Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Tuesday
Jan202009

Satyam Boss Skimmed Cash, Paper Says

New allegations in the Satyam scandal could have major Foreign Corrupt Practices Act implications. A story in The New York Times by Heather Timmons on Sunday said Satyam Computer Services' founder and former chief, B. Ramalinga Raju, may have "skimmed huge amounts of cash from the company, rather than padding its books as he has claimed, a person involved in the investigation of the company said on Saturday."

Raju said in a confession to the company’s board two weeks ago that to inflate the balance sheet he forged bank records to show about $1 billion in fake deposits. But the person involved with the investigation in India, who hasn't been identified, says that Raju instead used 300 family-controlled companies to siphon as much as $1 billion in cash from Satyam.

If that's true, it's more likely money from the company went to officials in India and perhaps other countries. Satyam has government-linked customers for its outsourcing services around the globe. Payments to government officials or employees at government-linked enterprises could violate the FCPA's antibribery provisions.

Meanwhile, AFP reports that the Indian government has ordered a fraud investigation into Raju's "family-promoted Maytas Properties and Maytas Infrastructure, saying it suspected a link between these two companies and the scandal at Satyam." There have been other reports that Raju's family-owned companies might have received special preferences from authorities for infrastructure projects in India.

Raju is in an Indian jail pending a bail hearing on Thursday. He has said he didn't take any money from Satyam and never profited personally from his fraud.

U.S. authorities haven't commented yet on the case or any planned investigation.
.

Monday
Jan192009

Obama On Corruption

With his family ties to Kenya and Indonesia, and who can forget Chicago, Barak Obama should know plenty about public corruption -- and he does. The subject was clearly on his mind when he visited Kenya in 2006 (he's pictured left with his 83-year-old Kenyan grandmother).

A speech from that trip is now posted at wrageblog, a new antibribery compliance site from Alexandra Wrage. She's the founder of Trace International, the global non-profit group that conducts due diligence and stages compliance training. Few have done more for antibribery compliance than Alexandra. If anyone can give the blogosphere a good name, she can.

Getting back to Kenya -- it ranks a dismal 147th on the 2008 Corruption Perception Index, tied with Bangladesh, Russia and Syria. On the current Index of Economic Freedom, it's number 90, earning special condemnation for its weak rule of law: Lax property rights and extensive corruption hold down overall economic freedom. Corruption is perceived as pervasive, giving Kenya one of the world's worst scores in this vital area. Non-transparent trade regulations and customs inefficiency hurt overall trade freedom. As in many other Sub-Saharan African nations, Kenya's judiciary is underdeveloped and subject to the political whims of the executive.

No wonder, then, that when he spoke to a crowd at the University of Nairobi during his 2006 visit, then-Senator Obama didn't pull any punches. He warned that everything they've worked for, including their freedom, is threatened by corruption. From a talk covering the big themes of capitalism, bureaucracy, transparency and accountability, here's some of what he had to say:

Corruption is not a new problem. It’s not just a Kenyan problem, or an African problem. It’s a human problem, and it has existed in some form in almost every society. My own city of Chicago has been the home of some of the most corrupt local politics in American history, from patronage machines to questionable elections. In just the last year, our own U.S. Congress has seen a representative resign after taking bribes, and several others fall under investigation for using their public office for private gain.

But while corruption is a problem we all share, here in Kenya it is a crisis - a crisis that’s robbing an honest people of the opportunities they have fought for - the opportunity they deserve. . .

It is painfully obvious that corruption stifles development - it siphons off scarce resources that could improve infrastructure, bolster education systems, and strengthen public health. It stacks the deck so high against entrepreneurs that they cannot get their job-creating ideas off the ground. In fact, one recent survey showed that corruption in Kenya costs local firms 6% of their revenues, the difference between good-paying jobs in Kenya or somewhere else. And corruption also erodes the state from the inside out, sickening the justice system until there is no justice to be found, poisoning the police forces until their presence becomes a source of insecurity rather than comfort. . . .

In the end, if the people cannot trust their government to do the job for which it exists - to protect them and to promote their common welfare - all else is lost. And this is why the struggle against corruption is one of the great struggles of our time. . . .

We know that the temptation to take a bribe is greater when you’re not making enough on the job. And we also know that the more people there are on the government payroll, the more likely it is that someone will be encouraged to take a bribe. So if the government found ways to downsize the bureaucracy - to cut out the positions that aren’t necessary or useful - it could use the extra money to increase the salary of other government officials.

Of course, the best way to reduce bureaucracy and increase pay is to create more private sector jobs. And the way to create good jobs is when the rules of a society are transparent - when there’s a clear and advertised set of laws and regulations regarding how to start a business, what it takes to own property, how to go about getting a loan - there is less of a chance that some corrupt bureaucrat will make up his own rules that suit only his interests. Clarifying these rules and focusing resources on building a judicial system that can enforce them and resolve disputes should be a primary goal of any government suffering from corruption.

In addition, we know that the more information the public is provided, the easier it will be for your Kenyan brothers and sisters out in the villages to evaluate whether they are being treated fairly by their public servants or not. Wealth declarations do little good if no one can access them, and accountability in government spending is not possible if no one knows how much was available and allocated to a given project in the first place. . . .

An accountable, transparent government can break this cycle. When people are judged by merit, not connections, then the best and brightest can lead the country, people will work hard, and the entire economy will grow - everyone will benefit and more resources will be available for all, not just select groups. . . .

___________

And don't forget . . . the Securities Docket has information about a January 28, 2009, webcast on "game-changing developments in 2008 in the enforcement of the Foreign Corrupt Practices Act." The full scoop is here.
.

Sunday
Jan182009

A Sword That Heals

He explained his reason for hope this way: “We must develop and maintain the capacity to forgive. He who is devoid of the power to forgive is devoid of the power to love. There is some good in the worst of us and some evil in the best of us. When we discover this, we are less prone to hate our enemies.”

But he believed, as Gandhi did, that in matters of conscience the law of the majority has no place. And like Gandhi, he chose the path of nonviolence. Which is wonderful in theory but less attractive in the face of fire hoses and attack dogs, bullets and bombs. Yet he never wavered, sticking to his credo that nonviolence is "a powerful and just weapon which cuts without wounding and ennobles the man who wields it. It is a sword that heals."

Dr. King said he had the "audacity to believe" in dignity, equality, and freedom for everyone. This week, the man who'll be standing on the steps of the Capitol, repeating the oath of office, has some audacity of his own. He describes it this way:

It's the hope of slaves sitting around a fire singing freedom songs; the hope of immigrants setting out for distant shores; the hope of a young naval lieutenant bravely patrolling the Mekong Delta; the hope of a millworker's son who dares to defy the odds; the hope of a skinny kid with a funny name who believes that America has a place for him, too. Hope in the face of difficulty. Hope in the face of uncertainty. The audacity of hope!
The clock of destiny that Martin Luther King often spoke of will chime on Tuesday. And it will be a welcome sound.

________________

Back on our topic, the excellent Securities Docket has information about a January 28, 2009, webcast on "game-changing developments in 2008 in the enforcement of the Foreign Corrupt Practices Act." Check it out here.
.

Thursday
Jan152009

China Notebook

This is the first deep economic downturn most Chinese have experienced, so fear and anger are in the air. A Bloomberg report yesterday quoted an editor of a state-run magazine in the southwestern city of Chongqing as saying, “We’re entering the peak of mass incidents. In 2009, Chinese society may face more conflicts and clashes that will test even more the governing capabilities of all levels of the party and government.”

* * *
Even in prosperous times, corruption undermines governments. But add severe financial stress to the mix and people look for someone to blame. It's no surprise, then, that fighting corruption emerged as a top priority at the Chinese Communist Party's 17th National Congress this week in Beijing. “The principle that everyone is equal before the law must be enforced and no corrupt official should be able to escape punishment under the law," the official Xinhua News Agency reported, quoting a communiqué from the Party's internal anti-graft body, the Central Commission for Discipline Inspection.

* * *
China punished 4,960 officials above county-head level between November 2007 and November 2008 for involvement in corruption, bribery or other law-breaking activity, the communiqué trumpeted. Of those, 801 were prosecuted.

* * *
In May last year, the Sichuan earthquake killed about 100,000 people, including nearly 20,000 school children crushed in their classrooms. There were allegations then, denied by the government, that corrupt officials had allowed sub-par construction of school buildings. Then in September, in the afterglow of the Olympics, came news that Chinese milk and infant formula were contaminated with melamine, a chemical added to create fake levels of protein content. Nearly 300,000 kids became sick, many with kidney stones, and at least six infants died. Other product scandals last year involved tainted cough syrup, toys, seafood, toothpaste and dog food, among others. In July 2007, China executed the former top food and drug regulator for accepting nearly a million dollars in bribes in exchange for approving an antibiotic that killed at least ten people.

* * *
In the six months ended November 2008, there were more than 550 publicly-funded overseas trips. The authorities banned almost 4,000 Party and government officials from traveling abroad during the same period, and will crack down more in the year ahead, according to the above-mentioned communiqué said.

Last month we told about the three-week study tour to the U.S. by 23 officials from the eastern Chinese city of Wenzhou. In between beach days in Hawaii and sex shows in San Francisco, they spent just five days on government business. On the way to running up a bill of $94,000, the road-trippers crashed for two nights in $700 suites at the Sahara Hotel & Casino in Las Vegas.

* * *
This year's Wall Street Journal / Heritage Foundation Index of Economic Freedom ranks China 132nd (behind Indonesia and above Nepal). It says the country's corruption "is perceived as widespread. China ranks 72nd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. [The 2008 CPI is available here.] Corruption limits foreign direct investment and affects banking, finance, government procurement, and construction most severely, and there is a lack of independent investigative bodies and courts."

What country ranks first on the 2009 Index of Economic Freedom? Hong Kong, a Chinese Special Administrative Region with local rule. Corruption? It's "perceived as minimal. Hong Kong ranks 14th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007 [12th in the 2008 CPI], and foreign firms do not see corruption as an obstacle to investment."

* * *
Foreign Corrupt Practices Act enforcement actions in 2008 involving China included AGA Medical Corporation, Faro Technologies Inc., Shu Quan-Sheng and Siemens. Avon last year disclosed an internal investigation of its practices in China, and FCPA Opinion Procedure Release 08-03 also concerned the PRC.
.

Wednesday
Jan142009

Our Hollywood Minute

Let's not forget the Greens. They're the husband-and-wife movie producers arrested in December 2007 for violating the Foreign Corrupt Practices Act. Prosecutors allege they paid more than $1.8 million in bribes to a former governor of the Tourism Authority of Thailand in return for $14 million in contracts to stage the Bangkok Film Festival.

According to the docket at the Los Angeles federal criminal court, their trial is now set to start on April 21st. Gerald Green, 76, and his wife Patricia, 53 -- whose screen credits as producers include Rescue Dawn -- pleaded not guilty in October last year to all 21 counts of a superseding indictment. In addition to the FCPA charges, they face counts for money laundering, illegally transporting money-laundering proceeds, and filing false tax returns. The government has also filed a forfeiture action against some of their property, and the court has issued a restraining order that prevents them from disposing of those assets at least until the trial's outcome.

The Greens face up to five years in prison for each FCPA charge, up to 10-years for each tax count, and up to 20 years for the money-laundering charges.

And in yet anther sign of growing cross-border cooperation in the fight against public corruption, the Thai Department of Special Investigation has apparently been sharing potential evidence it collected with U.S. authorities. Pretrial maneuverings show that the Greens have tangled with prosecutors over "hundreds of documents written in the Thai language, which the plaintiff, United States of America, apparently received from the Kingdom of Thailand." The U.S. hasn't said yet which of those documents it intends to use at trial.

The Thai official at the center of the case against the Greens is reported to be Juthamas Siriwan, who headed the Tourism Authority of Thailand from 2001 to 2006 and was in charge of the film festival the Greens produced. She denies doing anything wrong and has threatened to sue anyone implicating her in the case. She resigned as deputy chair of Thailand's Puea Pandin (People's Power) Party soon after the Greens' arrest in December 2007.

Download the government's first superseding indictment here.

Download the parties' December 15, 2008 joint status memo here.
.

Tuesday
Jan132009

It's Another World At That Bank

Like everyone else, we're stunned by the news coming from the World Bank these days. First Satyam, then Wipro, and now Megasoft Consultants Ltd. All three Indian outsourcing companies have been banned from doing business with the Bank because they violated the fraud and corruption provisions of its procurement guidelines. Satyam's ban is eight years; Wipro's and Megasoft's are four years.

The three companies are obligated to comply with the Foreign Corrupt Practices Act. Satyam and Wipro are "issuers" and subject to the antibribery and accounting provisions; Megasoft Consultants is a "domestic concern" and subject to the antibribery provisions. Staffers at the World Bank are "foreign officials" under the FCPA, so giving or promising to give them anything of value to obtain or retain business with the Bank might be prohibited. All that is quite clear.

What's not clear at all is why the World Bank, an international public organization that advertises its global leadership in fighting corruption, didn't until now publish the names of companies and individuals that it has banned as suppliers. Despite the public's interest, the Bank only revealed the names on Sunday, after news groups and others protested the lack of transparency.

For its part, the Bank said its policy of keeping the bans secret "let it move more quickly," according to the Wall Street Journal. Now, though, it's listing 111 companies and individuals that it has banned, with some bans dating back to 1999. (Satyam and Wipro were banned in June 2007, and Megasoft in December 2007.) Most of the 111 bans are permanent, while others have a duration of up to 15 years.

So, will U.S. authorities investigate Satyam, Wipro, and Megasoft Consultants for violating the Foreign Corrupt Practices Act? What about the rest of the 111 companies and individuals named by the World Bank? And will staffers at the Bank itself ever be investigated by an outside agency for corruption as well?

How important is all this? Here's what the Bank has said about other people's corruption:

It undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends.The harmful effects of corruption are especially severe on the poor, who are hardest hit by economic decline, are most reliant on the provision of public services, and are least capable of paying the extra costs associated with bribery, fraud, and the misappropriation of economic privileges. Corruption sabotages policies and programs that aim to reduce poverty, so attacking corruption is critical to the achievement of the Bank's overarching mission of poverty reduction.
__________

Our colleague, Russ Stamets, is working through these cases from an Indian perspective and contributed to this post. (Russ holds a Master of Business Laws from the National Law School of India in Bangalore, making him one of the few Western lawyers with an advanced Indian law degree.) We'll be hearing more from him in the days to come.
.

Monday
Jan122009

Aon's New Path

A couple of months ago, guest-blogger Scott Moritz talked about risk-based compliance. His post, we now see, was prophetic. Why? Because just last week, when Aon settled an enforcement action with the U.K.'s Financial Services Authority, the real star of the show was . . . risk-based compliance.

The FSA's Final Notice described how both U.K.-based Aon Ltd and its U.S. parent, Aon Corporation, have improved the way they'll deal with intermediaries -- the group apparently responsible for Aon's problems in a number of countries. The Aon companies, the Final Notice said, have "designed and implemented a new global anti-corruption programme that includes a policy limiting the use of third parties. Aon Ltd has also implemented robust risk-based procedures that control and restrict the circumstances in which staff may make payments to Overseas Third Parties, particularly in high risk jurisdictions."

Aon's new compliance policy, according to the Final Notice, generally . . .

. . . prohibits the use of third parties whose only service to Aon is to assist in the obtaining and retaining of business solely through client introductions in countries where the risk of corrupt practices is anything other than low. These jurisdictions are defined by reference to an internationally accepted corruption perceptions index. Any use of third parties not prohibited by the policy must be reviewed and approved in accordance with global anti-corruption protocols. . . . In addition, Aon Ltd has implemented an enhanced comprehensive risk-based training regime for its staff.
How does risk-based compliance work? Guest-blogger Moritz said the concept is simple: certain customers, vendors, and intermediaries represent a higher compliance risk than others. Geography, nexus to government officials, business type, method of payment, dollar volume -- all are risk indicators. And he said the key to any risk-based approach is the strategic use of information technology -- tracking and sorting the critical elements, including risk-ranking, as well as enhanced due diligence and ongoing monitoring of high-risk parties proportionate to their risk profiles.

The benefits of risk-based compliance are clear. In places where risks are very low, compliance burdens can be reduced. Where risks are anything but low, compliance is stepped up one or more notches, to make sure nothing slips through. As we've often said, when there are more red flags around, the proper response is more compliance, not less. And that's what risk-based compliance is all about.
_________

And one more thing . . .

Take a look at Don Lee's amazing story from the January 12th edition of the LA Times about Avery Dennison's FCPA compliance problems in China. Shanghai bureau chief Lee seems to have gotten everyone to talk on the record. This is one of the best articles we've read in the mainstream press or anywhere else about the Foreign Corrupt Practices Act at ground level.
.

Sunday
Jan112009

Chasing Dirty Money

The Foreign Corrupt Practices Act may frighten business people everywhere, but it has never been a big concern for crooked overseas officials. That's because they can't be prosecuted under the FCPA, which is aimed exclusively at punishing those who pay them bribes. But the Justice Department may have found one way to help plug that gap.

Last week it filed a forfeiture action against bank accounts in Singapore held by Arafat "Koko" Rahman (pictured above), the son of Bangladesh's former prime minister, Khaleda Zia. The accounts allegedly hold nearly $3 million in bribe money that Siemens AG and China Harbor Engineering Company paid to Rahman and other Bangladeshi officials.

Siemens and three of its subsidiaries were penalized $800 million after pleading guilty last month to violating the Foreign Corrupt Practices Act. One of the subsidiaries, Siemens Bangladesh, admitted that from 2001 to 2006, it paid $5.3 million in bribes through purported business consultants to Rahman and other local officials in order to win a mobile telephone project.

The Justice Department says it has forfeiture jurisdiction over the money because the proceeds of foreign offenses such as bribery and extortion that flow through the United States are covered by U.S. money laundering laws. Some of the money that ended up with Rahman came from a U.S. bank account, according to the DOJ, and the bribes paid in U.S. dollars were sent through the U.S. financial system before landing in the Singapore accounts.

The Singapore government, meanwhile, has reportedly received an official U.S. request for the funds. And last month, the head of Bangladesh's Anti-Corruption Commission said Singapore authorities had already frozen $1.6 million belonging to Rahman.

Acting Assistant Attorney General Matthew Friedrich said the Justice Department will not only "prosecute companies and executives who violate the Foreign Corrupt Practices Act, we will also use our forfeiture laws to recapture the illicit facilitating payments often used in such schemes."

View the DOJ's January 9, 2009 release here.

For a discussion about why foreign officials who take bribes cannot be prosecuted under the FCPA, see our earlier post here.
.

Friday
Jan092009

Aon Pays £5.25 Million Corruption Fine

The U.K.'s Financial Services Authority said yesterday that it has fined Aon Ltd £5.25 million ($8.05 million) for failing to recognize and control the risks of overseas payments being used as bribes. The fine is the largest the FSA has levied for financial crimes. Aon Ltd is the principal U.K. subsidiary of Chicago-based Aon Corporation, the world's biggest insurance broker.

Aon Corporation disclosed in November 2007 an internal investigation into possible violations of the Foreign Corrupt Practices Act and non-U.S. anti-corruption laws. Aon said then in its Form 10-Q that it had self-reported the investigation to the Department of Justice, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. The U.S. investigations are still pending.

This is now the third case brought by U.K. authorities involving overseas bribery by U.K. companies. In September 2008, the Overseas Anti-Corruption Unit of the City of London Police said an employee of CBRN Team Ltd, a U.K. security consulting firm, and an official of Uganda, had pleaded guilty to bribery charges. The CBRN employee received a suspended sentence and the Ugandan official was sentenced to twelve months in jail. And in October last year, the U.K.'s Serious Fraud Office reached a £2.25 million civil settlement with construction firm Balfour Beatty plc for alleged unlawful accounting in connection with overseas "payment irregularities" which it self-reported.

Apparently to emphasize the new willingness of her agency and other U.K. authorities to prosecute overseas bribery, Margaret Cole, the FSA's director of enforcement, said:

The involvement of UK financial institutions in corrupt or potentially corrupt practices overseas undermines the integrity of the UK financial services sector. The FSA has an important role to play in the steps being taken by the UK to combat overseas bribery and corruption. We have worked closely with other law enforcement agencies in this case and will continue to take robust action focused on firms’ systems and controls in this area.
According to its website, the Financial Services Authority is an independent non-governmental body with statutory powers under the Financial Services and Markets Act 2000. It has a range of rule-making, investigatory and enforcement powers intended to "promote efficient, orderly and fair financial markets and help retail financial service consumers get a fair deal." The Treasury appoints its 12-member board.

Between January 2005 and September 2007, according to the FSA, Aon Ltd didn't properly assess or control the risks involved in its dealings with overseas firms and individuals who helped it win business. "As a result of Aon Ltd’s weak control environment, the firm made various suspicious payments, amounting to approximately US$7 million, to a number of overseas firms and individuals." The payments were made in Bahrain, Bangladesh, Bulgaria, Burma, Indonesia and Vietnam.

The FSA said Aon cooperated fully and agreed to settle early in the investigation, qualifying for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would have been £7.5 million.

View the FSA's January 8, 2009 release here.

Download the FSA's Final Notice (January 6, 2009) here.

View Aon's January 8, 2009 statement here.
.

Thursday
Jan082009

California Exec Pleads Guilty

The Justice Department has announced its first Foreign Corrupt Practices Act enforcement action of 2009. Mario Covino, 44, an Italian citizen living in Irvine, California, pleaded guilty in federal court in Santa Ana to a single count of conspiring to violate the FCPA by paying at least $1 million in bribes to foreign officials in several countries. He's cooperating in an ongoing federal investigation and waiting to be sentenced in July. He faces up to five years in prison.

The DOJ said Covino was formerly the worldwide sales director for an unidentified Rancho Santa Margarita-based company that designs and makes valves used in the oil, gas, nuclear, coal and power plant industries. The plea agreement refers to the company as an "unnamed co-conspirator." A report from the Associated Press said online business directories list Covino as having worked for Control Components Inc. The company, also known as CCI, hasn't commented. It is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

Covino acknowledged that he arranged for company employees and agents to pay about $1 million to employees at state-owned foreign enterprises from March 2003 through August 2007. He said his company made about $5 million in profits from the business obtained through the bribes. According to the plea agreement, some of the corrupt payments went to officials at Petrobras (Brazil), Dingzhou Power (China), Datang Power (China), China Petroleum, China Resources Power, China National Offshore Oil Company, PetroChina, Maharashtra State Electricity Board (India), KHNP (Korea), Petronas (Malaysia), Dolphin Energy (UAE) and Abu Dhabi Company for Oil Operations (UAE).

Covino also said he provided false and misleading responses during a 2004 internal audit of the company’s commission payments. And to obstruct the audit, he deleted and told others to delete emails that referred to corrupt payments.

Download the DOJ's January 8, 2009 release here.

Download Covino's plea agreement here.
.

Wednesday
Jan072009

What's Wrong With Corporate Criminal Liability?

Fiat's recent Foreign Corrupt Practices Act settlement brought this strong comment from Ellen Podgor at the White Collar Crime Prof Blog:

The deferred prosecution agreement is yet another instance of the company selling out individuals within the company. Now clearly if these individuals are going against company policy, and acting illegally - it is deserved. But having the larger entity being able to negotiate these agreements while individuals take the fall, raises issues as to whether power is being used against the less powerful.
Prof Podgor is among those who have argued for a good-faith defense for corporations. Instead of imposing on them what now amounts to strict liability for their employees' criminal acts, let companies show evidence that they tried to prevent the criminal activity. That way, organizations threatened with criminal prosecution might feel less compelled to rush into settlements with the DOJ that "sell out individuals within the company."

That's one way to redress the current imbalance of power between the government and corporate employees. But does it go far enough? How about ending the application of criminal laws against corporations entirely?

John Hasnas, an associate professor of business at the McDonough School of Business at Georgetown University, argues that it's unjust to punish companies for their employees' criminal misconduct. Corporations, he says, cannot be put in prison, so they're punished only with fines that are ultimately paid by the shareholders. That, he believes, makes no sense.

The defining characteristic of the modern publicly traded corporation, however, is the separation of ownership and control. In the publicly traded corporations that are often the targets of federal prosecutors, the shareholders who are the owners of the corporation do not control the actions of corporate employees. Thus, imposing criminal punishment on a corporation for the actions of its employees, rather than exclusively on the employees themselves, is actually punishing shareholders who are innocent of wrongdoing.
And beyond Prof Hasnas' concern about misplaced financial punishment, does corporate criminal liability actually shield some individuals from accountability? Do powerful people within corporations try to buy peace with prosecutors by having the company pay large fines and, worse still, deliver the scalps of their subordinates?

A good-faith defense, or even the end of corporate criminal liability, wouldn't prevent or impede the prosecution of white-collar criminals. The government would still have ample weapons to bring the crooks to justice. It just wouldn't have the overwhelming advantage handed to it when corporations sell out their employees.

It's not about giving anyone a free pass. It's about protecting the fragile rights of individuals against the massive combined firepower of corporations and the government. That means stopping companies from waiving the attorney–client privilege, handing over other people's private documents and data, cutting off support to employees for their legal defense, and firing those who don't cooperate with government investigations.
.

Tuesday
Jan062009

Above The Morals Of The Marketplace

Griffin Bell, who was serving as attorney general when the Foreign Corrupt Practices Act became law, died Monday at age 90. He was appointed by Jimmy Carter in January 1977 and stayed until August 1979. As the first attorney general after the Nixon and Ford years, he came to a Justice Department that was damaged and diminished. But Judge Bell was the right man for the job. His integrity -- wrapped in beautiful southern manners and simple eloquence -- earned respect from both sides of the aisle and throughout the country, and he brought the shine back to the DOJ.

Dan Slater's post in the Wall Street Journal's law blog about Griffin Bell's passing included this wonderful anecdote:
_________

In 2002, Bell gave this commencement speech at his alma mater, Mercer University’s law school. He said:

In 1835, a young Frenchman by the name of Alexis de Tocqueville came to this country to study our prison system. He stayed for two years and ended up writing Democracy in America, an epic study of our democratic system. He reached many conclusions, and two apply to you.

First, he said that almost every problem that arises in a democracy will eventually be resolved in the court system. This was true then and it is true now.

Second, he said that there was no aristocracy in America, but that the nearest approach to aristocracy was in the lawyer class. His thought was that lawyers occupy an unusual and favored position in our system.

So now that you are about to become aristocrats, I want to give you a short lecture on behavior. We have an ample supply of lawyers in our country, and some of the lawyers overlook the obligation to serve others. They also distort the privilege of practicing law by converting it into a mere occupation. I was taught in law school that a lawyer had ethical obligations well above the morals of the marketplace.
.