by Miriam Baer
Much has changed since Donald Trump was elected president in 2016, but the government’s primary method for dealing with corporate offenders remains the same: the government promises some degree of leniency in either charging or punishment in exchange for the corporate offender’s promise to improve the internal structures and systems that ensure its compliance with law.
Respondeat superior holds corporations strictly liable for the crimes their employees commit, provided those employees do so in the course of their employment and with a partial intention of benefitting the company. With corporate liability’s legal bar set so low, prosecutors could routinely file criminal charges against most corporations if they so desired. But this is not what they do. Instead, prosecutors employ charging policies that promise corporations varying degrees of leniency depending on their efforts to combat, deter, and disclose wrongdoing.
For a number of years, scholars have attempted to substantiate the efficacy of this approach.[1] Because white collar crime is itself elusive and difficult to measure, scholars have yet to draw conclusive lines between a particular leniency policy and the incidence and severity of corporate crime. Nevertheless, we do know that the compliance industry is far larger and more sophisticated today than it was two to three decades ago, and we know quite a bit about the psychology of compliance and economics of deterrence. We have a long way to go, however, in pinpointing the institutional characteristics that render some leniency programs more successful than others.
Sometimes, however, we get lucky. Back in late 2015 and early 2016, the Department of Justice unwittingly created something of a natural experiment. In the waning days of the Obama administration, it introduced two related but distinct enforcement policies.
The first of these policies, the so-called Yates Memo (the “Memo”), was released to great fanfare in September 2015 and later incorporated into the United States Attorney Manual (since renamed the Justice Manual). The Yates Memo warned corporate offenders that they would receive “no” credit whatsoever for their cooperation unless they disclosed “all” known employees who had engaged in violations of law. The Memo quite explicitly rejected any notion of partial credit.
The Memo was met with a decidedly mixed reception. Several observers doubted the Department would follow through on its threat, while others decried the Memo’s overly aggressive tone and its purported effect on the workplace. In the end, the skeptics were right. The Memo, whose stated purpose was to increase prosecution of corporate executives, created little change in the status quo.[2] By late 2018, the Department announced that it was substituting the Memo’s absolute demand that corporations disclose “all” evidence of employee wrongdoing; in its place, the government inserted the requirement that the cooperating corporation reveal all information regarding those who were “substantially involved or responsible for” violations of law. Following that announcement, the Memo effectively disappeared from public discourse.
Meanwhile, a few months after the Department rolled out the Yates Memo, its Fraud Section announced a pilot enforcement policy for corporate violations of the Foreign Corrupt Practices Act (the “FCPA”). Unlike the Yates Memo, the pilot program emphasized the positives of self-disclosure: corporations that self-disclosed foreign bribery violations to the Department’s Fraud Section would be eligible not only for a deferred prosecution agreement, but for a much more valuable declination of charges and substantial reductions in fines, provided they disclosed all pertinent information, disgorged the gains of their bribery violations, and met all other requirements.
Despite early criticisms regarding its implementation, the pilot program fared quite well, eventually becoming a permanent fixture of the government’s FCPA enforcement policy, and earning the Department’s promise to widen it even further beyond FCPA violations.
Both policies were released by the same administration during roughly the same period. One became quite popular, drawing bipartisan praise from prosecutors, white-collar defense attorneys and corporate compliance professionals. The other barely lasted more than a couple of seasons. Which design lessons can we draw from these contrasting results?
In my forthcoming chapter in the Cambridge Handbook of Compliance, Designing Corporate Leniency Programs, I argue that the pilot program had several elements in its favor, most of which were missing from the Yates Memo: the government’s FCPA leniency policy stressed a very valuable carrot (declination of charges and a reduction in fines), which in turn allowed corporate executives to see themselves as good corporate citizens. It empowered compliance professionals to portray internal corporate investigations as valuable investments that would allow companies to reap the benefits of self-disclosure. Finally, unlike the Yates Memo, whose dictates applied to all federal prosecutors, the FCPA policy was centralized within a relatively small component of the Department (the Fraud Section). The centralization of the policy, in turn, paved the way for greater trust between prosecutors and the corporate defense counsel who sought credit for disclosing their clients’ foreign bribery violations. Thus, it is not surprising that the enforcement program yielded a steady stream of self-reporting, which enabled the Department to focus its scarce resources on companies that failed to self-report. The program generated support and enjoyed longevity because it made enforcers and regulated actors alike feel like they were getting something of value.
This happy narrative, however, is not the end of the story. A program that garners the support of both prosecutors and corporate defense counsel can draw the general public’s ire if the leniency policy portrays an overly chummy relationship between the government enforcer and the corporate target. This is likely to remain an issue for prosecutors as they shape and develop their overall approach to corporate crime.
Finally, one of the aims of this Chapter is to illuminate the importance of two variables in the study of corporate leniency, namely, a program’s popularity and its corresponding longevity. The program that garners no support isn’t likely to survive very long, and the policy that disappears after a year or two will fall far short of its enforcement goals. Accordingly, policymakers would do well to consider these issues as they draft new leniency programs. Scholars, meanwhile, can enhance the study of compliance and corporate enforcement by examining the contrasting fates of programs promulgated in roughly the same time period.
Footnotes
[1] See, e.g., Mark A. Cohen & Cindy R. Alexander, The Evolution of Corporate Criminal Settlements: An Empirical Perspective on Non-Prosecution, Deferred Prosecution, and Plea Agreements, 52 AM. CRIM. L. REV. 537 (2015).
[2] See Brandon L. Garrett, Declining Corporate Prosecutions, 57 AM. CRIM. L. REV. 109 (2020); Nick Werle, Prosecuting Corporate Crime When Firms Are Too Big to Jail: Investigation, Deterrence and Judicial Review, 128 YALE L.J. 1366 (2019).
Miriam Baer is a Professor at Brooklyn Law School and an Associate Director of its Center for the Study of Business Law and Regulation. Professor Baer’s scholarship explores the intersections between corporate misconduct, white collar crime, and federal enforcement policy. She is an Adviser on the American Law Institute’s Principles of the Law of Compliance, Enforcement and Risk Management, and is a Senior Fellow at the Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School.
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