result. The factors listed in this section
are intended to be illustrative of those that should be considered and not
a complete or exhaustive list. Some or all of these factors may or may not
apply to specific cases, and in some cases one factor may override all
others. Further, national law enforcement policies in various enforcement
areas may require that more or less weight be given to certain of these
factors than to others.
In making a decision to charge a corporation, the prosecutor generally has wide latitude in determining when, whom, how, and even whether to prosecute for violations of Federal criminal law. In exercising that discretion, prosecutors should consider the following general statements of principles that summarize appropriate considerations to be weighed and desirable practices to be followed in discharging their prosecutorial responsibilities. In doing so, prosecutors should ensure that the general purposes of the criminal law -- assurance of warranted punishment, deterrence of further criminal conduct, protection of the public from dangerous and fraudulent conduct, rehabilitation of offenders, and restitution for victims and affected communities -- are adequately met, taking into account the special nature of the corporate "person." |
III. | Charging a Corporation: Special Policy Concerns |
A. | General Principle: The nature and seriousness of the crime, including the risk of harm to the public from the criminal conduct, are obviously primary factors in determining whether to charge a corporation. In addition, corporate conduct, particularly that of national and multi-national corporations, necessarily intersects with federal economic, taxation, and criminal law enforcement policies. In applying these principles, prosecutors must consider the practices and policies of the appropriate Division of the Department, and must comply with those policies to the extent required. | |
B. | Comment: In determining whether to charge a corporation,
prosecutors should take into account federal law enforcement priorities as
discussed above. See |
IV. | Charging a Corporation: Pervasiveness of Wrongdoing Within the Corporation |
A. | General Principle: A corporation can only act through natural persons, and it is therefore held responsible for the acts of such persons fairly attributable to it. Charging a corporation for even minor misconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large number of employees or by all the employees in a particular role within the corporation, e.g., salesmen or procurement officers, or was condoned by upper management. On the other hand, in certain limited circumstances, it may not be appropriate to impose liability upon a corporation, particularly one with a compliance program in place, under a strict respondeat superior theory for the single isolated act of a rogue employee. There is, of course, a wide spectrum between these two extremes, and a prosecutor should exercise sound discretion in evaluating the pervasiveness of wrongdoing within a corporation. | |
B. | Comment: Of these factors, the most important is the role of
management. Although acts of even low-level employees may result in
criminal liability, a corporation is directed by its management and
management is responsible for a corporate culture in which criminal
conduct is either discouraged or tacitly encouraged. As stated in
commentary to the Sentencing Guidelines:
Pervasiveness [is] case specific and [will] depend on the number, and degree of responsibility, of individuals [with] substantial authority . . . who participated in, condoned, or were willfully ignorant of the offense. Fewer individuals need to be involved for a finding of pervasiveness if those individuals exercised a relatively high degree of authority. Pervasiveness can occur either within an organization as a whole or within a unit of an organization.U.S.S.G. § 8C2.5, comment. (n. 4). |
V. | Charging the Corporation: The Corporation's Past History |
A. | General Principle: Prosecutors may consider a corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it, in determining whether to bring criminal charges. | |
B. | Comment: A corporation, like a natural person, is expected to learn from its mistakes. A history of similar conduct may be probative of a corporate culture that encouraged, or at least condoned, such conduct, regardless of any compliance programs. Criminal prosecution of a corporation may be particularly appropriate where the corporation previously had been subject to non-criminal guidance, warnings, or sanctions, or previous criminal charges, and yet it either had not taken adequate action to prevent future unlawful conduct or had continued to engage in the conduct in spite of the warnings or enforcement actions taken against it. In making this determination, the corporate structure itself, e.g., subsidiaries or operating divisions, should be ignored, and enforcement actions taken against the corporation or any of its divisions, subsidiaries, and affiliates should be considered. See U.S.S.G. § 8C2.5(c) & comment. (n. 6). |
VI. | Charging the Corporation: Cooperation and Voluntary Disclosure |
A. | General Principle: In determining whether to charge a corporation, that corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate with the government's investigation may be relevant factors. In gauging the extent of the corporation's cooperation, the prosecutor may consider the corporation's willingness to identify the culprits within the corporation, including senior executives, to make witnesses available, to disclose the complete results of its internal investigation, and to waive the attorney-client and work product privileges. | |
B. | Comment: In investigating wrongdoing by or within a
corporation, a prosecutor is likely to encounter several obstacles
resulting from the nature of the corporation itself. It will often be
difficult to determine which individual took which action on behalf of the
corporation. Lines of authority and responsibility may be shared among
operating divisions or departments, and records and personnel may be
spread throughout the United States or even among several countries. Where
the criminal conduct continued over an extended period of time, the
culpable or knowledgeable personnel may have been promoted, transferred,
or fired, or they may have quit or retired. Accordingly, a corporation's
cooperation may be critical in identifying the culprits and locating
relevant evidence.
In some circumstances, therefore, granting a corporation immunity or amnesty may be considered in the course of the government's investigation. In such circumstances, prosecutors should refer to the principles governing non-prosecution agreements generally. See USAM § 9-27.600-650. Specifically, these principles permit a non-prosecution agreement in exchange for cooperation when a corporation's "timely cooperation appears to be necessary to the public interest and other means of obtaining the desired cooperation are unavailable or would not be effective." Prosecutors should note that in the case of national or multi-national corporations, multi-district or global agreements may be necessary. See USAM § 9-27.641. In addition, the Department, in conjunction with regulatory agencies and other executive branch departments, encourages corporations, as part of their compliance programs, to conduct internal investigations and to disclose their findings to the appropriate authorities. Some agencies, such as the SEC and the EPA, as well as the Department's Environmental and Natural Resources Division, have formal voluntary disclosure programs in which self-reporting, coupled with remediation and additional criteria, may qualify the corporation for amnesty or reduced sanctions. (1)Even in the absence of a formal program, prosecutors may consider a corporation's timely and voluntary disclosure in evaluating the adequacy of the corporation's compliance program and its management's commitment to the compliance program. However, prosecution and economic policies specific to the industry or statute may require prosecution notwithstanding a corporation's willingness to cooperate. For example, the Antitrust Division offers amnesty only to the first corporation to agree to cooperate. This creates a strong incentive for corporations participating in anti-competitive conduct to be the first to cooperate. In addition, amnesty, immunity, or reduced sanctions may not be appropriate where the corporation's business is permeated with fraud or other crimes. One factor the prosecutor may weigh in assessing the adequacy of a corporation's cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors, and employees and counsel. Such waivers permit the government to obtain statements of possible witnesses, subjects, and targets, without having to negotiate individual cooperation or immunity agreements. In addition, they are often critical in enabling the government to evaluate the completeness of a corporation's voluntary disclosure and cooperation. Prosecutors may, therefore, request a waiver in appropriate circumstances. (2)The Department does not, however, consider waiver of a corporation's privileges an absolute requirement, and prosecutors should consider the willingness of a corporation to waive the privileges when necessary to provide timely and complete information as only one factor in evaluating the corporation's cooperation. Another factor to be weighed by the prosecutor is whether the corporation appears to be protecting its culpable employees and agents. Thus, while cases will differ depending on the circumstances, a corporation's promise of support to culpable employees and agents, either through the advancing of attorneys fees, (3)through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government's investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation's cooperation. By the same token, the prosecutor should be wary of attempts to shield corporate officers and employees from liability by a willingness of the corporation to plead guilty. Finally, a corporation's offer of cooperation does not automatically entitle it to immunity from prosecution. A corporation should not be able to escape liability merely by offering up its directors, officers, employees, or agents as in lieu of its own prosecution. Thus, a corporation's willingness to cooperate is merely one relevant factor, one that needs to be considered in conjunction with the other factors, particularly those relating to the corporation's past history and the role of management in the wrongdoing. |
VII. | Charging a Corporation: Corporate Compliance Programs |
A. | General Principle: Compliance programs are established by corporate management to prevent and to detect misconduct and to ensure that corporate activities are conducted in accordance with all applicable criminal and civil laws, regulations, and rules. The Department encourages such corporate self-policing, including voluntary disclosures to the government of any problems that a corporation discovers on its own. However, the existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal conduct undertaken by its officers, directors, employees, or agents. Indeed, the commission of such crimes in the face of a compliance program may suggest that the corporate management is not adequately enforcing its program. In addition, the nature of some crimes, e.g., antitrust violations, may be such that national law enforcement policies mandate prosecutions of corporations notwithstanding the existence of a compliance program. | |
B. | Comment. A corporate compliance program, even one specifically
prohibiting the very conduct in question, does not absolve the corporation
from criminal liability under the doctrine of respondeat superior. See
United States v. Basic Construction Co., 711 F.2d 570 (4th
Cir. 1983) ("a corporation may be held criminally responsible for
antitrust violations committed by its employees if they were acting within
the scope of their authority, or apparent authority, and for the benefit
of the corporation, even if . . . such acts were against corporate policy
or express instructions."). Thus, in United States v. Hilton Hotels
Corp., 467 F.2d 1000 (9th Cir. 1972), cert. denied,
409 U.S. 1125 (1973), the Ninth Circuit affirmed antitrust liability based
upon a purchasing agent for a single hotel threatening a single supplier
with a boycott unless it paid dues to a local marketing association,
even though the agent's actions were contrary to corporate policy and
directly against express instructions from his superiors. The court
reasoned that Congress, in enacting the Sherman Antitrust Act, "intended
to impose liability upon business entities for the acts of those to whom
they choose to delegate the conduct of their affairs, thus stimulating a
maximum effort by owners and managers to assure adherence by such agents
to the requirements of the Act."
(4) It concluded that "general policy
statements" and even direct instructions from the agent's superiors were
not sufficient; "Appellant could not gain exculpation by issuing general
instructions without undertaking to enforce those instructions by means
commensurate with the obvious risks." See also United States v.
Beusch, 596 F.2d 871, 878 (9th Cir. 1979) ("[A] corporation
may be liable for the acts of its employees done contrary to express
instructions and policies, but . . . the existence of such instructions
and policies may be considered in determining whether the employee in fact
acted to benefit the corporation."); United States v. American Radiator
& Standard Sanitary Corp., 433 F.2d 174 (3rd Cir. 1970)
(affirming conviction of corporation based upon its officer's
participation in price-fixing scheme, despite corporation's defense that
officer's conduct violated its "rigid anti-fraternization policy" against
any socialization (and exchange of price information) with its
competitors; "When the act of the agent is within the scope of his
employment or his apparent authority, the corporation is held legally
responsible for it, although what he did may be contrary to his actual
instructions and may be unlawful.").
While the Department recognizes that no compliance program can ever prevent all criminal activity by a corporation's employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives. The Department has no formal guidelines for corporate compliance programs. The fundamental questions any prosecutor should ask are: "Is the corporation's compliance program well designed?" and] "Does the corporation's compliance program work?" In answering these questions, the prosecutor should consider the comprehensiveness of the compliance program, the extent and pervasiveness of the criminal conduct; the number and level of the corporate employees involved; the seriousness, duration, and frequency of the misconduct, and any remedial actions taken by the corporation, including restitution, disciplinary action, and revisions to corporate compliance programs. (5)Prosecutors should also consider the promptness of any disclosure of wrongdoing to the government and the corporation's cooperation in the government's investigation. Prosecutors should therefore attempt to determine whether a corporation's compliance program is merely a "paper program" or whether it was designed and implemented in an effective manner. In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation's compliance efforts. In addition, prosecutors should determine whether the corporation's employees are adequately informed about the compliance program and are convinced of the corporation's commitment to it. This will enable the prosecutor to make an informed decision as to whether the corporation has adopted and implemented a truly effective compliance program that, when consistent with other federal law enforcement policies, may result in a decision to charge only the corporation's employees and agents. Compliance programs should be designed to detect the particular types of misconduct most likely to occur in a particular corporation's line of business. Many corporations operate in complex regulatory environments outside the normal experience of criminal prosecutors. Accordingly, prosecutors should consult with relevant federal and state agencies with the expertise to evaluate the adequacy of a program's design and implementation. For instance, state and federal banking, insurance, and medical boards, the Department of Defense, the Department of Health and Human Services, the Environmental Protection Agency, and the Securities and Exchange Commission have considerable experience with compliance programs and can be very helpful to a prosecutor in evaluating such programs. In addition, the Fraud Section of the Criminal Division, the Commercial Litigation Branch of the Civil Division, and the Environmental Crimes Section of the Environment and Natural Resources Division can assist U.S. Attorneys' Offices in finding the appropriate agency office and in providing copies of compliance programs that were developed in previous cases. |
VIII. | Charging the Corporation: Restitution and Remediation |
A. | General Principle: Although neither a corporation nor an individual target may avoid prosecution merely by paying a sum of money, a prosecutor may consider the corporation's willingness to make restitution and steps already taken to do so, as well as other remedial actions such as implementing an effective corporate compliance program, improving an existing one, and disciplining wrongdoers, in determining whether to charge the corporation. | |
B. | Comment: In determining whether or not a corporation should be
prosecuted, a prosecutor may consider whether meaningful remedial measures
have been taken, including employee discipline and full
restitution.
(6)A corporation's response to
misconduct says much about its willingness to ensure that such misconduct
does not recur. Thus, corporations that fully recognize the seriousness of
their misconduct and accept responsibility for it should be seen to be
taking steps to implement the personnel, operational, and organizational
changes necessary to establish an awareness among employees that criminal
conduct will not be tolerated. Among the factors prosecutors should
consider and weigh are whether the corporation appropriately disciplined
the wrongdoers and disclosed information concerning their illegal conduct
to the government. Employee discipline is a difficult task for many corporations because of the human element involved and sometimes because of the seniority of the employees concerned. However, while corporations need to be fair to their employees, they must also be unequivocally committed, at all levels of the corporation, to the highest standards of legal and ethical behavior. Effective internal discipline can be a powerful deterrent against improper behavior by a corporation's employees. In evaluating a corporation's response to wrongdoing, prosecutors may evaluate the willingness of the corporation to discipline culpable employees of all ranks and the adequacy of the discipline imposed. The prosecutor should satisfy himself or herself that the corporation's focus is on the integrity and credibility of its remedial and disciplinary measures rather than on the protection of the wrongdoers. In addition to employee discipline, two other factors in evaluating a corporation's remedial efforts are restitution and reform. As with natural persons, the decision whether or not to prosecute should not depend upon the target's ability to pay restitution. A corporation's efforts to pay restitution even in advance of any court order is, however, evidence of its "acceptance of responsibility" and, consistent with the practices and policies of the appropriate Division of the Department entrusted with enforcing specific criminal laws, may be considered in determining whether to bring criminal charges. Similarly, although the inadequacy of a corporate compliance program is a factor to consider when deciding whether to charge a corporation, that corporation's quick recognition of the flaws in the program and its efforts to improve the program are also factors to consider. |
IX. | Charging the Corporation: Collateral consequences |
A. | General Principle: Prosecutors may consider the collateral consequences of a corporate criminal conviction in determining whether to charge the corporation with a criminal offense. | |
B. | Comment: One of the factors in determining whether to charge a
natural person or a corporation is whether the likely punishment is
appropriate given the nature and seriousness of the crime. In the
corporate context, prosecutors may take into account the possibly
substantial consequences to a corporation's officers, directors,
employees, and shareholders, many of whom may, depending on the size and
nature (e.g., publicly vs. closely held) of the corporation
and their role in its operations, have played no role in the criminal
conduct, have been completely unaware of it, or have been wholly unable to
prevent it. Further, prosecutors should also be aware of non-penal
sanctions that may accompany a criminal charges, such as potential
suspension or debarment from eligibility for government contracts or
federal funded programs such as health care. Whether or not such non-penal
sanctions are appropriate or required in a particular case is the
responsibility of the relevant agency, a decision that will be made based
on the applicable statutes, regulations, and policies.
Virtually every conviction of a corporation, like virtually every conviction of an individual, will have an impact on innocent third parties, and the mere existence of such an effect is not sufficient to preclude prosecution of the corporation. Therefore, in evaluating the severity of collateral consequences, various factors already discussed, such as the pervasiveness of the criminal conduct and the adequacy of the corporation's compliance programs should also be considered in determining the weight to be given to this factor. For instance, the balance may tip in favor of prosecuting corporations in situations where the scope of the misconduct in a case is widespread and sustained within a corporate division (or spread throughout pockets of the corporate organization). In such cases, the possible unfairness of visiting punishment for the corporation's crimes upon shareholders may be of much less concern where those shareholders have substantially profited, even unknowingly, from widespread or pervasive criminal activity. Similarly, where the top layers of the corporation's management or the shareholders of a closely-held corporation were engaged in or aware of the wrongdoing and the conduct at issue was accepted as a way of doing business for an extended period, debarment may be deemed not collateral but a direct and entirely appropriate consequence of the corporation's wrongdoing. The appropriateness of considering such collateral consequences and the weight to be given them may depend on the special policy concerns discussed in section III,supra. |
X. | Charging a Corporation: Non-Criminal Alternatives |
A. | General Principle: Although non-criminal alternatives to prosecution often exist, prosecutors may consider whether such sanctions would adequately deter, punish, and rehabilitate a corporation that has engaged in wrongful conduct. In evaluating the adequacy of non-criminal alternatives to prosecution, e.g., civil or regulatory enforcement actions, the prosecutor may consider all relevant factors, including: |
1. | The sanctions available under the alternative means of disposition; | ||
2. | the likelihood that an effective sanction will be imposed; and | ||
3. | the effect of non-criminal disposition on Federal law enforcement interests. |
B. | Comment. The primary goals of criminal law are deterrence, punishment, and rehabilitation. Non-criminal sanctions may not be an appropriate response to an egregious violation, a pattern of wrongdoing, or a history of non-criminal sanctions without proper remediation. In other cases, however, these goals may be satisfied without the necessity of instituting criminal proceedings. In determining whether federal criminal charges are appropriate, the prosecutor should consider the same factors (modified appropriately for the regulatory context) considered when determining whether to leave prosecution of a natural person to another jurisdiction or to seek non-criminal alternatives to prosecution, i.e., the strength of the regulatory authority's interest; the regulatory authority's ability and willingness to take effective enforcement action, the probable sanction if the regulatory authority's enforcement action is upheld, and the effect of a non-criminal disposition on Federal law enforcement interests. See USAM §§ 9-27.240, 9-27.250. |
XI. | Charging a Corporation: Selecting Charges |
A. | General Principle: Once a prosecutor has decided to charge a corporation, the prosecutor should charge, or should recommend that the grand jury charge, the most serious offense that is consistent with the nature of the defendant's conduct and that is likely to result in a sustainable conviction. | |
B. | Comment: Once the decision to charge is made, the same rules as govern charging natural persons apply. These rules require "a faithful and honest application of the Sentencing Guidelines" and an "individualized assessment of the extent to which particular charges fit the specific circumstances of the case, are consistent with the purposes of the Federal criminal code, and maximize the impact of Federal resources on crime." See USAM § 9-27.300. In making this determination, "it is appropriate that the attorney for the government consider, inter alia, such factors as the sentencing guideline range yielded by the charge, whether the penalty yielded by such sentencing range . . . is proportional to the seriousness of the defendant's conduct, and whether the charge achieves such purposes of the criminal law as punishment, protection of the public, specific and general deterrence, and rehabilitation." See Attorney General's Memorandum, dated October 12, 1993. |
XII. | Plea Agreements with Corporations |
A. | General Principle: In negotiating plea agreements with corporations, prosecutors should seek a plea to the most serious, readily provable offense charged. In addition, the terms of the plea agreement should contain appropriate provisions to ensure punishment, deterrence, rehabilitation, and compliance with the plea agreement in the corporate context. Although special circumstances may mandate a different conclusion, prosecutors generally should not agree to accept a corporate guilty plea in exchange for non-prosecution or dismissal of charges against individual officers and employees. | |
B. | Comment: Prosecutors may enter into plea agreements with
corporations for the same reasons and under the same constraints as apply
to plea agreements with natural persons. See USAM §§ 9-27.400-500.
This means, inter alia, that the corporation should be required to
plead to the most serious, readily provable offense charged. As is the
case with individuals, the attorney making this determination should do so
"on the basis of an individualized assessment of the extent to which
particular charges fit the specific circumstances of the case, are
consistent with the purposes of the federal criminal code, and maximize
the impact of federal resources on crime. In making this determination,
the attorney for the government consider, inter alia, such factors
as the sentencing guideline range yielded by the charge, whether the
penalty yielded by such sentencing range . . . is proportional to the
seriousness of the defendant's conduct, and whether the charge achieves
such purposes of the criminal law as punishment, protection of the public,
specific and general deterrence, and rehabilitation." See Attorney
General's Memorandum, dated October 12, 1993. In addition, any negotiated
departures from the Sentencing Guidelines must be justifiable under the
Guidelines and must be disclosed to the sentencing court. In addition,
corporations should be made to realize that pleading guilty to criminal
charges constitutes an admission of guilt and not merely a
resolution of an inconvenient distraction from its business. Thus, as with
natural persons, pleas should be structured so that the corporation may
not later "proclaim lack of culpability or even complete innocence."
See USAM §§ 9-27.420(b)(4), 9-27.440, 9-27.500. Thus, for instance,
there should be placed upon the record a sufficient factual basis for the
plea to prevent later corporate assertions of innocence.
A corporate plea agreement should also contain certain provisions that recognize the nature of the corporate "person" and ensure that the principles of punishment, deterrence, and rehabilitation are met. In the corporate context, punishment and deterrence are generally accomplished by substantial fines, mandatory restitution, and institution of appropriate compliance measures, including, if necessary, continued judicial oversight or the use of special masters. See U.S.S.G. §§ 8B1.1, 8C2.1, et seq. In addition, where the corporation is a government contractor, permanent or temporary debarment may be appropriate. Where the corporation was engaged in government contracting fraud, a prosecutor may not negotiate away an agency's right to debar or to list the corporate defendant. In negotiating a plea agreement, prosecutors should also consider the deterrent value of prosecutions of individuals within the corporation. Therefore, one factor that a prosecutor may consider in determining whether to enter into a plea agreement is whether the corporation is seeking immunity for its employees and officers or whether the corporation is willing to cooperate in the investigation of culpable individuals. Generally, prosecutors should rarely negotiate away individual criminal liability in a corporate plea. Rehabilitation, of course, requires that the corporation undertake to be law-abiding in the future. It is, therefore, appropriate to require the corporation, as a condition of probation, to implement a compliance program or to reform an existing one. As discussed above, prosecutors may consult with the appropriate state and federal agencies and components of the Justice Department to ensure that a proposed compliance program is adequate and meets industry standards and best practices. See section VII, supra. In plea agreements in which the corporation agrees to cooperate, the prosecutor should ensure that the cooperation is complete and truthful. To do so, the prosecutor may request that the corporation waive the attorney-client and work product privileges, make employees and agents available for debriefing, disclose the results of its internal investigation, file appropriate certified financial statements, agree to governmental or third-party audits, and take whatever other steps are necessary to ensure that the full scope of the corporate wrongdoing is disclosed and that the responsible culprits are identified and, if appropriate, prosecuted. See generally section VIII, supra. |
Footnotes
1. In addition, the Sentencing Guidelines reward voluntary
disclosure and cooperation with a reduction in the corporation's offense level.
See U.S.S.G. § 8C2.5(g).
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2. This waiver should ordinarily be limited to the factual
internal investigation and any contemporaneous advice given to the corporation
concerning the conduct at issue. Except in unusual circumstances, prosecutors
should not seek a waiver with respect to communications and work product related
to advice concerning the government's criminal investigation.
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3. Some states require corporations to pay the legal fees of
officers under investigation prior to a formal determination of their guilt.
Obviously, a corporation's compliance with governing law should not be
considered a failure to cooperate.
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4. Although this case and Basic Construction are both
antitrust cases, their reasoning applies to other criminal violations. In the
Hilton case, for instance, the Ninth Circuit noted that Sherman Act
violations are commercial offenses "usually motivated by a desire to enhance
profits," thus bringing the case within the normal rule that a "purpose to
benefit the corporation is necessary to bring the agent's acts within the scope
of his employment." 467 F.2d at 1006 & n.4. In addition, in United States
v. Automated Medical Laboratories, 770 F.2d 399, 406 n.5 (4th
Cir. 1985), the Fourth Circuit stated that Basic Construction states a
generally applicable rule on corporate criminal liability despite the fact that
it addresses violations of the antitrust rules."
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5. For a detailed review of these and other factors
concerning corporate compliance programs,see United States Sentencing
Commission, Guidelines Manual, § 8A1.2, comment. (n. 3(k)) (Nov. 1997).
See also U.S.S.G. § 8C2.5(f).
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6. For example, the Antitrust Division's amnesty policy
specifically requires that "[w]here possible, the corporation [make] restitution
to injured parties . . . ."
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