On March 11, 2010, several key government officials convened at the U.S. Courthouse in Manhattan to publically discuss standards for corporate criminal liability, including Denis J. McInerney, the Chief of the Fraud Section of the Department of Justice (DOJ) and Preet Bharara, the United States Attorney for the Southern District of New York. They discussed not only current DOJ policy, but also the future of corporate criminal prosecutions.
According to Mr. McInerney, the principles of corporate criminal prosecution have not fundamentally changed since the 1999 Holder memorandum setting internal DOJ policy on the matter. That document, and subsequent iterations, required prosecutors to weigh several factors when deciding how to treat corporate targets, including the seriousness of the accusation, the corporate awareness of wrongdoing, the corporate history of misconduct, the apparent willingness to cooperate (including the timing of self-disclosure), the effectiveness of any existing compliance program, remedial efforts taken, collateral consequences to those without personal liability, the adequacy of prosecution of individual wrongdoers and the adequacy of civil or alternate remedies.
Some of these factors suggest that DOJ may have relied in the past on whistleblowers and good corporate actors. Mr. McInerney and Mr. Bharara made it clear that, in the future, DOJ is going hunting.
Corporations harboring wrongdoers in their employ—knowingly or unknowingly—no longer can wait for facts to surface before taking action. Mr. McInerney promised that the Fraud Section will be more proactive than in the past, using such tools as undercover operators, wire taps and asset seizures to chase down lawbreakers within corporate America. Mr. Bharara suggested that his Office has greater power to prosecute corporations than many may realize—even the actions of a low-level employee of a company with a robust compliance program can theoretically be imputed to the corporation. Mr. McInerney gave some indication where that power may be used. In particular, corporations involved in some aspect of the recent financial crisis will be scrutinized, particularly if they have some connection to loan origination fraud or predatory lending, or if they accepted TARP funds. Other industries, such as the defense industry, have already seen aggressive investigation tactics.
DOJ is not, however, threatening indiscriminate war against corporate entities. To the contrary, Mr. McInerney highlighted areas of flexibility for those corporations that come forward with facts about wrongdoing in their ranks and that make sincere efforts to cooperate with prosecutors. He noted the increased use of deferred prosecution and non-prosecution agreements and such arrangements as monitorships for cooperating corporations. Mr. Bharara proposed increased use of his civil attorneys to settle appropriate corporate matters in a non-criminal context.
Such leniency will be available, of course, only to those corporations that are themselves proactive enough to investigate, discover and control acts of misconduct among their employees. A strong compliance program and ongoing education is key to discovering fraud and other corporate crime. If any wrongdoing comes to light it will be crucial to act quickly and thoroughly to uncover all the facts and evaluate the situation. If indeed facts arise that warrant reporting to DOJ, the corporation must protect itself by knowing how similarly-situated entities were treated in the past.
For more information, please contact John J. Carney ( or 212.589.4255), George A. Stamboulidis ( or 212.589.4211) or Dennis O. Cohen ( or 212.589.4288). We hope you find this information helpful.
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