Judge, DOJ Official Spar Over Deterrence of Corporate Crime

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By Adrianne Appel

April 7 — The most effective deterrent to corporate crime is criminal prosecutions of individuals as high up the chain as possible, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York said April 7.

Criminally prosecuting corporations is not as effective, he said.

In fact, “it's a cop out,” Rakoff told Assistant Attorney General Leslie Caldwell, head of the Justice Department's Criminal Division, in a friendly but pointed debate at a Harvard Law School panel.

“For individuals, the stakes are prison and that has a huge deterrent effect,” Rakoff said.

Rakoff, an influential judge on securities and financial cases, has spoken frequently about the need for regulators to criminally prosecute more executives over corporate misdeeds.

DOJ Prosecutions

Caldwell, who has held her DOJ position since 2014 and oversees 600 criminal prosecutors nationwide, argued that there is value in prosecuting corporations.

“I don't agree that corporate prosecutions are not helpful,” Caldwell said. “Companies take the prospect of criminal prosecution seriously. They would much rather settle and get a deferred-prosecution or a non-prosecution agreement.”

Such agreements are not always possible because a company doesn't cooperate, in which case the DOJ prosecutes, Caldwell said. She added that corporate prosecutions are a small sliver of the work of her division.

Obstruct Justice

“There are companies that obstruct justice and that lie to us,” Caldwell continued. “There are companies that need a wake-up call.”

The DOJ is turning more of its attention to the prosecution of individuals who engage in corporate misconduct, as called for in a 2015 memo by Deputy Attorney General Sally Quillian Yates, Caldwell said .

“If the Yates memo has the desired effect, corporations will come in and supply the necessary information” to the DOJ, Caldwell said.

“In most cases, the preferred course is to prosecute individuals,” she added.

Difficult process

Individual prosecution of those high up in a company can be a difficult and lengthy process, Caldwell said. “It can be very difficult when someone is many, many layers away from the misconduct.”

“It's difficult but not that difficult,” Rakoff said. Citing his former experience as a federal prosecutor, the judge noted that all his former clients “feared prison to an immense degree.”

“Fines, restitution and compliance didn't bother them at all,” Rakoff said. “It was prison they feared; that's where the deterrence lay.”

“Prosecuting corporations is filled with downsides, including big fines that are paid by shareholders and employees who lose their jobs and a company that goes into the tank,” Rakoff continued. He pointed to Pfizer Corp. as an example of how ineffective it is to prosecute a corporation.

Rakoff noted that Pfizer had four successive dealings with the DOJ. Three were deferred prosecutions and the fourth was a guilty plea with a large fine. “On paper it looked great and yet they went and committed another crime,” he said.

To contact the reporter on this story: Adrianne Appel in Boston at aappel@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com