Category Archives: Corporate Criminal Liability

Corporate Executives and Criminal Justice Reform

By Amy J. Sepinwall

On September 19, Senator Chuck Grassley (R-IA) issued a press release stating that the bipartisan authors of a 2015 landmark criminal justice reform bill were preparing to reintroduce that legislation. The Sentencing Reform and Corrections Act of 2015, to which Sen. Grassley will grant new life, was part of a widespread effort at criminal justice reform that appeared to have died with the 2016 election. A centerpiece of the effort would have clarified and enhanced the mens rea (or mental state) necessary for conviction: in the House version, a defendant could be convicted only if she knew she was engaged in criminal activity; the Senate version was even more defendant-friendly, requiring willful participation.

Criminal justice reform has a laudable overarching ambition—to reduce sentences and incarceration rates, especially for minor drug and firearms offenses. As Yale Law Professor Gideon Yaffe writes, this would benefit “those who are especially ill-treated by the criminal justice system: the poor and racial minorities.” But these efforts are being championed by some unusual suspects: Republican members of Congress, who don’t ordinarily vie for more leniency when it comes to street crime, and the Koch brothers, who also are not usually poster boys for the plight of the underclass, who are over-represented in criminal prosecutions, convictions and America’s prisons. Continue reading

Deputy Attorney General Rod Rosenstein Keynote Address on Corporate Enforcement Policy

by Rod J. Rosenstein

NYU Program on Corporate Compliance & Enforcement Keynote AddressOctober 6, 2017

Thank you, Dean Morrison.  I appreciate your thoughtful introduction.  I am honored to be here with so many distinguished enforcement officials, corporate practitioners, and scholars from around the world.

One of my favorite management parables is about a child who watches her mother prepare a roast beef.  The mother cuts the ends off the roast before she puts it in the oven.  The child asks why. The mother says that she learned it from her mother. So the child asks her grandmother. The grandmother explains, “When your mother was a child, I cut the ends off because my pan was too small to fit the whole roast beef.”

The moral of the story is that the solutions of the past are not necessarily the right solutions today.  Circumstances change.  We should not blindly accept past practices.  We should be conscientious about reconsidering our assumptions. Continue reading

CFTC Non-Pros Agreements with Citibank Traders Reflects Implementation of New Cooperation Advisories

by Aitan Goelman

On January 19, 2017, the CFTC Enforcement Division issued new advisories outlining the factors that the Division would consider in evaluating cooperation by individuals and companies.  Intended to underscore the high value the Division placed on cooperation, these advisories were issued on the same day that the Commission announced a $25 million fine against Citigroup Global Markets, Inc., (“Citi”) for violating the CEA’s anti-spoofing provisions.  The accompanying Order included a discussion of Citi’s cooperation and its impact on the terms of the settlement.  On March 30, 2017, the Commission announced settlements with two former Citi traders, including the former desk head, for the same misconduct.  These settlements included significant fines and market bans. Continue reading

British Prosecutors Criminally Charge Global Bank and Former Top Executives

by John Savarese and Noah B. Yavitz

Earlier this week, the United Kingdom’s Serious Fraud Office (“SFO”) charged Barclays, its former CEO, and three other former top executives with criminal fraud.  The prosecution stems from a long-running inquiry into whether Barclays failed to adequately disclose 322 million paid to Qatari investors in late 2008, during a period when the bank received billions in funding from affiliates of the Qatari government.  Investigators reportedly examined whether Barclays and its former executives arranged for portions of the payments to be funneled into the Qatari bailout, in violation of British law.  Despite this novel action, market reaction was muted, with Barclays’ shares trading in line with other U.K. banks. Continue reading

Fighting Hindsight Bias in White-Collar Investigations

by Nicolas Bourtin

Hindsight is 20-20. Ask any quarterback, risk manager, or meteorologist. What happened in the past often seems to have been inevitable—and eminently predictable.

This is more than folk wisdom. Decades of psychological research have proven the universal tendency not only to look for evidence to confirm a conclusion you have already reached, but also to greatly overestimate how foreseeable an outcome was once you know that the outcome has taken place. The effects of this phenomenon—known by psychologists as hindsight bias—are particularly significant in criminal investigations and in white collar investigations most of all. The problem is not insoluble, but solving it requires a broader awareness of hindsight bias, a greater understanding of the depth and dimensions of the issue among the white collar community, and consideration of the range of potential solutions. Continue reading

A “Wells Fargo” Briefing for the Audit Committee

by Michael W. Peregrine

The Board’s audit committee is well advised to receive an update on the risk and compliance lessons from the recent Wells Fargo sales practices controversy. The general counsel, teaming with the chief risk & compliance officer, would be well suited to deliver this update. As well-chronicled in the recently released special investigative report (“Report”), the “20/20” lessons from the controversy transcend the financial services industry, to offer value to corporate boards across industry sectors. These lessons demonstrate how matters of organizational structure, corporate culture, and risk identification and reporting can coalesce in undisciplined circumstances to create significant corporate exposure. In several respects, these lessons prompt comparisons to the conclusions reached by investigative counsel in the GM ignition switch controversy of 2014. This comparison may help underscore the basic risk oversight message to the audit committee; i.e., that these issues have arisen in several of the largest U.S. companies and may arise again without proper supervision. Continue reading

An Alternative to Clawbacks: William Dudley’s 2014 Proposal for Deferred Compensation at Financial Institutions

by Carmi Schickler

In the wake of its fraudulent account scandal, Wells Fargo announced in April 2017 that it would claw back additional compensation from former CEO John Stumpf and former head of community banking Carrie Tolstedt. All told, the total amount of clawed back compensation at Wells Fargo has now reached $180 million.

However, such clawbacks remain the exception rather than the norm. Unlike most financial firms, Wells Fargo has a particularly powerful clawback policy on its books. Furthermore, the Wells Fargo clawbacks only occurred almost three years after the Board of Directors became aware of the malfeasance, and only in response to intense shareholder pressure against the Board of Directors.

As John Coffee and others have pointed out, extreme incentive compensation has led to many of the financial industry scandals that we have seen in recent years. Even the possibility of clawbacks does not seem to be changing the corporate culture in large financial institutions. As a result, it may be time to reconsider a stronger alternative to clawbacks: more widespread use of deferred compensation. Continue reading

Do Heads Roll? An Empirical Analysis of CEO Turnover and Pay When the Corporation is Federally Prosecuted

by Brandon L. Garrett, Nan Li, and Shivaram Rajgopal

A company facing charges will present a “Chicken Little routine” describing the dire consequences of a prosecution for the company, then-U.S. Attorney for the Southern District of New York Preet Bharara famously explained.  Yet typically, after settling the criminal case, “the sky does not fall.”  Instead, Bharara maintained, all too often “the sky brightens,” the firm is seen as having put its problems behind it, and “the CEO even gets a raise.” Other commentators have been skeptical that prosecutions of a company alter behavior of high-level officers such as CEOs. To be sure, sometimes the CEO appears to be affected by a possible prosecution of the company.  The CEO of Wells Fargo recently stepped down before any criminal prosecution was initiated, after civil enforcement and high-profile Congressional hearings brought public attention to bear on unlawful sales tactics the bank used. Perhaps the  culture of not taking responsibility at the top is changing.  Or perhaps cases like that of the Wells Fargo CEO are salient examples only because it is so rare that a CEO is made accountable, in some measure, for corporate crimes. Continue reading

UK Criminal Finances Act 2017

by Karolos Seeger, Alex ParkerAndrew LeeCeri Chave, and Ed Pearson


On 27 April 2017, the Criminal Finances Act 2017 (the “Act”) received Royal Assent. The Act has not yet come into force, but it is expected that this will take place by September 2017. It includes several provisions that will significantly affect the investigation and enforcement of corporate crime in the United Kingdom. The key features of the Act are: Continue reading

DeCoster v. United States: Testing the Limits of the Responsible Corporate Officer Doctrine

by Jason Driscoll
This post is the first part of a multi-part post by the author.

Over the last decade, the Food and Drug Administration and the Department of Justice have revived the use of the Responsible Corporate Officer (“RCO”) doctrine in an attempt to increase compliance with the Food, Drug, and Cosmetic Act (“FDCA”). Two recent cases—United States v. Purdue Frederick Co.[1] and United States v. Quality Egg, LLC[2]—illustrate the regulators’ new approach: impose strict criminal liability on individual corporate officers and seek enhanced sanctions in the name of effective deterrence. However, while the Supreme Court has upheld criminal fines premised on the RCO doctrine,[3] the Court has not yet opined on the legality of more serious penalties such as long-term debarment or imprisonment. The Court now has that opportunity. In DeCoster v. United States,[4] the Quality Egg defendants (Jack and Peter DeCoster) have filed cert. petitions asking the Court to review the lawfulness of their prison sentences and the RCO doctrine altogether. For anyone concerned about the expanding scope of corporate officer liability, this case could mark a turning point. Continue reading