by Jennifer Arlen and Samuel W. Buell

The United States leads the rest of the world in successful corporate criminal enforcement actions against large multi-national firms, collecting enormous penalties and occupying center stage in the global enforcement arena. U.S. dominance draws its horsepower from two sources. The first, of course, is an extremely broad and easy-to-apply corporate liability rule, in the form of the respondeat superior doctrine. Under this rule, corporations are liable for all crimes committed by their employees in the scope of employment with some intent to benefit the firm. The second is the power granted to prosecutors to negotiate and settle cases, most often through deferred and non-prosecution agreements (DPAs and NPAs), by agreeing to reduce sanctions and to refrain from seeking conviction of firms that either discover and report crimes by their employees or fully cooperate by providing enforcers with the evidence needed to prove such offenses. Thus was born a system in which private business bears much of the cost of public enforcement, and in which—resource constraints aside—prosecutors are better able to police offenses committed in the uniquely opaque and complex setting of the large business firm.

This now familiar story oversimplifies how the U.S. system has enabled prosecutors to be so successful pursuing criminal cases against large corporations. An additional set of doctrines is vital to the success of the U.S. system of corporate criminal enforcement. Enforcement authorities cannot succeed without the ability to investigate complex corporate crimes by obtaining witness testimony, documents, and data. U.S. prosecutors have benefited greatly from their ability to shift the locus of investigation from the public to the private sector because, in the United States, in contrast to many other countries, a variety of laws—such as those governing self-incrimination, employee rights, legal privileges, and data privacy—enable private investigators to collect, and then provide to the government, evidence that government investigators could not so readily obtain themselves.

In a new paper, The Law of Corporate Investigations and the Global Expansion of Corporate Criminal Enforcement, we demonstrate how heavily the U.S. system of corporate criminal enforcement depends on these laws governing corporate investigations. Indeed, doctrines controlling investigative powers—which are deep-rooted in American law and were not developed with corporate enforcement in mind—may, as much as respondeat superior liability and DOJ enforcement policy, explain the successes of the U.S. system of corporate crime control.

The most substantial implication of this insight is that other legal systems, including in Europe, that are now pursuing expansion of corporate criminal liability and adoption of non-trial corporate resolutions designed to reward corporate self-reporting and cooperation may not benefit as much as the U.S. system has from shifting initial investigations to the private sector. Many countries have rules governing investigations that give prosecutors greater investigatory powers while impeding investigation by private actors. As we explore in detail in our paper, many countries, as compared to the United States:

• give prosecutors more power to compel self-incriminating statements from suspects at lower cost;
• grant employees far greater rights to resist employer demands to respond to investigative inquiries;
• limit companies’ ability to investigate under the cloak of legal privilege; and
• place burdensome restrictions on companies’ freedom to monitor employees and perform the intrusive processing of employee-created data and documents that is routine in large U.S. corporations.

Given these differences, it is unlikely that many other nations will readily match the results of U.S. enforcers simply by adopting broad liability rules combined with prosecutorial authority to enter into non-trial resolutions, including NPAs and DPAs. It may be necessary for other nations to consider other ways to enhance enforcement in light of the very different allocations of public and private investigative powers in their legal systems. Policy questions warranting these countries’ consideration include:

• whether their public enforcers are better positioned than companies to investigate, in which case effective enforcement requires providing the relevant public agencies with more resources, as opposed to relying primarily on private investigations;
• whether countries adopting DPAs should use them primarily to induce self-reporting, in which case they should grant less cooperation credit in the absence of self-reporting;
• whether some legal principles, such as the scope of attorney-client privilege, warrant modification in order to facilitate private investigation of corporate crime; and
• whether these countries should embrace laws that protect and reward whistleblowers who report crime to public authorities—regimes that, to date, have been less developed and more controversial abroad than in the United States.

As we discuss in our paper, this comparative inquiry into the law of corporate investigations also casts a revealing light back onto the U.S. system. First, it reveals limitations of the U.S. approach when used to induce corporate investigations overseas. Second, it encourages reflection on the appropriate scope of rights to be granted to individuals subject to public and private investigations, respectively. The modern corporate enforcement machine as a whole arose gradually out of the iterative practices of prosecutors, defense lawyers, and corporations, in the shadow of the Constitution’s broad grant of largely unreviewable enforcement discretion to the executive branch. Policy debate about improving corporate enforcement systems should work from a tripartite model that includes not only liability rules and settlement policies, but also the law controlling the gathering of the facts necessary to prove corporate crime.

Jennifer Arlen is the Norma Z. Paige Professor of Law and the Faculty Director of the Program on Corporate Compliance and Enforcement at New York University School of Law. Samuel W. Buell is the Bernard M. Fishman Professor at Duke University School of Law. This post is based on their recent article, “The Law of Corporate Investigations and the Global Expansion of Corporate Criminal Enforcement.”

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