In the February 19 edition of the New York Review of Books, federal judge Jed Rakoff of the southern district of New York reviews Brandon Garrett’s book, Too Big to Jail: How Prosecutors Compromise with Corporations.
Garrett is a professor at the University of Virginia law school. His book, published in November last year, explores how prosecutors now use deferred prosecution agreements to try to rehabilitate corporations. DPAs typcially require companies to “put systems in place to detect and prevent crime among its employees and, more broadly, to foster a culture of ethics and integrity inside the company.”
Garrett has studied every deferred prosecution agreement the DOJ has used in corporate prosecutions. (In a post for the FCPA Blog about the prosecution of foreign corporations, he said he assembled a database of over 1,000 publicly reported corporate guilty plea agreements from the past decade.)
Rakoff said Garrett’s book is important, “for both the wealth of detail he uses to support his conclusions, and the clarity of his prose.”
But the judge is no fan of DPAs. Garrett, he said, finds “that many, perhaps most such agreements, while often obscuring who was personally responsible for the company’s misconduct, fail to achieve meaningful structural or ethical reform within the company itself.”
Judge Rakoff also used the review to talk about the doctrine of respondeat superior. As we’ve said, nothing has influenced corporate FCPA enforcement more. Rakoff said:
Under federal law, corporations can be held criminally liable if even a low-level employee, in the course of his or her employment, commits a criminal act that benefits the corporation. One might think, therefore, that federal corporate prosecutions, whether deferred or otherwise, would typically be accompanied by prosecution of the responsible individuals. But more often than not, this has not been the case, especially when large companies are involved.
Despite respondeat superior, the DOJ often brings corporate prosecutions in which no employee is prosecuted. This is especially true when cases are resolved using deferred prosecutions agreements. Prof Garrett’s research shows that “in about two thirds of the cases involving deferred prosecution or non-prosecution agreements and public corporations, the company was punished but no employees were prosecuted.”
This enforcement pattern, according to Rakoff, shows that the DOJ “has been persuaded by its own rhetoric that the main point of these agreements is to change corporate culture, so that company employees of all levels will be dissuaded in the future from committing company-related crimes.” Rakoff, though, sees little evidence to back the idea that DPA’s alone cause big changes in corporate culture.
Judge Rakoff, 71, was nominated by President Bill Clinton to the federal bench. He has said before in the New York Review of Books that he’s against the DOJ’s apparent “too big to jail” approach.
From the bench, he refused to approve Citigroup’s 2011 settlement with the SEC. The bank had agreed to pay $285 million to settle a civil fraud case related to the sale of mortgage bonds during the housing boom. Judge Rakoff said that was pocket change for Citigroup. He also criticized the SEC’s decision to let Citigroup settle without an admission of wrongdoing.
But in 2014, a three-judge federal appeals panel overturned Rakoff. The appeals court said he “abused [his] discretion by applying an incorrect legal standard” of review.
Garrett argues in his book that tighter enforcement of deferred prosecution agreements can make them effective. But Judge Rakoff wonders if sending more guilty executives to prison might work better “than any compliance program in discouraging misconduct, at far less expense, and without the unwanted collateral consequences of punishing innocent employees and shareholders.”
Too Big to Jail: How Prosecutors Compromise with Corporations by Brandon L. Garrett is available from Amazon here.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
Well, it's not quite accurate to say the judge isn't showing Garrett the love, is it? More like Judge Rakoff isn't showing DOJ and its use of DPAs the love and, according to the judge, DOJ isn't deserving of the love in this case.
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