Individual Criminal Prosecutions and Deterrence

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.

The issue of deterrence is easy to boil down – a company pays a fine of $500 million for illegal conduct and continues on its merry way. If the same company pays the same fine of $500 million and three of its top executives are prosecuted, convicted and sent to jail, the value of deterrence has increased significantly. Common sense tells us that deterrence results from punishing culpable individuals.

This same common sense underscores the public’s dissatisfaction with the DOJ’s failure to prosecute major banks, insurance companies and investment banks for the financial meltdown in 2008. The public knows that individuals were responsible for this meltdown and does not see any vindication when banks line up to pay multimillion-dollar fines.

In an important speech last week, Brent Snyder, the head of the Antitrust Division’s criminal cartel prosecutions, provides a basic and common sense explanation of its cartel enforcement program. (Here) Snyder outlined the Antitrust Division’s focus on individual prosecutions and set out statistics that proved his point. Since the 1990s, the Antitrust Division has harnessed the power of its leniency program to increase the ratio of individual to corporate prosecutions to basically 3:1, meaning that three individuals are prosecuted for every one corporate settlement for cartel activity. Such a ratio is impressive.

Underlying this focus on individual prosecutions, Snyder cited a basic proposition: “The [Antitrust] Division has long touted prison time for individuals as the single-most effective deterrent to the temptation to cheat the system and profit from collusion.”

Snyder cited Scott Hammond, his predecessor, and his statement that “[i]t is indisputable that the most effective deterrent to cartel offense is to impose jail sentences on the individuals who commit them.”

For criminal cartel practitioners like myself, the interesting issue is the impact the Yates memo will have on individual prosecutions for cartel violations. Applying the policy could lead to an even higher ratio so that Antitrust Division prosecutors will increase the number of individuals prosecuted in each case.

In his speech, Snyder explained:

“We have adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible and that we bring cases against individuals as quickly as evidentiary sufficiency permits to minimize the risk that cases will be time-barred or that evidence will become stale from the passage of time. We are also undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that we are identifying and investigating all senior executives who potentially condoned, directed or participated in the criminal conduct.”

Snyder’s observations apply not only to antitrust criminal prosecutions, but also translate to a full range of corporate criminal conduct, including bribery, fraud, environmental, sanctions and export controls. Unfortunately, criminal prosecutors do not have a consistent record like cartel prosecutors in the Antitrust Division.

Given the uneven performance of criminal prosecutors across specific divisions and criminal enforcement programs, it is easy to understand why the DOJ adopted and announced the Yates memorandum policy, directing greater focus on the prosecution of individuals.

The DOJ has an internal management issue that has to be addressed. Instead of relishing in large fine announcements from corporate clients (e.g., the GM case), the DOJ has to refocus and reiterate a management message – line prosecutors, supervisors and managers up the chain of command have to ensure that individual prosecutions are increased. No longer will managers and line prosecutors be rewarded for large fine corporate settlements without proper consideration and focus on individual accountability. The DOJ has to step up to the challenge and show improvement or else they need to be held accountable for enforcement failures.