The interaction of corporate and individual liability in cases of corporate misconduct raises complex issues for prosecutors, management, and employees alike. Such issues, however, are generally discussed in connection with situations where corporate wrongdoing can be attributed to one or more individuals. Yet those “rogue employee” situations are neither the most difficult ones to address, nor the most frequent to arise.
More common, as evidenced by the numerous DPAs acknowledging wrongdoing entered into by corporate entities, and more problematic from a fairness standpoint, are situations where wrongdoing is instructed more or less overtly by senior management, and/or imbedded in a company’s business model and corporate culture, and implemented by lower level executives as part of their duties. The fairness issue stems from the pressure on both prosecutors and the company’s senior management to identify sanctionable individuals who may not be those ultimately responsible. And this problem is compounded in cross-border enforcement situations.
In the U.S., in the wake of the 2008 financial crisis, criminal enforcement policy post-Yates Memorandum is specifically oriented toward sanctioning individual wrongdoers, along with their corporate employers. Corporations are expected to provide evidence incriminating individual employees, and prosecutors often use mid-level “implementers” to target higher level executives. Corporations, on the other hand, have a strong incentive to charge implementing mid-level managers as part of their cooperation with the prosecutors, in order to obtain a negotiated resolution as well as to protect senior management. As a result, both parties have a common interest in charging the implementers, if only by default as far as the prosecution is concerned. This structural bias against individual mid-level implementers in corporate crime enforcement is deeply problematic in terms of justice.
Let’s consider the following, hardly uncommon, hypothetical situation. A European multinational is being investigated by the U.S. authorities for misconduct discreetly directed by its senior management and implemented by lower level managers. The company is invited to conduct an internal investigation and submits evidence incriminating individual implementers. The prosecutors indict those individuals while the company gets away with a DPA and a fine, and senior management with, at most, a few punitive dismissals.
Prosecutors’ traditional response to such criticism is that they “follow the evidence,” and are unable to charge those ultimately responsible for the misconduct for lack of sufficient evidence. This overlooks the facts that senior executives are in a better position than their subordinates to leave no trace of their instructions, and, most importantly, that they control the internal investigation that will serve as the primary basis for the individual prosecutions, especially when the misconduct takes place outside the U.S. If one adds that in many countries, U.S.-style internal investigations are a novel feature, that are often poorly understood by the employees they target and are hardly regulated, the potential for abuse is substantial. One frequent example is the tendency of corporate employers, if and when an investigated employee realizes that he or she needs “independent” legal representation, to provide one of its regular law firms as the employee’s counsel, without disclosing the obvious conflict of interest and while subjecting it to budgetary restrictions.
The notion often put forward that the employee can then choose to cooperate with a foreign prosecutor against his or her employer, and potentially in violation of his/her own domestic laws, which on top of that may not even incriminate the misconduct at stake, is unrealistic and somewhat disingenuous. The U.S. notion of cooperation is also a novelty in many jurisdictions, and generally does not guarantee non-prosecution.
Lastly, whistleblower protection and incentivization are much less developed in most countries than they are in the U.S. As a consequence, short of a resignation, any attempt by an employee to resist or denounce illegitimate management instructions is paradoxically turned against him or her, as proof of his or her sanctionable awareness of doing wrong.
So what can be done about this kafkaesque situation?
The first step is to recognize that scapegoating is a major issue, and an almost inevitable consequence of the current corporate crime enforcement system, especially in multi-jurisdictional proceedings that are increasingly the norm.
A second step would be a recognition of the principle that, if individuals are to be held accountable for corporate wrongdoing, they should be targeted at the right level, and without undue discrimination based on artificially managed evidence production.
Next is the need for prosecutors to be less reliant on internal corporate investigations, which they tend to be for practical reasons in complex cross-border cases, and even to assume that such investigations will inevitably be biased in favor of protecting senior management. In the Deutsche Bank Libor rigging case, despite her ultimate validation of the DOJ’s convictions, U.S. District Judge Colleen McMahon criticized the DOJ for outsourcing the investigation to the bank, which compelled employees to undergo questioning, and for then conducting its own “investigation” into targeted employees based on the foundation constructed for it by the bank and its lawyers. (United States v. Connolly, No. 16 Cr. 0370 (CM), slip op. (S.D.N.Y. May 2, 2019)).
Finally, until legal and ethical rules about internal investigations and non-trial resolutions are strengthened and at least somewhat harmonized internationally to avoid conflicts of interests—such as by implicating the Board when the executive management is involved in the wrongdoing—U.S. prosecutors and courts should afford individual defendants the right to challenge their indictments as well as corporate resolutions that are based on improperly conducted internal investigations.
Laurent Cohen-Tanugi is a member of the Paris and New York Bars, and the Founder and Managing Partner of Cohen-Tanugi Avocats.
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