A new approach to corporate criminal liability

American Criminal Law Review

Volumn 44, Issue 4, 2007, Pages 1319-1342

  Weissmann, Andrew ^a  

^a New York Office of Jenner and Block LLP

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EID: 38549128274     PISSN: 01640364     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (78)

1. Remarkably, the Supreme Court has yet to address the appropriate standard for criminal corporate liability. The prevailing standard is one that has been widely accepted by federal appellate court. See, e.g., In re Hellenic, Inc., 252 F.3d 391, 395 (5th Cir. 2001) ("An agent's knowledge is imputed to the corporation where the agent is acting within the scope of his authority and where the knowledge relates to matters within the scope of that authority."); United States v. 7326 Highway 45 N., 965 F.2d 311, 316 (7th Cir. 1992) (holding agent's culpability and knowledge may only be imputed to the corporation where agent was acting as authorized and motivated at least in part by an "intent to benefit the corporation") (citing United States v. Cincotta, 689 F.2d 238,241-42 (1st Cir. 1982)).
2. See United States v. Basic Construction Co., 711 F.2d 570, 573 (4th Cir. 1983) ("[A] corporation may be held criminally responsible for antitrust violations committed by its employees... even if, as in Hilton Hotels and American Radiator, such acts were against corporate policy or express instructions."); United States v. Hilton Hotels Corp., 467 F.2d 1000, 1004-07 (9th Cir. 1972); United States v. Am. Radiator & Standard Sanitary Corp., 433 F.2d 174, 204-05 (3d Cir. 1970).
3. See, e.g., United States v. Twentieth Century Fox Film Corp., 882 F.2d 656, 660 (2d Cir. 1989) ("We agree with the District Court that Fox's compliance program, however extensive, does not immunize the corporation from liability when its employees, acting within the scope of their authority, fail to comply with the law and the consent decree.").
4. See, e.g., Hiltori Hotels, 467 F.2d 1000; American Radiator, 433 F.2d 174.
5. In accordance with traditional agency law principles, the scope of employment is the agent's apparent, not actual, authority within the corporation. See Joel M. Androphy et al., General Corporate Criminal Liability, 60 TEX. B.J. 121, 121-22 (1997) (discussing role of apparent authority in corporate criminal prosecutions). Remarkably, this means that liability flows to the corporation for purposes of criminal law even if the corporation has not in fact authorized the agent, so long as a third party believed the agent had apparent authority. See, e.g., Meyers v. Bennett Law Offices, 238 F.3d 1068, 1073 (9th Cir. 2001) (upholding liability on the basis of apparent authority in the eyes of a third party); United States v. Inv. Enters., Inc., 10 F.3d 263, 266 (5th Cir. 1993) ("[A] corporation is criminally liable for the unlawful acts of its agents, provided that the conduct is within the scope of the agent's authority, whether actual or apparent."); United States v. Portac, Inc., 869 F.2d 1288, 1293 (9th Cir. 1989) (affirming conviction of company based upon illegal actions of agent told by supervisors not to violate the law).
6. Hyewan Han & Nelson Wagner, Twentieth Survey of White-Collar Crime: Corporate Criminal Liability, 44 AM. CRIM. L. REV. 337, 342-43 (2007) (citing as examples Cox v. Adm'r U.S. Steel & Carnegie, 17 F.3d 1386, 1404 (11th Cir. 1994); United States v. Automated Med. Labs., Inc., 770 F.2d 399, 407 (4th Cir. 1985); and United States v. Bainbridge Mgmt., L.P., Nos. 01 CR 469-1, 01 CR 469-6, 2002 WL 31006135 at *4 (N.D. Ill. Sept. 5, 2002)).
7. Corporate criminal liability has been predicated on the actions of low-level employees, including salespeople, manual laborers, truck drivers, and clerical workers. E.g., United States v. Dye Construction Co., 510 F.2d 78,82 (10th Cir. 1975) (superintendent, foreman, and backhoe operator); Tex.-Okla. Express, Inc. v. United States, 429 F.2d 100,102 (10th Cir. 1970) (truck driver); Riss & Co. v. United States, 262 F.2d 245, 250 (8th Cir. 1958) (clerical worker); United States v. George F. Fish, Inc., 154 F.2d 798, 801 (2d Cir. 1946) (salesman).
8. See, e.g., supra note 3.
9. See Arthur Andersen LLP v. United States, No. H-02-121 (S.D. Tex. 2002) (instructing jury that it need not unanimously agree on the same Andersen employee having committed obstruction of justice so long as each juror agreed that an employee obstructed justice), aff'd, 374 F.3d 281, 291 n.8 (5th Cir. 2004), rev'd on other grounds, 544 U.S. 696 (2005); United States v. Bank of New Eng., N.A., 821 F.2d 844, 856 (1st Cir. 1987) (applying collective knowledge to criminal corporate liability); United States v. Shortt Accountancy Group Corp., 785 F.2d 1448, 1454 (9th Cir. 1986); Steere Tank Lines, Inc. v. United States, 330 F.2d 719, 724 (5th Cir. 1963); United States v. T.I.M.E.-D.C., Inc., 381 F. Supp. 730, 738 (W.D. Va. 1974). See generally Brent Fisse, Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions, 56 S. CAL. L. REV. 1141, 1189-90 (1983) ("A different approach to mens rea is to construct a composite mens rea from knowledge possessed by various personnel."); Stacey Neumann Vu, Note, Corporate Criminal Liability: Patchwork Verdicts and the Problem of Locating a Guilty Agent, 104 COLUM. L. REV. 459 (2004) (arguing in favor of Andersen district court jury charge).
10. See United States v. Stein, 435 F. Supp. 2d 330, 381-82 (S.D.N.Y. 2006) (finding attorneys' fee provision of the DOI Thompson Memorandum unconstitutional, noting enormous power of government to coerce KPMG to adopt policies advocated by the government to avoid prosecution).
11. Typically, commentators argue that the demise of Andersen led prosecutors to be more wary of charging corporations, thus leading to an increase in deferred prosecution agreements. See, e.g.. Benjamin M. Greenblum, Note, What Happens to a Prosecution Deferred? Judicial Oversight of Corporate Deferred Prosecution Agreements, 105 COLUM. L. REV. 1863, 1875 & n.86 (2005). That analysis is incomplete, however, because it ignores the fact that Andersen had been offered and rejected a deferred prosecution agreement. Although prosecutors may be less willing after Andersen to indict a large corporation due to perceived collateral consequences and attendant adverse publicity, ironically the reason that corporations are willing to enter into deferred prosecution agreements is because of the belief that a prosecutor is willing to indict even the largest of companies, and the consequences that are believed by corporate management to flow from a corporate indictment.
12. See Stein, 435 F. Supp. 2d at 381-82 (finding coercive power of government over KPMG's policies was so great that KPMG's actions could be considered state action).
13. See, e.g., Interview with David Pitofsky, 19 CORP. CRIME REP. 46, Nov. 28, 2005, at 14-15 (former federal prosecutor in charge of the Computer Associates prosecution stating, "As of now, prosecutors have immense leverage because conviction can be a corporate death sentence, and they don't want to lose that leverage.... One of the problems with the process of negotiating a deferred prosecution agreement is that it is not really a negotiation. Any push back by the company on a provision that the government requests is not only going to be shot down, but the government may see it as a reflection that the company's claimed contrition is not genuine."); Joshua R. Hochberg, The Costs, Benefits, and Risks of Deferred Prosecution Agreements, WHITE COLLAR CRIME 2006, at 1-2 ("Recent deferred prosecution agreements reflect the government's improved bargaining strength in negotiating corporate settlements. In this era of intense scrutiny of corporate wrongdoing, the government has the ability to impose sometimes onerous settlement terms on companies seeking to avoid criminal prosecution.").
14. The Enron Task Force, established in January 2002 by the Department of Justice (DOJ) to investigate all crimes relating to the collapse of Enron in the winter of 2001, has not been shy to pursue investigations against financial institutions that engaged in criminal transactions with Enron. Notably, it passed on the criminal pursuit of Citigroup and JPMorgan Chase, leaving the field open to state prosecutors. See, e.g., Kurt Eichenwald, Merrill Reaches Deal with U.S. in Enron Affair, N.Y. TIMES, Sept. 18, 2003, at A1 (outlining Merrill Lynch's deal to avoid prosecution in the wake of the Enron scandal); Kurt Eichenwald, Canadian Bank Will Pay Fine and Drop Unit in Enron Accord, N.Y. TIMES, Dec. 23, 2003, at C1 (detailing the Canadian Imperial Bank's deal with prosecutors concerning its role in the Enron scandal).
15. See Editorial, Enron's Friends in Need, N.Y. TIMES, July 31, 2003, at A24 ("Robert Morgenthau, the Manhattan district attorney, said that he could not prove a criminal case because it would have been hard to demonstrate that any individual banker had acted with intent to commit fraud. Moreover, many of the transactions between the banks and Enron were technically legal."); Kurt Eichenwald & Riva D. Atlas, 2 Banks Settle Accusations They Aided in Enron Fraud, N.Y. TIMES, July 29, 2003, at A1 (reporting deals made with JP Morgan Chase and Citigroup made to "settle accusations that they aided Enron in misrepresenting its true financial condition for years before the company collapsed").
16. Examples of corporate acquiescence to terms that go well beyond what would appear to be justified by the alleged criminal conduct are starting to abound in the post-Enron era. For instance, in the deferred prosecution agreement between the government and the New York Racing Association, Inc. (NYRA), the government required NYRA to either install slot machines itself or make "commercially reasonable" efforts to subcontract the work. The slot machine revenues were expected to fund court-mandated improvements in public education. Thus, by conditioning dismissal of the indictment on installing slot machines, the agreement went beyond reforming NYRA and implemented state public policy. Crime Without Conviction: The Rise of Deferred and Non Prosecution Agreements, CORP. CRIME REP., Dec. 28, 2005, http://www.corporatecrimereporter.com/ deferredreport.htm (summarizing the NYRA deferred prosecution at paragraph 10). For examples of other deferred prosecution agreements, see generally id. (summarizing Bristol-Myers Squibb deferred prosecution agreement); Interview of Mary Jo White, 19 CORP. CRIME REP. 48, Dec. 12, 2005 at 14-15 (reporting that prosecutor in Bristol-Myers Squibb case insisted on corporate sponsorship of endowed chair at his alma mater); Interview of David Pitofsky, supra note 13 (reporting that Oklahoma WorldCom prosecutor sought additional jobs in exchange for deferred prosecution agreement).
17. See generally Developments in the Law-Corporate Crime: Regulating Corporate Behavior Through Criminal Sanction, 92 HARV. L. REV. 1227, 1235 & n.16 (summarizing goals of criminal law); KATHLEEN F. BRICKEY, CORPORATE CRIMINAL LIABILITY §2 (Clark Boardman Callaghan 2d ed. 1992) (providing general background on the evolution of corporate criminal liability); RICHARD S. GRÜNER, CORPORATE CRIME AND SENTENCING § 2.3.6 n. 121 (The Michie Company 1994) (stating that as a general matter "[f]ederal law identifies offender reform and the specific deterrence of offenders as primary goals of criminal sentences for offenders including corporations"); Albert W. Alschuler, Comment, Ancient Law and the Punishment of Corporations: Of Frankpledge and Deodand, 71 B.U. L. REV. 307, 312 (1991) (positing retributive justification for corporate criminal liability). Restitution to victims of crime has also been identified as a purpose of criminal sentencing. Congressional statutes and the U.S. Sentencing Guidelines both provide for restitution. See 18 U.S.C. § 3553(a)(7) (2003) (listing restitution as one of seven factors with respect to determining a particular sentence); 18 U.S.C. § 3663 (2000 & Supp. 2006) (describing restitution provisions); U.S. SENTENCING GUIDELINES MANUAL §§ 5B1.3, 5D1.3 (2005) (specifying restitution as a mandatory condition of probation and supervised release). Restitution, of course, is a goal of sentencing only if there is a criminal violation. An effective corporate compliance program can assure that restitution is given to victims of corporate crime.
18. Commentators opposed to criminal corporate liability at times resort to theories within the framework of existing criminal law concepts, a practice that is not particularly useful. See Charles J. Walsh & Alissa Pyrich, Corporate Compliance Programs as a Defense to Criminal Liability: Can a Corporation Save Its Soul?, 46 RUTGERS L. REV. 605, at 689 (arguing that criminal liability should involve an examination of the "corporate consciousness" to determine if the employee's conduct is consistent with the corporation's "rational choice to do right or wrong"). Rather than try to divine the "intent" of a corporation, which can be fraught with problems due to the difficulty of determining what statements and conduct "speak" for the company, a more useful analysis would focus on deterrence and retribution, the first principles of criminal law, to determine whether some aspect of the corporation's past conduct justifies imposition of vicarious liability under the criminal law.
19. See 18 U.S.C. §§ 3551(b), 3554-3556, 3563, 3583, 3601 (2000 & Supp. 2006) (outlining sentencing, restitution and probation conditions).
20. See 18 U.S.C. § 3551(c) (2000) (applying fine and probation sentencing provisions to organizations); 18 U.S.C. § 3563(b)(22) (2000) (proving courts discretion to require organizations to "satisfy such other conditions as the court may impose").
21. It is precisely for this reason that criminal laws can be enacted in order to regulate an industry, although this is not commonplace. In certain highly regulated industries, criminal laws serve as a means of regulation. See, e.g., United States v. Park, 421 U.S. 658, 673 (1975) (holding FDA misdemeanor statute does not require traditional proof of wrongful conduct); United States v. Dotterweich, 320 U.S. 277, 280-81 (1943) (indicating FDA misdemeanor statute is an increasingly prevalent example of penalties being used to regulate).
22. Memorandum from Larry D. Thompson, Deputy Att'y Gen., to Heads of Department Components and United States Attorneys, Principles of Federal Prosecution of Business Organizations VII.B (January 20, 2003), available at http://www.usdoj.gov/dag/cftf/business_organizations.pdf [hereinafter Thompson Memorandum]; U.S. SENTENCING GUIDELINES-M ANUAL § 8B2.1(a) (cautioning that the fact that a crime occurs does not "necessarily mean that the program is not generally effective").
23. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934, Exchange Act Release No. 44,969, Accounting and Auditing Enforcement Act Release No. 1,470,76 SEC Docket 220 (Oct. 23, 2001).
24. See Jodie English, The Light Between Twilight and Dusk: Federal Criminal Law and the Volitional Insanity Defense, 40 HASTINGS L.J. 1, 16 (1988) ("State v. Thompson, decided in 1834, was the first reported use of a control formulation."). See generally Benjamin B. Sendor, Crime as Communication: An Interpretive Theory of the Insanity Defense and the Mental Elements of Crime, 74 GEO. L.J. 1371, 1383-85 (1986) (tracing the history of the irresistible impulse test).
25. Parsons v. State, 2 So. 854,866 (Ala. 1887) (emphasis in original).
26. 214 F.2d 862, 874-76 (D.C. Cir. 1954), overruled by United States v. Brawner, 471 F.2d 969, 991 (D.C. Cir. 1972) (eliminating the Durham rule but retaining lack-of-volition as a basis for an insanity defense).
27. Durham, 214 F.2d at 874-75.
28. MODEL PENAL CODE § 4.01 (Proposed Official Draft 1962) (alteration in original).
29. See Richard J. Bonnie, The Moral Basis of the Insanity Defense, 69 A.B.A. J. 194, 196 (1983) ("Few people would dispute the moral predicate for the control test-that a person who 'cannot help' doing what he did is not blameworthy."); See Sendor, supra note 24, at 1383-85 ("The psychological perspective underlying these [the insanity defenses] is that some insane people lack the degree of self-control necessary to choose not to commit criminal acts.").
30. United States v. Freeman, 357 F.2d 606, 615 (2d Cir. 1966).
31. See, e.g., Deferred Prosecution Agreement ¶ 3, United States v. N.Y. Racing Ass'n, Cr. No. 03-1275 (E.D.N.Y. Dec. 11, 2003), available at http:/www.corporatecrimereporter.com/documents/nyra.pdf; Agreement Between Symbol Technologies, Inc. and the U.S. Attorney's Office for the Eastern District of New York 116 (June 3,2004) [hereinafter Symbol Agreement], available at http://www.corporatecrimereporter.com/documents/ SymbolAgreement.FINAL.wpd.pdf; Letter from Leslie R. Caldwell & Andrew Weissmann, Enron Task Force, Dep't of Justice to Gary Naftalis, Counsel to Canadian Imperial Bank of Commerce ¶ 8 (Dec. 22, 2003) [hereinafter CIBC Letter], available at http://www.corporatecrimereporter.com/documents/ cibc.pdf; Letter from David N. Kelley, U.S. Attorney, S. Dist of N.Y., to Robert S. Bennett, Attorney for KPMG LLP, Deferred Prosecution Agreement ¶ 15 (Aug. 26, 2005) [hereinafter KPMG Letter], available at http://www.corporatecrimereporter.com/documents/kpmgdeferred_000.pdf.
32. For a detailed description of the requirements in such agreements, see infra Part III.B.
33. See Penn. State Police v. Suders, 542 U.S. 129, 145-146 (2004) (re-affirming affirmative defense established in Ellerth-Faragher cases); Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 764 (1998) (establishing affirmative defense in sexual harassment cases under Title VII); Faragher v. City of Boca Raton, 524 U.S. 775, 806-08 (1998) (same).
34. See sources cited supra note 33.
35. Faragher, 524 U.S. at 805-06; see also Ellerth, 524 U.S. at 764 ("Title VII is designed to encourage the creation of anti-harassment policies and effective grievance mechanisms. Were employer liability to depend in part on an employer's effort to create such procedures, it would affect Congress intention to promote conciliation rather than litigation in the Title VII context....").
36. Suders, 542 U.S. at 145 (citation omitted) (internal quotations omitted).
37. Id. at 148-49.
38. Id. at 149 (emphasis in original).
39. Under current criminal law doctrine, the actions of a coworker, no matter how low-level, can be imputed to the employer with no distinction between supervisory and non-supervisory personnel for purposes of application of vicarious liability. Moreover, although sexual harassment may often be undertaken exclusively to benefit the harasser and not the employer-and thus not meet the current criminal law requirement regarding motive-that is not always the case. As the Supreme Court recognized in Faragher and Ellerth, harassment can be performed to benefit the company, even if the employee is misguided in that belief. See Ellerth, 524 U.S. at 756 (1998) (finding that discrimination by supervisor may be intended to benefit the employer); Faragher, 524 U.S. at 791, 794-95, 798-99 (1998).
40. 527 U.S. 526 (1999).
41. Id. at 530-32.
42. Id. at 529-30, 534 (citation omitted).
43. Id. at 534.
44. Id. at 534-35, 538-39.
45. Kolstad v. Am. Dental Ass'n, 527 U.S. 526, 536 (1999). Thus, not all intentional discrimination would result in eligibility for punitive damages. As noted by the Court, employers would not be subject to punitive damages where the employer is unaware of the relevant federal prohibition; where the underlying theory of discrimination is novel or otherwise poorly recognized; or where an employer reasonably believes that its discrimination satisfies a statutory exception to liability. Id. at 536-537.
46. The dissent did not oppose the majority's determination on the merits. Instead, it objected to the Court deciding an issue that it did not view as properly raised. See id. at 547 (Stevens, J., dissenting). There is reason to believe that Justice Stevens, in light of his dissent in Bennis, would agree with the majority's analysis. See Bennis v. Michigan, 516 U.S. 442, 458 (19%) (Stevens, J., dissenting).
47. Kolstad, 527 U.S. at 545 (1999).
48. Id. at 542-43 (quoting RESTATEMENT (SECOND) OF AGENCY § 217(c) (1957)).
49. Id. at 544. The Court noted the expansive definition of "scope of employment" under common law agency principles. Intentional torts are within the scope of an agent's employment if the conduct is "'the kind [of task the employee] is employed to perform,' 'occurs substantially within the authorized time and space limits," and 'is actuated, at least in part, by a purpose to serve the' employer." Id. at 543-544 (quoting RESTATEMENT (SECOND) OF AGENCY, § 228(1)). If these prerequisites are met, an employer can be liable even if the employee engages in acts "specifically forbidden" by the employer and uses "forbidden means of accomplishing results." Id. at 544.
50. Id. at 544 (citing RESTATEMENT (SECOND) OF TORTS, § 909 cmt. b (1977)).
51. Kolstad v. Am. Dental Ass'n, 527 U.S. 526, 545 (1999).
52. Id. at 545 (citing Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 764 (1998) & Faragher v. City of Boca Raton, 524 U.S. 775, 806 (1998)).
53. Id. at 546 (internal quotations omitted).
54. See Bennis v. Michigan, 516 U.S. 442, 469 (1996) (Stevens, J., dissenting) ("Even on a deterrence rationale, moreover, that goal is not fairly served in the case of a person who has taken all reasonable steps to prevent an illegal act").
55. 1 U.S. 197, 207 (1 Dall. 1787).
56. One potential oddity in Kolstad is the standard of intent required to find punitive damages. The standard articulated by the Court is akin to the willfulness standard in the criminal law which, unlike the "knowing and intentional" standard, often requires the government to prove that the defendant knew what she was doing was wrong or even against the law. See Kolstad v. Am. Dental Ass'n,, 527 U.S. 526, 549 (1999) (Stevens, J., dissenting). The punitive damage intent standard is thus higher than the intent required by many criminal statutes.
57. Prosecutors may as a matter of discretion accord corporations credit for having an effective compliance program. However, having such a program is merely a factor under existing internal DOJ guidelines and its absence is not a prerequisite to prosecution. The weight to be given to this factor is left exclusively to the State to determine. See Thompson Memorandum, supra note 22, at II.A, VII.A.
58. See, e.g., 18 U.S.C. §§ 1001, 1503, 1519 (2000) (making it a crime to "cover up by any trick, scheme or device a material fact").
59. Professor Kimberly D. Krawiec correctly observes that the American legal system is moving away from a strict liability system toward a duty-based system. Kimberly D. Krawiec, Corporate Decisionmaking: Organizational Misconduct: Beyond the Principal-Agent Model, 32 FLA. ST. U. L. REV. 571, 572 (2005). Such a movement, however, has not yet affected the standard for criminal corporate liability, as is advocated herein. Professor Krawiec argues in general that companies may well seek under Faragher and Ellerth to have mere paper programs and that courts and agencies are not adept at evaluating compliance programs, which may not empirically serve to deter conduct. She thus advocates resorting generally to a strict compliance system. Id, at 577, 580, 588-89, 591-96, 614. She does not, however, address the increased incentive for corporations by a criminal standard of liability that takes into account an effective compliance program, or the fact that post-Enron, courts and prosecutors have routinely evaluated corporate compliance programs as part of corporate investigations and deferred prosecution agreements. Indeed, her article, while questioning generally the evidence of the efficacy of compliance programs, does not focus on the unique attributes of criminal law, including the different goals of the criminal law. Finally, her criticism that it is difficult to evaluate the effectiveness of a compliance program is a charge that can be made with respect to the modified strict liability standard proposed by Professor Krawiec. Id. at 578-79. In any event, even if correct in the civil context, in the setting of criminal corporate liability her thesis would not warrant imposition of strict liability for a company that had undertaken all reasonable measures, including a state-of-the-art compliance program, since the company would have taken all actions that could possibly be asked of it.
60. Cf. Diana E. Murphy, The Federal Sentencing Guidelines for Organizations: A Decade of Promoting Compliance and Ethics, 87 IOWA L. REV. 697, 710-11 (2002) (then-chair of the U.S. Sentencing Commission noting that sentencing guidelines, by giving reduction in sentence to a corporation that has an effective compliance program, have encouraged companies to adopt effective compliance systems).
61. The unethical and insufficiently supervised prosecutor could ignore such evidence and threaten to charge the corporation, knowing that in all likelihood the company will not call her bluff. But the risk of such conduct would be reduced by the new criminal standard.
62. The Thompson Memorandum was a retooling of the guidelines promulgated in 1999 by the DOJ. Thompson Memorandum, supra note 22. The prior set of guidelines listed eight factors for deciding whether to prosecute a corporation: (1) the nature and seriousness of the offense, (2) the pervasiveness of the wrongdoing, (3) the corporation's history of similar conduct, (4) any voluntary disclosure of wrongdoing and ensuing cooperation, (5) the existence and adequacy of a compliance program, (6) efforts at remediation, (7) the potential for collateral consequences that could harm innocent third parties, and (8) the availability of civil or regulatory remedies. Memorandum from Eric H. Holder, Jr., Deputy Att'y Gen., to All Component Heads and United States Attorneys, Bringing Criminal Charges Against Corporations at II. (June 16,1999), available at http://www.usdoj.gov/criminal/fraud/docs/reports/1999/ chargingcorps.html. The latest iteration of the Memorandum by Deputy Attorney General Paul McNulty in December 2006, does not alter in any material respects these criteria, for purposes of this Article. See Memorandum from Paul J. McNulty, Deputy Attorney General, to Heads of Department Components and U.S. Attorneys on Principles of Federal Prosecution of Business Organizations, at 16 (2006), available at http://lawprofessors.typepad.com/ whitecollarcrime_blog/files/rncnulty_memo.pdf.
63. Thompson Memorandum, supra note 22, at II.
64. Id.
65. Id. at VII.A ("However, the existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal conduct undertaken by its officers, directors, employees, or agents."). The Thompson Memorandum can be rightly criticized for not always recognizing the differences between corporate and individual liability. See id. at I.B, II ("Corporations are 'legal persons'.... Generally, prosecutors should apply the same factors in determining whether to charge a corporation as they do with respect to individuals."). This standard fails to recognize that individuals can control their own conduct and are thus deemed responsible when they transgress the criminal laws. Corporations, by contrast, cannot control the actions of all their employees to the same extent that an individual can.
66. Id. at preface.
67. Id. at VII.B.
68. Id. (internal quotation omitted).
69. Thompson Memorandum, supra note 22, at VII.B.
70. Id.
71. Id.
72. Letter from Leslie R. Caldwell & Andrew Weissmann, Enron Task Force, Dep't of Justice to Robert S. Morvillo, Counsel to Merrill Lynch & Co. ¶¶ 8-9, ex. A (Sept. 17, 2003) [hereinafter Merrill Lynch Letter], available at http://www.corporatecrimereporter.com/documents/merill2003. pdf. The format of the agreement consists of a set of "Policies and Procedures" set forth as an addendum to the agreement; implementation of those measures is made a condition of the corporation's compliance with the agreement. Id. ¶ 8. Subsequent DOJ agreements follow a similar format. See, e.g., CIBC Letter, supra note 33, ¶9, app. B. Other agreements empower the monitor to evaluate the firm's compliance system and make appropriate alterations. See, e.g., Deferred Prosecution Agreement, United States v. Am. Online, Inc., No. 1:04 M 1133, ¶ 13 (E.D. Va. Dec. 15, 2004), available at http://www.corporatecrimereporter.com/ documents/aol.pdf.
73. See Kurt Eichenwald, Merrill Reaches Deal with U.S. in Enron Affair, N. Y. TIMES, Sept. 18, 2003, at A1 (outlining the government's deal with Merrill Lynch); Merrill Lynch Letter, supra note 72, ex. A. A similar requirement was imposed with respect to CIBC. See CIBC Letter, supra note 31, app. B, ¶ 5. The agreement with Symbol Technologies, Inc., established a new "disclosure" committee to review filings with the SEC. See Symbol Agreement, supra note 31, ¶9(e); Deferred Prosecution Agreement, United States v. N. Y. Racing Ass'n, Inc., No. 03-1295, ¶¶ 5(g), 6 (Dec. 11, 2003) [hereinafter NYRA DPA], available at http://www.corporatecrimereporter.com/documents/nyra.pdf (creating new "Special Oversight Board" and two new chief operating officer positions). Subsequent deferred prosecution agreements also contain various record-keeping requirements so as to be able to document to auditors and regulators that the compliance program is working. See, e.g., CIBC Letter, supra note 31, app. B, ¶5 (requiring written communication to the outside auditor); KPMG Letter, supra note 31, ¶6(i)(VI) (requiring KPMG facilitate the monitor's review).
74. Merrill Lynch Letter, supra note 72, ex. A; see also CIBC Letter, supra note 31, app. B, ¶ 2.
75. Merrill Lynch Letter, supra note 72, ex. A. A similar requirement was imposed with respect to CIBC. CIBC Letter, supra note 33, app. B, ¶ 2(a). An oral side deal was at the heart of the illegal transaction between Merrill Lynch and Enron that was charged by the government. Four Merrill Lynch executives were indicted for participating in a parking transaction, which allowed Enron to book sufficient earnings for 1999 to meet Wall Street analyst expectations. In reality, an oral side deal pursuant to which Enron guaranteed Merrill Lynch a return on its "investment" negated the transaction being a true sale. See United States v. Bayly, No. 05-23019 (S.D. Tex. 2003) (Indictment setting forth alleged illegal oral side deal). An oral side deal was also at the heart of the illegal deals between CIBC and Enron that served to inflate artificially Enron's reported earnings. See CIBC Letter, supra note 31, app. A ¶ 6 (describing oral agreement by Enron to guarantee CIBC's supposed equity investment in Enron vehicle, which negated the investment being sufficiently at risk to constitute "equity").
76. Merrill Lynch Letter, supra note 72, ex. A; see also CIBC Letter, supra note 31, app. B, ¶ 5. In another innovation intended to decentralize power, the deferred prosecution agreement with Symbol Technologies required that the Chairman and CEO functions be split between two people. Symbol Agreement, supra note 31, ¶ 9(f).
77. Merrill Lynch Letter, supra note 72, ex. A; see also CIBC Letter, supra note 31, app. B, ¶ 5. In the parking transaction between Merrill Lynch and Enron, trial evidence demonstrated that Enron had lied to its own outside auditors about the terms of the deal. The provision in the DOJ agreement sought to lessen the ability of a company to portray a transaction differently depending on the audience being addressed. By breaking down the heretofore sacrosanct wall between the parties to a deal and their respective outside auditors, the ability to pull off such prevarication was viewed as diminished since it greatly expanded the number of institutions, with varying interests, who would have to go along with the deception. A similar requirement was imposed with respect to CIBC.
78. Merrill Lynch Letter, supra note 72, ex. A (setting forth requirements for, inter alia, training, confidential reporting, establishment of a hotline, and anti-retaliation provision); see also CIBC Letter, supra note 31, app. B ¶¶ 6, 9-12; NYRA DPA, supra note 73, ¶¶ 5(g); Symbol Agreement, supra note 31, ¶¶ 9(i) & 10; KPMG Letter, supra note 31, ¶¶ 16, 18(e)(III).