In Bush's America, Corporate Criminals Walk

It's nice to see the NYTimes pick up on the Department of Justice's shift toward the use of deferred prosecutions of corporations in large corporate crime cases. As far as I know, they are the first major media outlet to do so.

The lack of coverage is pretty pathetic, considering that the issue has been hotly debated among corporate crime experts for years. For example, by the end of 2005 Justice had given so many corporations this "get out of jail free" card that the Corporate Crime Reporter issued a major report on the issue.

Under the policy federal prosecutors agree to never prosecute a corporation for a major crime (e.g. bribery, accounting fraud etc.), so long as the company agrees to help the feds identify the culpable individuals inside the firm.

The use of deferred prosecutions was originally intended only for small cases, so that prosecutors could spend the bulk of their time going after the big fish.

When asked to explain the Justice Department's shift, the common response has been that they don't want to be responsible for "causing another Andersen."

This bogus line has been thrown around by virtually every important white collar crime lawyer, and it's totally misleading.

For one, after Andersen employees were caught shredding Enron's documents, the firm was actually offered a deferred prosecution agreement before the feds decided to prosecute. So the policy was already in place.

Plus, it's ridiculous to blame the feds for Andersen's demise. Enron was not the first case in which the auditors were caught aiding and abetting or, at a minimum, failing to catch the book-cookers. Before that were Waste Management and Sunbeam. After Enron, there was WorldCom - arguably an even more egregious case considering the fraud was larger and simpler (and presumably should have been easier for AA auditors to catch). An auditor's business is staked on its reputation for honesty and integrity. For its role in all of these and other cases, Andersen did itself in. Don't blame the feds for doing their job.

But the more important point here is not the explanation for DoJ's shift in policy, but the result: As Russell Mokhiber of the Corporate Crime Reporter puts it, there is a "good chance that the rise of these agreements has undermined the general deterrent and adverse publicity impact that results from corporate crime prosecutions and convictions."

In other words, one of the tools we have to preventing another big corporate crime on the scale of Enron is being gutted.

The response has been that instead of punishing an entire company (and thereby many innocent employees and shareholders who had nothing to do with the crime), the arrangements help the feds identify the specific culprits at fault and thereby protects so many innocent people from unjustifiable harm.

Okay, but then why is Congress poised to pass a new bill that could make it almost impossible for the feds to get at these culprits?

I'm referring to the benign sounding Attorney Client Privilege Protection Act (S. 183 and H.R. 3013), which should really be called the 2008 Corporate Criminals' Immunity from Prosecution Act, because it would allow corporate attorneys to withhold potentially incriminating evidence under the doctrine of attorney client privilege.

Someone needs to ask those pushing the bill exactly what deterrents will be left if it passes, and who these corporate attorneys are supposed to represent when they know of a crime -- the individuals who commit such crimes or the company and its shareholders?

I don't own more than a share here and a share there in certain companies (which lets me attend their annual meeting and give top executives hell now and then), but if I was a major shareholder or a fund manager, I'd be on the horn right now to tell my representatives that if they cosponsor or vote for this bill they won't ever get my vote again because they are effectively removing one of the key impediments to the next big Enron.