Question Time

Our readers aren’t shy, which is nice. When something’s on their mind, we hear about it (usually more than once). Like this question:

Aren’t you exaggerating the impact of respondeat superior on FCPA enforcement?

Not at all. Talking specifically about the FCPA, the DOJ said: Under U.S. law, corporate liability is not predicated upon authorization by a ‘superior’ or manager. A corporation is liable for the acts of its employees, of whatever rank, if they act within the scope of their duties and for the benefit of the corporation. Whether the corporate management condoned or condemned the employee’s conduct is irrelevant.

The U.S. Sentencing Commission said: An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.

The United States Attorneys Manual said: The existence of a corporate compliance program, even one that specifically prohibited the very conduct in question, does not absolve the corporation from criminal liability under the doctrine of respondeat superior. See United States v. Basic Constr. Co., 711 F.2d 570, 573 (4th Cir. 1983).

It’s all summed up in an amicus brief from U.S. v. Ionia Management, S.A., a Second Circuit case that mounted a serious but unsuccessful challenge to respondeat superior. Written by defense lawyer Andrew Weissmann, formerly the director of the DOJ’s Enron task force, it said:

A criminal indictment can be a life-or-death matter for a company. Yet, the vast sweep of the district court’s standard for the imposition of vicarious criminal liability makes corporations accountable for almost all criminal acts of any low level employees—even those acting against explicit instructions and in the face of the most robust corporate compliance program. This has caused a tremendous imbalance between the power of a prosecutor and a corporate defendant. Given the hair-trigger for corporate liability even for the most responsible corporate citizen, many corporations forego any defenses in order to resolve threatened prosecution. . . .

This imbalance and the problems it engenders are not theoretical. For example, one judge found that prosecutors violated the Constitution by causing KPMG to cut off attorneys’ fees to employees in the hope of obtaining a deferred prosecution agreement. . . . In another instance, as part of a deferred prosecution agreement, Bristol-Myers Squibb agreed to endow a professorship at Seton Hall University, the prosecutor’s alma mater.  . . . The potential for abuse is manifested as well in the then‑common requirement that corporations agree to broad waivers of attorney-client privilege as a factor to be considered for a deferred prosecution agreement.

The potential for inappropriate prosecutorial pressure is particularly heightened in the area of corporate criminal investigations that end in Draconian non-prosecution and deferred prosecution agreements, where no court has oversight authority. There, the prosecutor effectively serves as both judge and jury. Because of the disastrous consequences of a corporate indictment and the ease with which corporations may be liable under the doctrine of respondeat superior, corporations are under immense pressure to agree to almost any terms. The vast majority of these negotiations go on behind closed doors, with little public scrutiny and no judicial review. (citations omitted)

Would it even be possible for us to overstate the influence on FCPA enforcement actions of such a dogma?

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Our favorite question this week.

Dear FCPA Blog: I am responsible for the compilation of casebooks for the Master of Law Program for the Law Faculty of the University of Auckland, New Zealand (here). This year the Faculty is offering a course called “Fraud and White Collar Crime” taught by Professor John Farrar. Professor Farrar would like to include Here Comes The SFO, Part One from the FCPA Blog in our casebook/reader which is handed out exclusively to the students attending the class. We would like to ask you for copyright permission to do so.

We answered yes.