AG Merrick Garland Outlines Corporate Crime Prosecution Priorities

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

In a speech last Thursday to the American Bar Association’s Institute on White Collar Crime,  Attorney General Merrick Garland outlined Department of Justice (DoJ) corporate criminal enforcement priorities.

A close look at the speech suggests that broadly speaking, nothing fundamental will change.  Our oligarchs don’t need to worry about seizure of their private jets or yachts. Yet.

Over to the speech’s boilerplate:

Fraud, theft, corruption, bribery, environmental crime, market manipulation, and anticompetitive agreements threaten the free and fair markets upon which our economy is based. They decimate the assets of individuals, organizations, and governments alike. And they increase costs for every American.

Corporate crime weakens our economic institutions by undermining public trust in the fairness of those institutions.

Failing to aggressively prosecute such crimes weakens our democratic institutions by undermining public trust in the rule of law.

The essence of the rule of law is that like cases are treated alike; that there is not one rule for the powerful and another for the powerless; one rule for the rich and another for the poor.

To fail to aggressively prosecute corporate crime leads citizens to doubt that their government adheres to this principle. The Justice Department does not intend to fail.

Last fall, Deputy Attorney General [Lisa] Monaco spoke to the 36th National Institute. Her speech covered the waterfront of the changes the Justice Department has made and is considering making with respect to our corporate criminal enforcement policies, as they relate to both companies and individuals.

We will, of course, continue to hold companies accountable for their criminal conduct. Today, I want to focus on individual defendants.

As the Deputy Attorney General noted, I have made it clear that the Department’s first priority in corporate criminal cases is to prosecute the individuals who commit and profit from corporate malfeasance.

It is our first priority because corporations only act through individuals.

It is our first priority because penalties imposed on individual wrongdoers are felt by those wrongdoers, rather than by shareholders or inanimate organizations.

It is our first priority because – as everyone who has counseled individual corporate officers know – the prospect of personal liability has an uncanny ability to focus the mind. That prospect is the best deterrent to corporate crime. And deterrence – after all – is what we are after.

But most important, the prosecution of individuals is our first priority because it is essential to Americans’ trust in the rule of law. As I said a moment ago: the rule of law requires that there not be one rule for the powerful and another for the powerless; one rule for the rich and another for the poor.

When people see individuals walk while their companies pay the fines, they cannot help but think that essential principle has been violated.

Indeed, as Attorney General Edward Levi noted in a 1975 speech, the very term “white collar crime” is itself “unfortunate since it suggests a distinction in law enforcement based upon social class.”

All very well and good; not much here that one can disagree with. The big problem with the speech is the failure to launch any program to stem, let alone reverse, the erosion in corporate crime enforcement since at least the administration of George W. Bush.  Or, to put it another way, Goldman Sachs General Counsel Kathryn Ruemmler didn’t seem to be quaking in her boots after hearing Garland deliver his speech. Far from it.

Nonetheless, Ruemmler had two quibbles. The first concern: the DoJ’s recent shift on appointing independent monitors after criminal settlements are agreed to police compliance:

Goldman Sachs’ general counsel raised concerns about the Justice Department’s approach to corporate crime, particularly a recent shift in appointing more independent monitors after criminal settlements.

[Ruemmler], said Friday she’s told Deputy Attorney General Lisa Monaco she disagrees with her on the effectiveness of imposing third-party monitors as part of corporate resolutions.

“I just don’t think it’s a space that the department really should be in,” Ruemmler said at the American Bar Association’s white collar crime conference in San Francisco.

Monaco, who another conference panelist described as a good friend of Ruemmler’s, announced last fall that DOJ prosecutors would have more freedom to require the imposition of monitorships to police compliance by corporate wrongdoers. Businesses dislike monitorships, which they must pay for and can cost tens of millions of dollars over several years.

“I have long been of the view that monitors should really be reserved for the quite unusual case, that they should not be the norm, that they should be only required in very very rare circumstances,” said Ruemmler, who served as White House counsel to former President Barack Obama.

DOJ is “at its best when it’s investigating and prosecuting crimes,” added Ruemmler, who was also principal associate deputy attorney general under Obama. “That’s what they should be doing. And when you start getting into monitors, the department starts to feel and I think look a bit more like a regulator.”

The department attached monitors to a pair of year-end settlements last year, after their application plunged in the Trump era.

Ruemmler’s second concern, again per Bloomberg:

The Goldman executive said she is also skeptical about how DOJ’s commitment to prosecuting more individuals involved in white-collar crime would be implemented. Ruemmler, who as a DOJ prosecutor played a lead role in charging Enron executives in the 2000s, said Attorney General Merrick Garland’s commitment to prioritize holding individuals accountable is “important” and a “pretty noncontroversial” longstanding priority.

Yet she advised that the Biden DOJ must be careful “that in the zeal to focus on individuals you don’t start bringing cases where there’s a real question about whether or not someone has really engaged in criminal wrongdoing.”

“Sometimes what I worry about when there are kind of broad policy speeches from departmental leadership is how that gets filtered out into the rest of the department with prosecutors with less experience,” Ruemmler added.

DoJ Force Multipliers

Drilling down into the details of Garland’s speech, I think Ruemmler needn’t worry unduly – at least with respect to two of the three areas, where the DoJ is bolstering its resources by adding force-multipliers to its prosecutors and agents:

The first force-multipliers are our partnerships at every level of government and around the world.

The targets of these efforts are fairly limited, however, with the DoJ creating two task forces, the first to pursue those pesky Russian oligarchs – rather than C-suite corporate criminal offenders who reside within U.S. borders. Per Garland’s speech:

As the President noted in his State of the Union Address on Tuesday, the Department has just launched an interagency taskforce to hold accountable Russian oligarchs and others who seek to evade U.S. sanctions or otherwise profit from corrupt conduct.

The taskforce will be led by veteran SDNY prosecutor Andrew Adams and overseen by the Deputy Attorney General.

It will complement the work of a transatlantic task force announced by the President and European leaders on Feb. 26.

Together with our federal and international partners, we will leave no stone unturned in our efforts to investigate, arrest, and prosecute those whose criminal acts enable the Russian government to continue its unjust war against Ukraine.

And the second task force will be established to target is pandemic-related fraud. But my reading of the speech suggest that firms to be targeted by will  tend to be on the smaller side:

As the President also noted in his address, I will soon be naming a chief prosecutor to lead specialized teams dedicated to combatting pandemic fraud. This will build on the existing work of the COVID-19 Fraud Enforcement Task Force that I established last May.

That task force, led by the Deputy Attorney General, includes nearly 30 agencies that administer and oversee pandemic relief funding, including the Labor Department, the Treasury Department, the Small Business Administration, the U.S. Postal Inspection Service, and the Pandemic Response Accountability Committee.

The second force multiplier is also a bit of a nothing burger, at least in terms of putting the fear of god into large corporations:

A second important force-multiplier is data analytics. We are using big data – our own, and the data of other departments and agencies – to identify payment anomalies that are indicative of fraud.

And we have provided the Criminal Division’s Fraud Section with a new, embedded squad of FBI agents to further strengthen our ability to bring data-driven corporate crime cases nationwide.

This represents an enormous expansion of the data analytic work we first applied to health care fraud when I supervised the Fraud Section as a Deputy Assistant Attorney General.

The speech is short on specifics about these force-multiplies so I’ll not discuss the data analytics area further at this time.

I can see that The third force-multiplier  might prove to be more interesting. According to Garland:

As the Deputy Attorney General reported when she spoke with you last fall, we have restored prior Department guidance making clear that, to be eligible for any cooperation credit, companies must provide the Justice Department with all non-privileged information about individuals involved in or responsible for the misconduct at issue.

This means all individuals, regardless of their position, status, or seniority, and regardless of whether a company deems their involvement as “substantial.”

When the Justice Department offers a company the opportunity to enter into a resolution for its misconduct, it is in that company’s best interest to provide us with a full picture of what happened and who was involved.

When we give a company the opportunity to come clean, it must come clean about everyone involved in the misconduct, at every level.

Over the past year, our U.S. Attorneys’ Offices, Main Justice divisions, and law enforcement agencies have successfully investigated and prosecuted cases against a wide range of company executives.

Garland rattled off some statistics about DoJ prosecutorial activity last year. Yet these enforcement activities haven’t yet reached into the C-suites of the largest U.S. firms. If Garland had wanted to convey the impression that the Biden DoJ had shaken off the passivity on corporate crime that had characterized its activities under Biden’s two predecessors, he buried the lead.

For in one area – the realm of antitrust enforcement –  DoJ prosecutors have been significantly more active during the last year:

The Department’s Antitrust Division has also been busy investigating and prosecuting price-fixing and other criminal violations of the antitrust laws. It ended the last fiscal year having brought 25 criminal cases against 29 individual and 14 corporate defendants, and with 146 open grand jury investigations — the most in 30 years.

The Antitrust Division is now trying or preparing to try 18 indicted cases against 10 companies and 42 individuals, including 8 current or former CEOs or company presidents.

Here, Biden policy has been more aggressive – a point Matt Stoller also makes in his latest blog post, Antitrust Cops Put Handcuffs for CEOs on the Table:

Right now, Google, Facebook, and Amazon are being sued for antitrust violations, with substantial amounts of evidence put forward by regulators, Congress, and policymakers that these firms harm small business and consumers. Dominant firms today take laws as mere suggestions; Facebook’s Mark Zuckerberg might have engaged in insider trading and fraud, and Google’s Sundar Pichai seems to have facilitated price-fixing over ad markets. And yet, these men, and their firms are unchastened.

Why? The answer is that these executives do not personally fear any consequences. At worst, their firms will have to budget a bit more for the legal department, and a case could come down in two to three years they might have to think through.

Stoller thinks although no one in the Silicon Valley C-suite is currently afraid, that state of affairs looks to be changing.  Per Stoller:

Under the leadership of new Antitrust chief Jonathan Kanter, the Department of Justice is beginning to get much more aggressive. Here’s what Richard Powers, the head of antitrust criminal enforcement, just told the American Bar Association’s conference on white collar crime.

Wow.

DOJ’s Richard Powers tells @ABAesq conference in SF that the division is prepared to bring criminal charges in monopolization cases.

That’s quite a big deal when you think of the sort of companies facing civil cases under Section 2 – Big Tech in particular.

— Michael Acton (@MActon93) March 2, 2022

The Bottom Line

I’ll be watching closely to see whether anything fundamental does indeed change with DoJ enforcement priorities in the near and medium term. With respect to antitrust, I think Stoller’s right: there has been a change. Yet with respect to DoJ white collar criminal enforcement more generally, I’m much less sure. And I don’t think devoting resources to Russian oligarchs and pandemic fraud would yield the most bang for the buck in terms of punishing past and deterring future corporate criminal behavior.