Garrett - Too Big To Jail How Prosecutors Compromise With Corporations (2014)

TOO BIG TO JA IL
TOO BIG TO JA IL
How Prosecutors Compromise with Corporations
Brandon L. Garrett
The Belknap Press of

Harvard University Press
Cambridge, Massachusetts
London, England
2014
Copyright 2014 by Brandon L. Garrett
All rights reserved
Printed in the United States of America
First Printing
Library of Congress Cataloging-in-Publication Data

Garrett, Brandon, author.
Too big to jail : how prosecutors compromise with corporations / Brandon L. Garrett.
pages cm
Includes bibliographical references and index.
ISBN 978-0- 674-36831- 6 (hardcover : alk. paper)
1. Corporation lawUnited States Criminal provisions. 2. Tort liability of
corporationsUnited States. 3. Corporate governanceLaw and legislationUnited
States. 4. Corporations Corrupt practicesUnited States. 5. Criminal liability of
juristic personsUnited States. 6. ProsecutionUnited States. I. Title.
KF1301.A2G37 2014
345.73'0268dc23 2014013351
To Kerry
contents
Abbreviations ix
1. United States vs. Goliath 1

2. The Company in the Courtroom 19
3. What Happens to a Prosecution Deferred? 45
4. The Ostriches 81
5. The Victims 117
6. The Carrot and the Stick 147
7. Enter the Monitors 172
8. The Constitutional Rights of Corporations 196
9. Foreign Corporate Criminals 218
10. The Future of Corporate Prosecutions 250
Appendix 291
Notes 307
Acknowledgments 357
Index 361
Abbr ev iations
ABA American Bar Association

CEO Chief Executive Officer
CFO Chief Financial Officer
CFTC Commodities Futures Trading Commission
DOJ Department of Justice
DPA Deferred prosecution agreement
ENRD Environment and Natural Resources Division
EPA Environmental Protection Agency
FBI Federal Bureau of Investigation
FCPA Foreign Corrupt Practices Act
FDA Food and Drug Administration
FDCA Food, Drug, and Cosmetics Act
FIRREA Financial Institutions Reform, Recovery, and
EnforcementAct
GAO General Accountability Office
HHS-OIG Department of Health and Human Services Office
ofInspector General
IRS Internal Revenue Service
LIBOR London InterBank Offered Rate
NPA Non-prosecution agreement
OCC Office of the Comptroller of the Currency
OSHA Occupational Safety and Health Administration
SEC Securities and Exchange Commission
TOO BIG TO JA IL
1
United States vs. Goliath
I know what this is about. I have been expecting you.1

It was not until 2006 that The Banker finally got the knock on his door.
Six police officers and a prosecutor were standing there with an arrest warrant.
He later recalled, I was a true Siemens man, for sure. I was known as the
keeper of the slush fund. We all knew what we were doing was illegal. The
Banker was in charge of just some of the multinational bribery operations at
Siemens Aktiengesellschaft, a German multinational firm, ranked in the top
50 of the Fortune Global 500 list of the worlds largest corporations. It has
more than 400,000 employees in 190 countries and makes everything from
trains to electrical power plants to home coffeemakers. Among its many ac-
tivities was paying more than a billion dollars in bribes around the world to
secure lucrative business from foreign governments. Now Siemens would be
prosecuted, and not just in Germany but also in the United States.
This book is the first to take a close look at what happens when a company
is prosecuted in the United States. A corporate prosecution is like a battle
between David and Goliath. One would normally assume that federal pros-
ecutors play the role of Goliath. They wield incredible power, with the ability
to hold a corporation liable for a crime by even a single employee and the
benefit of expansive federal criminal laws. It is hard to think of federal pros-
ecutors as the little guy in any fight. Yet they may play the role of David when
up against the largest and most powerful corporations in the world.
Some companies are not just too big to fail but also too big to jail: they
are considered to be so valuable to the economy that prosecutors may not
2 Too Big to Jail
hold them accountable for their crimes. The expression too big to jail has
mostly been used to refer to failures to prosecute Wall Street banks. A dis-
mayed reaction to the lack of prosecutions after the last financial crisis is under-
standable, but to see why corporations may escape prosecution, it is important
to understand exactly how a company can be prosecuted for a crime and the
many practical challenges involved. The very idea that a corporation can be
prosecuted for an employees crime seems odd on its face, and even among
criminal lawyers, the topic of corporate crime had long been obscure. Over
the past decade, corporate crime exploded in importancenot only because
of greater public interest in accountability but also because prosecutors trans-
formed their approach to targeting corporations.
In this book, I present data collected from more than a decade of cases to
show what really happens when prosecutors pursue corporate criminals. I
examine the terms of the deals that prosecutors now negotiate with compa-
nies, how prosecutors fine companies to punish them, the changes compa-
nies must make to prevent future crimes, and whether prosecutors pursue
individual employees. The current approach to corporate prosecutions raises
too big to jail concerns that extend beyond Wall Street banks to the cases
brought against a wide range of companies. I argue that prosecutors fail to
effectively punish the most serious corporate crimes. Still more troubling is
that not enough is known about how to hold complex organizations account-
able; prosecutors exacerbate that problem by settling corporate prosecutions
without much transparency. My main goal in exploring the hidden world of
corporate prosecutions is to encourage more public attention to the problem
of punishing corporate crime. To go deeper inside the decision making of
prosecutors and companies, in each chapter not only do I present data de-
scribing the larger patterns in corporate prosecutions and non-prosecutions,
but I also tell the stories of how particular companies such as Siemens fared.
The Siemens story is an important one to begin with: the case broke all records
for the biggest prosecution for foreign bribery.
How were the Siemens bribes paid? The Banker did not pay them himself.
True to his nickname, he instead organized the cash by transferring funds
from anonymous bank accounts in Switzerland and Lichtenstein or using
dummy corporations to hide where the money was coming from and where
it was going. He explained how he carried the cash undetected: For a mil-
lion euros, you dont need a big suitcase because the bills arent very big. A
United States vs. Goliath 3
briefcase is enough200,000 euros isnt so much that you couldnt carry it

in your coat pocket.2 In the countries where Siemens was pursuing lucra-
tive government contractswhether it was Greece, Nigeria, Argentina, or
Bangladeshexecutives hired consultants to help them win the govern-
ment contracts. The consultants received a fee and personally delivered the
bribes to government officials.
Siemens paid bribes around the worldmore than a billion dollars from
2002 to 2007. The Bankers division dealt with telecommunications and had
a bribery budget of $4050 million a year. He recalled how the telecom unit
was kept alive by bribes and how other major divisions at Siemens operated
this way. Bribery was pervasive and common knowledge.
Bribing foreign government officials is a crime in Germany, the United
States, and many other countries. In 2008, prosecutors in Germany charged
The Banker with corruption, leading to a conviction, two years probation,
and a $170,000 fine.3 He received leniency on account of his cooperation
with the authorities. When he later spoke to journalists, he expressed disap-
pointment that Siemens treated him like an outsider and gave him a kick in
the pants while people at the top were not held accountable. I would never
have thought Id go to jail for my company, he later said. Sure, we joked about
it, but we thought if our actions ever came to light, wed all go together and
there would be enough people to play a game of cards. 4
The controversy surrounding this global bribery scheme would eventually
bring in prosecutors around the world, notably those in the United States.
They would wield a powerful new approach to targeting corporations, one I
explore throughout this book. In the Siemens case, was The Banker right
that underlings would be the only ones held accountable, or would the storm
reach the summitthe top executives or the company itself?
No Soul to Be Damned, No Body to Kick
How exactly are corporations convicted of a crime? The word corporation

comes from corpus, the Latin word for body. A corporation may be a body,
but it is a collective body that can act only through its employees. As the Brit-
ish lord chancellor Edward Thurlow reportedly remarked in the late eigh-
teenth century, corporations have no soul to be damned, no body to kick.5
Corporate persons obviously cannot be imprisoned. However, companies can
4 Too Big to Jail
face potentially severe and even lethal consequences, even if in theory they can
be immortal. They can be forced to pay debilitating fines or suffer harm to
their reputation. When convicted they can lose the government licenses that
make doing business possible; for example, a company can be suspended or
even barred from entering into contracts with the federal government.
The federal rule for corporate criminal liability is powerful and long-
standing. In its 1909 decision in New York Central & Hudson River Railroad v.
United States, the Supreme Court held that a corporation could be consti-
tutionally prosecuted for a federal crime under a broad rule.6 The rule is
simple: an organization can be convicted based on the criminal conduct of a
single employee. That standard comes from a rule called the master-servant
rule or respondeat superiorlet the master answer in Latinwhich
makes the master responsible for the servants acts. Under that rule, an em-
ployer was responsible for an employees wrongs if those wrongs were com-
mitted in the scope of employment and at least in part to benefit the em-
ployer. As the Court suggested in New York Central, the master or corporation
may be in the best position to make sure employees are properly supervised
to prevent lawbreaking. The Court emphasized the interest of public pol-
icy, since giving companies immunity from criminal prosecution would
make it hard to effectually prevent abuses. 7 Rather than spend time on
theoretical questions about when and whether corporations should consti-
tute legal persons, I focus on whether corporate prosecutions are actually
effective in preventing crime. Many have debated corporate personhood, in-
cluding in response to the Courts ruling in Citizens United v. Federal Election
Commission (2010) that the First Amendment protects corporations against
regulation of election spending.8 To understand corporate prosecutions,
though, what matters is not Citizens United but rather the strict master-
servant rule from the less well-known New York Central case.
Today, a corporation is a person under federal law, as are other types of
business organizations. The very first section of the U.S. Code, with defini-
tions that apply to all federal laws, including those dealing with crimes, de-
fines a person to include corporations, companies, associations, firms, part-
nerships, societies, and joint stock companies, as well as individuals.9 As a
result, federal prosecutions may be brought against any type of organization.
The U.S. Sentencing Commission Guidelines Manual uses the word organiza-
tion because the guidelines cover criminal sentences for all kinds of compa-
nies, including partnerships not formally incorporated by a state. Prosecu-

tors convict giant multinational corporations such as Siemens, large domestic
public corporations with millions of shareholders, and mom-and-pop com-
panies with just a few owners or only one owner.
In theory, a corporation can be prosecuted for just about any crime that
an individual can be prosecuted for (except for crimes with heightened intent,
such as homicide). In practice, corporations are prosecuted for crimes likely to
take place in a business setting, such as accounting fraud, banking fraud, en-
vironmental violations, foreign bribery, money laundering, price fixing, secu-
rities fraud, and wire fraud. Important corporate prosecutions are chiefly
brought by federal prosecutors, in contrast to prosecutions of smaller-scale
corporate crimes or prosecutions of individuals, which are overwhelmingly
brought at the local level.10
Data on Corporate Prosecutions
Over the past decade, there has been an increase in the size and importance
of federal prosecutions of corporations, though not in the number of cases
brought. One of my goals in writing this book was to uncover and present
data explaining how corporations are actually prosecuted. As Figure 1.1 il-
lustrates, the data that I have gathered show a large spike in corporate crimi-
nal fines over the past few years.
$5,000,000,000
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
1994 1999 2004 2009
Sentencing Commission Data Data from Dockets
Figure 1.1 Total Criminal Fines for Organizations, 19942012

6 Too Big to Jail
In the past, given the modest sentences for companies, it was often not worth
the effort to prosecute them.11 Corporate fines grew after 1991, when the U.S.
Sentencing Commission, a group convened by Congress to write rules for sen-
tencing federal criminals, adopted the first sentencing guidelines specifically
designed for corporations. More resources were also devoted to corporate pros-
ecutions in response to Enron and other corporate scandals that shook the
United States in the early 2000s, prompting the Department of Justice to form
an Enron Task Force and later a Corporate Fraud Task Force (now called the
Financial Fraud Enforcement Task Force).12 Figure 1.1 shows total fines for the
approximately 3,500 companies convicted from 1994 to 2009. It includes data
from the Sentencing Commission for the earlier period, but from 2001 to 2012
the more dramatic rise in fines is shown in the data that I collected by hand
from more than 2,250 court dockets and corporate prosecution agreements.
To understand what has really changed, we need to look behind the ag-
gregate data displayed in Figure 1.1. The bulk of those corporate fines were
actually paid in a small number of blockbuster cases, such as the Siemens
case. For example, the large spike in 2009 is because the pharmaceutical gi-
ant Pfizer paid a then-record fine of nearly $1.2 billion. That single fine made
up about half of the total for that year. Other massive antitrust cases, foreign
bribery cases, and illegal pharmaceutical sales cases involve fines in the hun-
dreds of millions. There is still more about corporate prosecutions that those
totals do not capture. The criminal fines are only a fraction of the costs im-
posed on companies. For example, as part of criminal settlements, compa-
nies were required to pay billions more to victims of fraud. Also not reflected
in the fines are structural reforms that prosecutors require companies to
adopt to prevent future crimes.
What is clear from the reported activity of prosecutors is that over the past
decade they have embraced a new approach: deferred prosecution agreements.
Prosecutors enter agreements that allow the company to avoid a conviction but
which impose fines, aim to reshape corporate governance, and bring indepen-
dent monitors into the boardroom. The rise of such deferred prosecution
agreements, and non-prosecution agreements, in which no criminal case is
even filed, means that the official Sentencing Commission statistics on corpo-
rate convictions, as shown in Figure 1.1, fail to capture many of the most im-
portant cases. Corporate fines are up, but the big story of the twenty-first cen-
tury is not corporate fines or convictions but prosecutors changing the ways
that corporations are managed. Prosecutors now try to rehabilitate a company
by helping it to put systems in place to detect and prevent crime among its em-
ployees and, more broadly, to foster a culture of ethics and integrity inside the
company. This represents an ambitious new approach to governance in which
federal prosecutors help reshape the policies and culture of entire institutions,
much as federal judges oversaw school desegregation and prison reform in the
heyday of the civil rights era in the 1960s and 1970s.
What initially attracted me to studying these corporate agreements with
prosecutors was that, as a former civil rights lawyer, I was surprised to see
prosecutors taking on for themselves the hard work of changing institutions.
Ihave spent years researching wrongful convictions and DNA exonerations in
individual criminal cases, in which errors may implicate larger problems in our
criminal justice system. I turned my attention to the very different world of
corporate prosecutions because a single prosecution of a company such as Sie-
mens can have enormous repercussions in the U.S. and the global economy,
particularly since other industry actors will be watching and nervous about
whether they might be next. I quickly learned, however, that there is not much
information out there about when or how corporations are prosecuted.
There is no official registry for corporate offenders, nor is there an official
list of deferred prosecution and non-prosecution agreements by federal pros-
ecutors. I decided to create these resources. Over the years, with invaluable
help from the UVA Law Library, I created a database with information on
every federal deferred prosecution or non-prosecution agreement with a
company. In one place or another, this information was publicly available,
but I wanted to put it together in order to learn who these firms were, what
they did, what they were convicted of, and how they were punished.
There have been more than 250 such prosecution agreements entered over
the past decade. I made this database available online as a public resource,
and it remains the most authoritative and complete source.13 I then amassed
a second and much larger archive of more than 2,000 federal corporate con-
victions, mostly guilty pleas by corporations, and placed these data online as
well.14 These data have real limitations; although prosecutors pound their
chests when bringing the largest corporations to justice, in many other cases
no charges are brought. We have no way to know how often prosecutors decline
8 Too Big to Jail
to pursue charges against corporationsthey do not usually make those de-

cisions publicexcept when they enter non-prosecution agreements. We do
not know how often corporations commit crimes, as the government does not
keep data on corporate crime, which is hard to detect and to define.
More than 250 federal prosecutions since 2001 have involved large public
corporations. These are the biggest criminal defendants imaginable. Prose-
cutors have taken on the likes of AIG, Bristol-Myers Squibb, BP, Google,
HealthSouth, JPMorgan, KPMG, Merrill Lynch, Monsanto, and Pfizer.
Such Fortune 500 firms can and do mobilize astonishing resources in their
defense. The Siemens case illustrates the titanic scale of the power plays at
work in federal corporate prosecutions, making them unlike anything else in
criminal justice.
Convicting Siemens
The story of the prosecution of one of the worlds biggest corporations began
in one of the worlds smallest countriesthe principality of Lichtenstein. In
early 2003, a bank in Lichtenstein owned by the royal family was having
auditors review its records. The bank auditors noticed something strange:
millions of euros were bouncing around between Panama, Lichtenstein, and
the British Virgin Islands. The bank secrecy laws in Lichtenstein, like those
in Switzerland, make banks an attractive place for some people to keep
money. Auditors were on the lookout for unusual transactions that might be
the work of terrorists or other criminals trying to take advantage of this se-
crecy to engage in money laundering. They noticed odd transactions between
offshore companies, including large sums going into an account of an offshore
firm called Martha Overseas Corp. That company was incorporated in Pan-
ama, but it was controlled by an executive of Siemens working in Greece
and the money going into the account was coming from another offshore
company, one based in the British Virgin Islands and controlled by another
executive of Siemens.
The bank informed Siemens of this problem in 2004 and began to block
these money transfers. They also notified bank regulators in Germany and
Switzerland, who in turn contacted regulators in Austria and Italy. Two years
later, German police appeared on The Bankers doorstep in Munich and
seized documents from more than thirty Siemens offices.15
The case of Siemens (and three of its subsidiaries in Argentina, Venezuela,

and Bangladesh) became a truly global prosecution. Siemens had paid more
than $1.4 billion in bribes between 2002 and 2007 to government officials
in sixty-five countries in Asia, Africa, Europe, the Middle East, and South
America. All sorts of major public works projects were implicated. The focus
of the U.S. case against Siemens was kickbacks paid under the U.N. oil-for-
food program in Iraq, in which Siemens paid $1.7 million in return for forty-
two contracts with $80 million in revenue and over $38 million in profits.16
At first glance, the Siemens scandal might seem to be a problem for Ger-
man prosecutors, not American ones. After all, why would bribes paid to
foreign officials by a German company, already under investigation in Ger-
many, trouble U.S. prosecutors? But many companies, Siemens included, do
business in the United States. Bribe transactions may pass through U.S.
wires. Even more important, Siemens is a public corporation with stock
listed on the New York Stock Exchange (NYSE), giving U.S. prosecutors
jurisdiction. The U.S. Department of Justice (DOJ) and the U.S. Securities
and Exchange Commission (SEC), which regulates companies with publicly
listed stock, both have authority over a firm such as Siemens.
It would be U.S. prosecutors who seized the lead in this multinational
case and collected the lions share of the fines. The DOJ and the SEC began
to investigate upon hearing of the raids; both handle matters related to for-
eign bribery. When a company such as Siemens has ties in the United States,
it falls under a law called the Foreign Corrupt Practices Act (FCPA). The
FCPA makes it a violation to bribe foreign officials, to keep inaccurate books
and records, or to have inadequate internal procedures to prevent bribe pay-
ments. This criminal law was enacted in 1977 in the wake of the Watergate
scandal and revelations that corporations regularly bribed government offi-
cials. The SEC discovered in the mid-1970s that hundreds of U.S. compa-
nies had spent millions of dollars from slush funds for illegal bribery over-
seas.17 The head of enforcement at the SEC at the time recalled wondering,
How does Gulf Oil record a transaction of a $50,000 cash payment? I
wanted to know, what account did they charge? Do they have an account
called Bribery?
The idea of a bribery account was not far off the mark in the Siemens case.
Prosecutors discovered that Siemens kept cash desks in its officesliterally
desks filled with cashwhere employees could withdraw large sums to write
10 Too Big to Jail
off as useful expenditures, which were understood to be bribes. The SEC

called the bribery unprecedented in scale and geographic reach. The DOJ
called it corruption on an absolutely stunning scale.18
For decades, FCPA prosecutions were very rare, but in the past decade
they accelerated. Federal prosecutors have generally become more aggressive
regarding foreign corporate prosecutions, but one reason FCPA prosecu-
tions became more common was a late 1990s expansion of the statute in
response to an international treaty to combat corruption. That treaty was
signed by many of the major first-world countries, including Germany, which
banned foreign bribery itself for the first time upon signing. Perhaps U.S.
prosecutors felt more comfortable prosecuting a German corporation for
something that was now also illegal in Germany and of concern to its prose-
cutors. Indeed, in the Siemens case, the DOJ and SEC collaborated closely
with the Munich Public Prosecutors Office.
In response to the threat of a federal prosecution, Siemenss board launched
a massive internal investigation, spending more than $500 million investigat-
ing the case. Siemens also hired attorneys at a New York law firm, who billed
an additional $800 million. The attorneys then brought on board accoun-
tants who reviewed 40 million bank documents and 127 million accounting
records, billing $100 million more just on information technology to analyze
all of that data.19 The investigators uncovered $100 million in bribes to
Argentine officials, perhaps well spent, since Siemens secured a $1 billion
contract to create national identity cards. They found $5 million in bribes
for mobile phone contracts in Bangladesh. The list went on and on. They
reviewed transactions in more than sixty-five countries and uncovered over
$1 billion in bribes not found by European regulators.20
Why would a company such as Siemens want to investigate its own wrong-
doing? It does not help a murder suspect to confess his guilt to one crime and
then go on to admit to dozens of others. That might even be a good way to get
the death penalty. Yet Siemens not only confessed but also spent hundreds of
millions hiring top-notch lawyers to uncover its own crimesand rather
than seal its fate, somehow this all helped the firm.
Like the vast majority of criminal defendants big or small, corporate or
human, Siemens eventually pleaded guilty. Each year just a handful of cor-
porations have trials, just as few individual defendants have them. The Sie-
mens plea bargain was entered in the U.S. District Court for the District of
Columbia and included $450 million in fines paid to the DOJ, $350 million
to the SEC, and $800 million to the Munich Public Prosecutors Office.21
Paying a record $1.6 billion in fines for activities it helped to discover may
sound like a raw deal. But like any other criminal defendant, Siemens bar-
gained to avoid a trial penalty. At a trial, the fines could have been far greater;
the plea agreement cited a sentencing guidelines fine range of $1.35 billion to
$2.7 billion. Consider too the gains that Siemens received from paying bribes
over the years; Siemens may have profited many times over from bribes used
to secure lucrative government contracts around the globe.
The cooperation may have paid off in other ways beyond a lower fine. Sie-
mens pleaded guilty only to violations of FCPA accounting requirements
and not to payment of illegal bribes, which also is prohibited by the FCPA
(and which Siemens admitted it had done on a grand scale). In so doing, Sie-
mens apparently avoided being suspended or barred from U.S. government
contracting, which would have had a huge impact on its long-term business
perhaps far more harmful than any fine.22
But the plea agreement went further than simple punishment. Siemens
had to rehabilitate itself through a range of structural reforms. The company
agreed to undertake compliance obligations, including a new ethics program
specially designed to detect and prevent foreign bribery and other corrup-
tion. Siemens also agreed to commit no further crimes and to cooperate
with the U.S. government in ongoing investigations, particularly of its own
employees.
Most significant, Siemens agreed to submit to a continuous audit by a cor-
porate monitor, who would for four years have power to review documents,
speak to employees, supervise compliance efforts, and make recommendations
about how Siemens would improve its corporate governance to prevent corrupt
payments. The monitor selected, Dr. Theo Waigel, was extremely prominent;
he had been a German minister of finance and was the first non-American
monitor appointed in a federal prosecution. The selection of a German moni-
tor to oversee compliance at a German firm represented a new kind of cross-
national collaborative prosecution. Siemens also hired a separate independent
U.S. counsel to help monitor FCPA compliance.
The prosecutions led to the resignation of Siemens CEO at the time, who
wrote a memoir titled Summit Storms denying knowledge of the corruption
schemes.23 There were also additional convictions. Siemens Argentina,
12 Too Big to Jail
Siemens Bangladesh, and Siemens Venezuela all pleaded guilty and agreed
to pay $500,000 fines.24 Munich prosecutors convicted two former Siemens
employees in addition to The Banker.25 U.S. prosecutors announced grand
jury indictments of six additional former executives at Siemens. Siemens was
the cooperatorthe corporate informant, if you willblowing the whistle
on its former employees. In return, the prosecutors lauded Siemenss out-
standing help.
The Bankers fears were thus realized. He was right that individual low-
level employees like him would get prosecuted as scapegoats while those at
the top would go free. But perhaps the prosecution would lead to significant
changes in how Siemens operates. The former CEO may never have been
implicated, but the company did have a chance to transform itself.
In the French novelist Honor Balzacs novel Le Pre Goriot, a jaded Parisian
advises a young student that honesty will get you nowhere. The secret of
great fortunes, when theres no obvious explanation for them, is always some
forgotten crimeforgotten, mind you, because its been properly handled.26
Today, just as in 1830s Paris, great business crimes can go undetected and
unpunished. In the wake of the last financial crisis, many people have asked
if prosecutors are doing enough to bring corporations to justice. Prosecutors
have been using a new strategy for fighting business crime, seeking to target
not only greedy people but also corporations themselves. The new approach
represents a real break from the past, and it is as fascinating as it is under-
studied. Each chapter of this book poses a different question to explore a dif-
ferent aspect of how corporations are now prosecuted.
How is a corporation prosecuted? The corporate trial of the century, the 2002
trial of the Big Five accounting firm Arthur Andersen, was the rare case that
shows what happens when a corporation takes its case before a jury. Ander-
sen was prosecuted for its obstruction of efforts to investigate its role in the
collapse of Enron. The sheer scale of the document destruction by Andersen
was remarkabletrucks were carting off documents to be shredded around
the clockbut did employees intend to break the law? Andersen tried its
case in the media, mobilizing protesters, a public relations campaign, and
squadrons of top lawyers. Federal prosecutors brought the case as a show-
piece to demonstrate their new seriousness about corporate crime. At the
eleventh hour, Andersen rejected the deal prosecutors offered and took the
case to the jury. This was a serious gamble: if Andersen was convicted, it
would be barred from doing certified accounting for public companies. The
case ended in twin disasters for the company and for prosecutors: a conviction
that destroyed the firm yet was thrown out on appeal by the U.S. Supreme
Court.
How do prosecutors negotiate with corporations? Prosecutors compromise. Re-

grouping and licking their wounds after the Andersen case, federal prosecu-
tors developed a new, subtler form of jujitsu: the deferred prosecution. The
approach had humble origins in a plan to give lenient treatment to first-time
drug offenders in Brooklyn back in the 1930sfile a case, defer it or put it on
hold to give the defendant a chance to stay clean, and if he does, have the judge
dismiss it. The later prosecution of KPMG, a major accounting firm like An-
dersen, ended very differently from that of its former competitor. KPMG
avoided a grand jury indictment and a conviction by signing a deferred pros-
ecution agreement. The agreement saw KPMG pay large fines, close down
part of its business, and hire a monitor to supervise a new compliance pro-
gram. This is an example of the most striking change in the past decade:
many of the largest firms now receive deferred prosecution agreements or
non-prosecution agreements. Well over half (148 of 255, or 58 percent) of the
firms receiving such agreements between 2001 and 2012 were public firms or
their subsidiaries. These agreements ostensibly reward efforts by corporations
to implement reforms on their own, but often it is not clear what reforms are
demanded or whether they actually work.
Who goes to jail? Usually no one. In about two-thirds of the cases involving
deferred prosecution or non-prosecution agreements and public corpora-
tions, the company was punished but no employees were prosecuted. This is
surprising, because a corporation is like no other snitch. KPMG did not just
sign an agreementit also agreed to turn over information to prosecutors,
fire employees involved, and refuse to pay their attorneys fees. Employees are
in a terrible bindthey can be fired for not cooperating in an investigation of
what went wrong, and their employer may also turn them in, along with
their documents and emails, to get a good deal from prosecutors. A judge
threw out prosecutions of former KPMG employees, finding prosecutors
14 Too Big to Jail
had pressured KPMG to take action against them. Just as in the Siemens
case, few employees were ultimately convicted. A handful of notable cases
involve convictions of CEOs and high-level officials, but not many. It can be
very hard to hold employees accountable in complex cases where many peo-
ple took part in decisionsbut that makes it all the more crucial for prose-
cutors to really hold the company accountable.
What role do victims play in corporate prosecutions? Victims cannot easily

participate in corporate criminal cases. The victims of the tragic and pre-
ventable explosion at the Texas City refinery in 2005 tried to make their
voices heard and convince the judge to make sure BP never acted so recklessly
again. They failed. Other victims had modest successes. Companies can pay
large sums in restitution to victimsa few cases involve multimillion-dollar
restitution fundsbut most do not. In addition, some corporations do com-
munity servicenot by cleaning up litter or whitewashing graffiti but by
contributing money to causes such as the environment, affordable health
care, or investor awareness. With the persistence of cases in which judges
ignore victims objections to lenient corporate settlements, one lesson of the
BP incident is that we need better ways for judges to consider the public in-
terest in corporate prosecutions.
How is a corporation punished? Not by relying on strict and narrow sentenc-

ing guidelines, as with individuals, but by using more flexible guidelines that
may give the biggest fish the best deals. Fewer major public corporations are
convicted each year; they usually get leniency. Yet many mom-and-pop cor-
porations plead guilty each year, and their names illustrate how far from the
Fortune 500 they can be: Andys Orchids, Joes Cajun Seafood, Little Rhody
Beagle Club, and Ohio Fresh Eggs. Many are unable to pay a fine, and a few
are put out of businessthe corporate death penalty. In contrast, large
firms often receive deferred prosecution agreements and pay lower fines, if
any: 47 percent of those getting deferred prosecution or non-prosecution
agreements paid no fine at all. Almost every time prosecutors explained how
a fine was calculated, it was at the very bottom, or quite a bit below the bot-
tom, of the range suggested in the sentencing guidelines. If prosecutors are
not adequately rehabilitating firms, then they should impose the full crimi-
nal fines that the law demands.
Who oversees corporate prosecution agreements? A new kind of personthe

corporate monitorcan play a crucial part in overseeing the process of try-
ing to rehabilitate a prosecuted company. Monitors have sweeping powers
and represent a new role in criminal justice. The monitor appointed to super-
vise reforms at Bristol-Myers Squibb did more than oversee compliancehe
asked the board to fire the CEO and investigated entirely new violations.
Although 25 percent of the deferred prosecution and non-prosecution agree-
ments provide for monitors (65 of 255 agreements), this raises the question
of why 75 percent do not. And none of the work that monitors do is made
public. Nor is selection of these high-paid monitors transparent, leading to
controversy over allegations of favoritism and cronyism. A substantial num-
ber of agreements (31 percent) do not even speak to implementing a compli-
ance program. One wonders again how seriously prosecutors are taking cor-
porate reforms.
What criminal procedure rights do corporations have? Corporations have many

of the same constitutional criminal procedure rights as individuals. How often
are those rights used in criminal cases? Not often. But one corporation went to
trial and had a conviction reversed. Lindsay Manufacturing was exonerated
and had a trial conviction dismissed after flagrant prosecutorial misconduct
came to light. Lawyers specializing in white-collar crime and corporate de-
fense form a growing and prominent part of practice at the nations top law
firms, and we may see much more constitutional litigation by corporations
seeking still more lenient results in criminal cases.
How are foreign corporations prosecuted? Foreign corporations are increas-

ingly important targets and pay far larger fines on average: $35 million
compared with $4.7 million for domestic firms. One example is the pros-
ecution of a multinational defense contractor, BAE, based in the United
Kingdom. U.K. authorities had long declined to prosecute it for extensive
bribery, but the United States eventually took action, resulting in a prose-
cution agreement. Although few foreign countries hold corporations strictly
criminally liable, they must now reckon with the unparalleled reach of
U.S. prosecutors. Indeed, in response to the BAE case, the U.K. passed a
new Bribery Act much like the FCPA. Corporate prosecutions have gone
global.
16 Too Big to Jail
Are corporate prosecutions effectively preventing crime? Corporate prosecu-

tions can be made stronger, as I detail in Chapter 10. However, there are
fundamental questions that cannot be answered, as prosecutors target cor-
porations in a way that is strikingly opaque. What is the corporate crime
rate? Not only is there little in the way of data, but also defining what consti-
tutes a crime can be difficult. How many companies go unpunished? Are
some corporate crimes uncovered but not investigated or charged? While I
present data describing outcomes in corporate prosecutions, these data still
cannot tell us everything we would want to know about how well prosecutors
exercise their discretion, which largely remains a black box.
Given that corporations have no soul to be damned, no body to kick, a
number of scholars have argued over the years that corporations should
not be prosecuted at all. They contend that since only individuals can be
held morally accountable for crimes, prosecuting a corporation is as non-
sensical as prosecuting a stone. Critics also point out that the company can
be fined in a civil case brought by an agency such as the SEC, which may be
more experienced with industry practices and regulations and better able
to supervise structural reforms. In my view, criminal punishment of the
most serious corporate violators is justified, because the corporation itself
may promote a culture of lawbreaking that can be remedied only at the
corporate level. And corporations do not fear civil cases the way they
fear prosecutionsfor good reason. Criminal prosecutions bring with
them far more serious consequences, including potentially debilitating fines,
harm to reputation, and collateral consequences such as suspension and
debarment.
Most corporate violations are not handled criminally, and the decision to
bring a corporate criminal case should not be reached lightly. But societys
ideas about what should be criminally punished can and should evolve. Con-
gress has not been shy about defining new business-related crimes. Over the
past decade, holding corporations criminally accountable has become more
firmly ingrained in prosecution practice, in sentencing, and perhaps also in
our culture. Companies such as Siemens probably did not think much about
the FCPA a decade ago; now they know a serious breach can mean prosecu-
tion. Ten or fifteen years ago people might not have asked after a financial
crisis why no big banks were prosecuted. Now it is a common belief that the
company itself should sometimes be held accountable.
Still, there are good reasons to worry whether the right corporations are
being prosecuted and whether the punishments fit the crimes. Prosecutors
say that they target the most serious corporate violators. Yet the fines are
typically greatly reduced in exchange for little oversight. If one justification for
prosecuting a company in the first place is egregiously bad compliance, then
one wonders why so little is typically done to deter or correct it. Are these pros-
ecutions really helping to reform corporate criminals? Which compliance pro-
grams actually work? We simply do not know. While there are no silver-bullet
solutions to these vexing problems, there are concrete ways to improve mat-
ters, including by insisting on more stringent fines, imposing ongoing judi-
cial review, monitoring, and mandating transparency.
Corporate prosecutions upend our assumptions about a criminal justice sys-

tem whose playing field is tilted in favor of the prosecution. It is admirable
that prosecutors have taken on the role of David in prosecuting the largest
corporationsbut if they miss their shot at Goliath, the most serious corpo-
rate crimes will be committed with impunity. The surge in large-scale corpo-
rate cases shows how federal prosecutors have creatively tried to prevent cor-
porate malfeasance at home and overseas, but real changes in corporate culture
require sustained oversight of management, strong regulators, and sound rules
and laws. Congress enacts new criminal laws intended to bolster regulations,
but it is perennially unwilling to provide adequate resources to many agencies
to carry out enforcement of those regulations. That is why prosecutors can fill
an important gapand when they do prosecute a corporation, they can wield
the most powerful tools. A broader political movement toward greater cor-
porate accountability more generally, with stronger regulations and enforce-
ment, could make prosecutions far less necessary. But if we take as a given
the larger dynamics of our economic and political system, modest changes
could improve the role criminal cases play in the larger drama.
Corporate criminal prosecutions serve a distinct purposeto punish se-
rious violations and grossly deficient complianceand this purpose is not
served if companies obtain kid-glove non-prosecution deals in exchange for
cosmetic reforms. Corporate convictions should be the norm, and in special
cases in which prosecutors defer prosecution, they should impose deterrent
fines and stringent compliance requirements. A judge should carefully su-
pervise all corporate agreements to ensure their effective implementation.
18 Too Big to Jail
Sentencing guidelines and judicial practices could be reconsidered, but pros-

ecutors themselves can revitalize the area by adopting a new set of guide-
lines to strengthen the punishment reserved for the most serious corporate
criminals.
Although I propose reforms, my main goal in this book is to describe the
hidden world of corporate prosecutions. Corporate crime deserves more
public attention. What is particularly chilling about the problem is that cor-
porate complexity may not only enable crime on a vast scale but also make
such crimes difficult to detect, prevent, and prosecute. We need to know much
more. When we ask if some companies are being treated as too big to jail, it is
not enough to ask whether the largest firms are so important to the economy
that they are treated as immune from prosecution. We also need to ask whether
individuals are held accountable. We need to evaluate whether the corporate
prosecutions that are brought are working. We need to look beyond the press
releases announcing eye-catching fines and ask whether adequate criminal
punishment is imposed and whether structural reforms are working.
The Banker feared that although Siemens was punished, most others
would not face the same consequences. He may have been right to worry. After
all, not only do prosecutors regularly offer leniency, but we do not know how
many corporate crimes go undetected or unprosecuted. As The Banker put it:
The Eleventh Commandment is: Dont get caught. 27
2
The Company in the Courtroom
I obstructed justice, admitted David Duncan, a former senior managing

partner for Arthur Andersen, as he testified in federal court on May 13, 2002.
Andersen was one of the five largest accounting firms in the world, and
Duncan had led a large team doing accounting work for the Enron Corpora-
tion both in Houston, where Enron was based, and around the globe.1 An en-
ergy, commodities, and services company, Enron had ambitious ventures in
electricity, natural gas, communications, and even water. It had been named
Americas Most Innovative Company by Fortune for several years running
and was one of the largest corporations in the country.
With the formalities out of the way, the prosecutor asked, Did there come
a time in the fall of 2001 that you committed a crime?
Yes.
What did you do?
I instructed people on the engagement team to follow the document re-
tention policy, which I knew would result in the destruction of documents,
Duncan answered.2
About a month before this trial, Duncan had pleaded guilty to obstruc-
tion of justice. He faced a maximum of ten years in prison, but he had yet to
be sentenced and was free on bail.3 If he cooperated, prosecutors could offer
him a shorter sentence. At this trial, Duncan was providing that coopera-
tion, but not by testifying against any of his former co-workers, Enron CEO
Kenneth Lay, or anyone else at Enron. Instead, he was testifying against his
former employer. The criminal defendant was Arthur Andersen itself, the
20 Too Big to Jail
firm where he had worked for twenty yearsand which was now on trial for
its life.4
On day six of the trial, Duncan took the stand. He began by recalling his
life just a few months before as a different time, when he did well as a part-
ner at Andersen. Partners were paid based on a grading system, and with
all of his Enron business, he scored in the top 10 percent.5 He was even asked
to serve on the CEOs advisory council in late 2001, shortly before Andersen
fell apart. Duncan had been fired just four months previously, in January 2002,
because Andersen concluded that he had played an improper role in destroying
documents. Now the tables were turned, and he was the governments star wit-
ness in a long and complicated trial. If Duncan had committed a crime, Ander-
sen could be liable for it, so it would be Andersen arguing he had not done so.
Andersen and Enron
Arthur Andersen was a real person, one who founded his eponymous ac-
counting firm in 1913. He was a paragon of business ethics, with the motto
Think straight, talk straight. Andersen was known to turn down potential
clients, no matter how much they would pay, if they used flawed accounting
methods. More than a founder and namesake, he would come to embody the
firms reputation for integrity. The modern Andersen was one of the Big
Five accounting firms, with offices around the world and the largest of cor-
porate clients. Andersen, called simply the Firm by employees, was head-
quartered in Chicago, Illinois, and had almost 30,000 employees in the
United States and a total of more than 85,000 worldwide. Andersen was
known for emphasis on training new hires on its culture, standards, and
proceduresthe nickname for an employee was Android. 6 But the culture
was changing as partners focusing on consulting work took on more power
within the company. In the late 1980s the firm created Andersen Consult-
ing, which began to earn more of Arthur Andersens revenue.7 By the late
1990s, Andersen Consulting was at odds with the auditing side of the firm,
and in 1997 it broke off. With its auditing business slowing and the loss of
the consulting business, there was increasing pressure to keep clients and
raise revenues.8
A bright spot in the late 1990s was the growing Enron engagement team,
as the group doing Enron work was called. At the trial, Duncan said Enron
The Company in the Courtroom 21
was a very big client. How big? It generated somewhere between $50 to $55
million in fees each year, an amount that rose annually, reaching $58 million
in 2000. Under Duncans leadership, about a hundred employees worked
full-time on Enron matters, including on-site at Enrons offices. Their ap-
proach was unusual, since Andersen did not only audits of Enrons financial
statements but also integrated audits, which gave opinions on Enrons com-
pliance and internal controls. They hoped this would be a model for consult-
ing work with other corporate clients.9
Ultimately, the close relationship between Enron and Andersen became a
liability rather than an asset. On August 14, 2001, Jeffrey Skilling, Enrons
CEO, suddenly resigned, as it became clear that Enrons supposedly vast assets
were a house of cards. The value of Enrons stock was falling, and an Enron ac-
countant who used to work for Andersen warned of a wave of accounting
scandals.10 That whistle-blower told Enron CEO Kenneth Lay that there
was a serious problem with the way Enron reported its finances. This devel-
opment had to be taken seriously by Andersen as well, since the firm had
been reviewing Enrons books for years. On August 28, the Wall Street Jour-
nal reported on possible misconduct at Enron, and the SEC announced an
informal inquiry.11 Andersen began its own internal investigation and real-
ized that, among other problems, there had been an outright error. This led
Enron to admit that its earnings were $1.2 billion lower than reporteda
major announcement known as a restatement. A restatement can damage the
reputation of a company, and under securities laws, shareholders can sue for be-
ing misled by inaccurate financial statements. Indeed, lawsuits were imminent.
Enron had reported profits that did not exist and kept losses off its bal-
ance sheet using complex entities. One was called Chewco, a shell corpora-
tion named after Chewbacca, the big furry sidekick from the movie Star
Wars. As a shell, Chewco did not do its own business or have employees or
operations. Instead it was used to hide losses occurring in another Enron
company, named Joint Energy Development Investment Limited, or JEDI,
after the set of Star Wars characters. Despite the whimsical names of these
shell companies, their consequences were serious.
In October 2001, Enron issued an earnings report suggesting that these
were one-time-only problems. Duncan responded with a memo stating
that this was misleading and that Enron should correct its report. Ander-
sen decided to ignore Duncans advice. At the time, one of Andersens
22 Too Big to Jail
lawyers in the main Chicago office, Nancy Temple, wrote an email to an

outside lawyer suggesting edits to tone down Duncans memo so that it
would not look as though Andersen had a responsibility to follow up.
She also asked that her name be deleted from the memo, along with any
reference to consultation with the legal group.12 Those edits came back to
haunt Andersen.
Andersen was already on thin ice as a recidivist. The U.S. Securities and
Exchange Commission (SEC), which regulates public corporations, had just
settled civil charges against Andersen with a record fine of $7 million and a
permanent injunction requiring that Andersen never violate securities laws
again. In that case, auditors who raised concerns about the accounting pro-
cesses used by a major client, Waste Management, were told by supervisors
to do nothing. Years later, Waste Management restated $1.7 billion in earn-
ings, which was then the largest such correction in history (Rite Aid has
since seized the title).13 If Andersen was found to have violated the SEC
decree by breaking securities laws, then the SEC could prevent Andersen
from doing any future work for public corporations. That would mean the
end of Andersen, since doing work for public corporations was its lifeblood.
There were more reasons aside from Enron that made such SEC action seem
like a real possibility, since the SEC had also begun to inquire into accounting
irregularities at other Andersen clients, including Boston Chicken, Global
Crossing, Sunbeam, and WorldCom.
Types of Companies
A criminal prosecution may affect different types of companies quite differ-

ently. Although a company may be prosecuted in federal court, all companies
are recognized and created under state law. In the United States, about 2
million corporations are created each year by filing incorporation papers
with a state and paying a fi ling fee. Delaware has long been known as the
leading state for incorporations because of its reputation for being conve-
nient and legally favorable. There are 50,000 more corporate persons regis-
tered in the state than human residents.14 One key reason to form corpora-
tions is the concept of limited liability, which means that if the corporation
goes under, the owners are not liable for its debts. The same concept applies
to the aptly named limited liability company (or LLC), the most popular
type of business entity today.
Some of the most significant criminal prosecutions are of the biggest pub-
lic corporations; about 5,000 are listed on major American stock exchanges.15
A prosecution of a public company may hurt the companys share price and
therefore harm the vast number of people who own the stock. While those
shareholders are the owners, they normally have no reason to know about
the crimes. The shareholders do not run the company; they elect a board of
directors, which hires management, such as the CEO, to run day-to-day op-
erations. Most of the millions of corporations in the United States are pri-
vately owned, and a prosecution of a private company mostly affects the own-
ers. Some are family businesses and very small. Some are shell companies, like
Chewco, that do not have any actual operations. While there are legitimate
reasons to use a shell, such as nature conservation groups using a dummy com-
pany to buy land to preserve, they can also be used for nefarious reasons, in-
cluding tax evasion, money laundering, and fraud.
Arthur Andersen, LLP was a limited liability partnership, a less common
type of company that is owned by its partners, a term for co-owners who
work together. Professional firms such as law firms and accounting firms are
often LLPs. A prosecution of such a partnership raises special issues. If
Arthur Andersen went under, the partners could lose both their jobs and their
stake in the company, the amount of money they had paid in once they were
made a partner. The partners would not, however, be responsible for all of
the debts or liabilities that Andersen incurred, including as a result of law-
suits by victims of Enron who blamed Andersen.
Federal law makes corporations and other types of organizations liable
for criminal acts. Of course, federal laws also regulate companies in all sorts
of other ways. Public corporations like Enron must accurately report de-
tailed information to the SEC, which regulates the stock markets. A private
partnership like Arthur Andersen does not need to report financials to the
SEC, but it was an auditing firm, and its accountants had the job of mak-
ing sure that firms like Enron kept their books in order. It was responsible
to the SEC for the accuracy of its clients financials. Under SEC rules, the
agency could prohibit (disbar) convicted professionals, including accoun-
tants, from doing work for public corporations.16 Andersen would lose its
24 Too Big to Jail
major customers if disbarred and would likely die by going bankrupt or

ceasing operations.
Andersens Crisis Response Team
To save the firm from the dire fate that might befall it if convicted, Andersens
partners set up a crisis response team with lawyers, accountants, managers,
and others. The team met almost daily and began to respond to document
requests from the SEC and send out messages to employees that document
retentionand document destructionwould be an issue. Ironically, the very
team assembled to respond to its legal problems would only create more of
them for Andersen.
From the very beginning the lawyers likely knew that the SEC would
get involved. On October 12, Nancy Temple, the attorney in Andersens
Chicago office, added a new label in their internal tracking system for
Government/regulatory investigation. That was important, because it indi-
cated that she understood this problem would involve government scrutiny.
That same day, Temple sent out an email asking that the entire Enron
engagement team be reminded of the documentation and retention policy
at Arthur Andersen. This policy stated that confidentiality and proper
management of client engagement information is critical. Not every docu-
ment can be saved, and corporate employees are not required to be pack rats.
Andersen handled vast quantities of confidential information and quite
properly had detailed policies in place to be sure that extra documents would
not be circulated and unnecessary documents would be routinely destroyed.
The policy was detailed and mundane, basically saying that each project should
have a single, central file, and unnecessary documents should be discarded.
The policy also made clear that if litigation was threatened, everything rele-
vant should be saved and that an SEC investigation was reason to postpone
the destruction of documents.
Temples email was open to interpretation. Was it intended to simply
restate the obviousthat Andersen, like any company, had a documenta-
tion and retention policyor was the message designed to encourage docu-
ment destruction? Perhaps Andersens employees needed no email reminder.
Two days before, at a training meeting, one of the partners said that every-
one should comply with the policy, and if documentation was destroyed in
the course of [the] normal policy and litigation is filed the next day, thats
great.
On October 16, 2001, Enron announced the billion-dollar accounting
error. The next day, the SEC formally announced its inquiry into Enron with
a letter of investigation sent to Andersen.17 This was serious. One high-
ranking Andersen partner circulated an email saying, The problems are just
beginning and we will be in the cross hairs. The marketplace is going to keep
the pressure on this and is going to force the SEC to be tough.18 On Octo-
ber 23, in a call with Enron investors, Lay admitted there would be lawsuits
in addition to the SEC inquiry.19
That same day, David Duncan called an urgent meeting of Andersen
management and partners. In the week that followed, massive quantities of
Enron-related documents were sent to the shredders. On October 25 alone,
2,380 pounds were shredded. While a big accounting office would have
plenty of confidential documents to shred, the normal amount was only 7090
pounds per day.20 Tens of thousands of emails were deleted as well. The
shredding continued through early November, when the SEC sent a formal
subpoena asking Andersen for Enron-related documents.
Failed Negotiations
The trial of Arthur Andersen did not have to happen. The firm announced
its full cooperation with investigators in an op-ed in the Wall Street Journal
written by Andersens managing partner and CEO, Joe Berardino. He prom-
ised to acknowledge any mistakes and offered to help push for broader re-
forms.21 In December, Enron filed the biggest corporate bankruptcy in U.S.
history, and in January 2002, the DOJ confirmed that federal prosecutors
had begun investigating Andersen. Prosecutors were not charging Arthur
Andersen with giving criminally dishonest advice to Enron, although maybe
they could have if the documents had still been there showing what advice
Andersen gave. Instead, the case focused on Andersens decision to shred
them.
Arthur Andersen was charged with a count of obstruction of justice. Title
18 of the United States Code contains many of the core federal crimes, in-
cluding obstruction of justice, which covers the withholding or destroying of
evidence. The section of the code under which Andersen was charged makes
26 Too Big to Jail
it a crime to knowingly, intentionally and corruptly persuade[] others to

withhold documents or alter documents for use in official proceedings, in-
cluding regulatory and criminal proceedings and investigations.22 It takes
two to obstruct justice under that particular statute (although there are
other statutes, which did not apply to Andersens situation, in which a sec-
ond person is not required).23 A convict can be fined, imprisoned for up to
ten years, or both. Obviously, the firm could not be imprisoned, but its em-
ployees could, and the firm faced fines and other sanctions.
Even at this point, Andersen could have avoided a trial. The vast majority
of criminal defendants never get a trial, instead settling their cases by accept-
ing a plea bargain and admitting their guilt. The same is true for corporate
defendants. The U.S. Sentencing Commission publishes data on federal sen-
tencing, and by its accounting, only a handful of the roughly 200 companies
convicted each year take their chances with a criminal trial.24
On January 15, 2002, Andersen fired Duncan and suspended three oth-
ers who had done Enron work. Andersen clearly wanted to give the impres-
sion it was cleaning house and ready to cooperate. Andersen also released
emails regarding the role of Nancy Temple on the legal team. The U.S.
House of Representatives held hearings, and representatives asked questions
about Temples October 12 email mentioning the document retention
policy. Temple was also asked about altering the memo that Duncan had
prepared.25 At the hearings, Duncan pleaded the Fifth and did not testify.
One congressman asked: Is Mr. Duncan being made a scapegoat here this
morning?26
Prosecutors were offering Andersen an exit strategy: the firm could avoid
an indictment and a conviction by signing an agreement with prosecutors.
Under this agreement, which would remain in effect for three years, Ander-
sen would admit wrongdoing but would not plead guilty, and it would coop-
erate in the investigation of the wrongdoing. Andersen apparently sought
some assurance that the SEC would not take further action to bar it from
doing work for public corporations, but the SEC was undecided.27 In addi-
tion, state regulators could bar Andersen from doing accounting work; state
prosecutors were beginning to investigate Andersen, and federal prosecutors
could not stop them.28
Andersen decided to go to trial rather than sign a deferred prosecution
agreement.29 The firm took an aggressive approach, calling the prosecution
a gross abuse of governmental power. So on March 7, in the Southern Dis-

trict of Texas federal courthouse, Andersen was indicted by the grand jury
for obstruction of justice. Andersen would ultimately spend $50 million on
its legal defense, according to one report, and may have spent more.30
Meanwhile, Andersens CEO, who had denied that there was any order
from the top to destroy documents, resigned on March 26. And in April
2002, David Duncan pleaded guilty to obstruction of justice.
The Trial Begins
The trial would take place in the federal courthouse in Houston, only seven
blocks from where Enrons world headquarters stood. As is typical in federal
criminal cases, the prosecutors gave the defense very little information be-
fore the trial began. At the time of jury selection, prosecutors had not given
the defense a list of the witnesses they planned to call.31 Nevertheless, the
defense was not completely in the dark. After all, they may have had the best
access to Andersens documents and emailsthose that had not been dis-
posed of. Indeed, the defense estimated that there were 78 billion pages of
documents related to Andersens work with Enron from 1997 to 2001.32
This was nothing like a typical criminal case, which may contain a few dozen
pages of police reports, interview notes, or crime lab test results.
How would jurors be selected in a case where the defendant was a corpo-
ration? In addition to typical questions about whether potential jurors or
their family members had been convicted of a crime or whether any were
practicing attorneys, the jurors were asked if they or their family members
were accountants or employees of Enron. The prosecutors told prospective
jurors that this was not a typical defendantthis was a partnership, a type
of company that doesnt act with pencils or books or desks. They act through
their people. Because at the end of a day, a legal entity is a collection of people.
A prosecutor asked whether the jurors could handle the fact that a partner-
ship can be found guilty through the actions of . . . very few or only even one
of its employees. The prosecutor asked the potential jurors, Is there any-
one who [thinks] that doesnt sound like very fair that a partnership that
has thousands of people can be convicted based just on the crimes of a few
bad apples? Is there anyone who thinks that that sounds somewhat unfair?
Anyone?33
28 Too Big to Jail
Once selected, the judge reminded the jurors, No Newsweek, no Time, no

news-coverage kind of magazines or newspapers . . . Do whatever it is to get
away from any media coverage.34 This was such a big case that the media
could be covering it anywhere: It could be in the Lifestyle section, as well as
the business page or the front page and it could be during some kind of inter-
view with someone and Katie Couric could be doing a human interest on
somebody.35 The judge put it bluntly: I dont want you watching any news
on TV, listening to any news or any talk radio on the radio and reading any
newspapers.36 The judge also warned the jurors the case could last as long as
a month; they should be prepared for a big commitment.
Andersen sought to put on a human face both inside and outside the
courtroom. Maybe the jurors would listen to the judges warnings and stay
away from news media, but Andersen felt that the public mattered as well. A
major corporation has media access that no ordinary criminal defendant has.
Andersen took out full-page newspaper ads and detailed the governments
legal errors on the company website. Employees stood in protest at the
courthouse on the day of the indictment wearing shirts with the slogan I am
Arthur Andersen, which they also chanted, and signs such as I didnt shred,
my kid needs to be fed.
This strategy was not new, and corporations often try to convey that they
have a human size. AT&T is well known for having advertised nationwide
beginning over a century ago how it was a friend and neighbor, using im-
ages of real employees such as telephone operators.37 Companies use ads to
show how they are like a family or even how their customers can become part
of the family. Everything about a corporation, from its logo and slogan to
advertisements, mission statements, and websites, may try to convey that the
corporation has a culture, is a community, and cares about its employees and
customers.
In an individual criminal case, the defendant wants to convey that he or
she is a sympathetic person. In a corporate criminal case, the defendant wants
to do the same, and perhaps also try to mobilize public pressure and influence
to prevent a prosecution in the first place. Such pressure would not help An-
dersen, however. President George W. Bush quickly sought to distance his
administration from the scandal despite (or possibly because of) ties he had
had with Kenneth Lay and Enron while in Texas. Before the trial, President
Bush declared his outrage and ordered all federal agencies to review their
contracts with Arthur Andersen (amounting to $60 million a year).38
The government began the trial by telling the jury that Arthur Anderson
is a huge accounting partnership. They are a billion dollar firm. They have
offices all over the world.39 Prosecutors told a story blaming the culture and
practices of management: a small management team came together to re-
spond to this crisis, and knowing that the SEC responds slowly, they tried to
take advantage of this to cover their tracks. Duncan had already pleaded
guilty to obstruction of justice, prosecutors said, and that alone will be suffi-
cient for a conviction. Nancy Temple had sent the email about document
retention minutes after writing about how regulators would be involved in the
matter. Andersens partners were smart, experienced, and cautious people
who would never admit they were trying to obstruct justice, but they knew
that the law was coming, and their words and actions would show that the
massive document destruction was intended to quietly help their firm. 40
In contrast, the lead defense lawyer told the jury: Who is Arthur Ander-
sen? Arthur Andersen is its employees. 41 The lawyer, not prone to under-
statement, began by telling the jury, Youre going to hear evidence about
what I believe the evidence will show you is one of the greatest tragedies in
the criminal justice history of this country. Prosecutors were unfairly blam-
ing this proud firm of 28,000 employees in this country for the horrible
consequences of Enrons misdeeds.42 Andersens lawyer told the jurors he
wanted them to help us go on a search for whoever had engaged in obstruc-
tion of justice. Among those 28,000 employees and 1,700 partners, who was
the bad apple? You know, the little routine Where is Waldo? the lawyer
added.43 Where is Waldo? Who are they?
The lawyers final words in his opening statement to the jury were: When
its all over, you still wont know where Waldo is and you still will not have
found a corrupt persuader, you will just have a destroyed company. 44
The defense strategy was to argue that Andersen employees may have
been in utter disarray as it became clear what a perilous state their client
Enron was in, but there was no concerted plan to conceal evidence. Pinning
blame on a particular Waldo might be hard for prosecutors. The key wit-
nesses were Andersen employees or former ones, perhaps still sympathetic
to their firm. And smoking-gun documents may have been shredded.
30 Too Big to Jail
The Prosecution and the Defense
The prosecution began by emphasizing that Andersen employees had

known the SEC would soon come knocking. The first witness was an SEC of-
ficial who said he could not recall another Big Five accounting firm destroy-
ing documents right before getting an SEC subpoena.45 The prosecutors
focused on Nancy Temples October 12, 2001, email to another member
of the crisis response group:
It might be useful to consider reminding the engagement team

of our documentation and retention policy. It will be helpful to
make sure that we have complied with the policy. Let me know
if you have any questions.
Right around that date there was an enormous surge in deliveries to the courier
service Andersen used at its Houston office to pick up documents for shred-
ding. Most weeks showed less than 500 pounds delivered for shredding, but
that week there was an enormous spike to almost 2,500 pounds.46 Similar doc-
ument destruction occurred at offices in Portland, Chicago, and even London.
The no more shredding notice went out only after formal SEC docu-
ment requests were served on November 8, 2001.47 The next morning when
Duncan arrived at work, he saw the subpoena from the SEC. When Dun-
cans assistant heard about the SEC requests, she double-checked with him
about shredding; she recalled at trial that he bit my head off and said, No!
Were not supposed to be shredding anymore. Whos asking you to shred?
He told her to make sure employees know theyre not supposed to be shred-
ding anymore. Now!48 She sent an email to the Enron engagement team with
the subject line No More Shredding, which went on to state: Per DaveNo
more shredding. . . . We have been officially served for our documents. 49
To commit a federal crime, Duncan had to do more than destroy docu-
ments on his own, which he admitted doing. He needed to have corruptly
and knowingly persuaded someone else to destroy documents, and he must
have done this to keep the documents from being used in official proceedings
such as an SEC investigation. Was David Duncan the corrupt persuader?
At trial, Duncan recalled that Enron was considered a high risk client.50
Duncan was asked about October 12, 2001, the day Nancy Temple sent the
email to the other top legal team member about reminding employees of the
usefulness of the documentation and retention policy.51 That reminder was
repeated over and over by others.
Duncan talked about the unusual big meeting of managers and partners
later in the month, on October 23, where Duncan addressed the entire
group. Duncan could not recall another time when managers were convened
just to hear a reminder about the document retention policy. He also said
that he had learned on October 19, 2001, that the SEC was beginning an
inquiry, and he then called a meeting to discuss what to do.52 When the
prosecution asked, Did anyone ever say anything about whether the policy
called for any destruction of documents? he answered, No. I believe that
was generally understood. Copies of the policy were made available at the
meeting, and it was after that meeting that the highest volume of shredding
occurred.53 Duncan also admitted that he personally destroyed documents,
expected others to do the same, and saw them doing so.54 He said Nancy
Temple had told him that extraneous documents are often used against com-
panies in litigation, but he added that at the time he had thought it wasnt a
crime to destroy documents unless the SEC had issued a subpoena legally
demanding them.55
The next day, Andersens lawyer cross-examined Duncan. The defenses
goal, as the lawyer put it to the judge, was to explore the state of mind of
the governments corrupt persuader.56 In January 2002, when Andersen
fired Duncan and suspended others on the Enron team, Duncan initially
agreed to be jointly defended by Andersens lawyers. But later he withdrew,
switched sides, and agreed to cooperate with prosecutors.57 Andersen had
explained Duncan was fired because he had called the urgent meeting on
October 23 and seemed to be behind the document destruction. Andersen
had maintained that the rest of the firm should not be faulted, as the de-
struction was undertaken without any consultation with others in the firm
and at a time when the engagement team should have had serious questions
about their actions.58 Now that it was on trial, though, Andersen was argu-
ing that neither Duncan nor anyone else was at fault.
Duncan admitted that not until he was fired had he looked into whether
the document destruction he had done was illegal.59 He did a lot of soul
searching. 60 Even though Duncan was cooperating with the government, he
was not exactly a whistle-blower. After all, he did not think Andersen was at
32 Too Big to Jail
fault for all of Enrons accounting improprieties. He said some were con-
cealed from Andersen, while others, such as the $1.2 billion restatement,
were good-faith errors or did not have clear black and white answers under
accounting standards.61 Andersens lawyer implied that Duncan had some-
how talked himself into, or had been talked into, believing that he committed
a crime.62 The defense brought in twenty-one boxes of documents to show
how many documents were not destroyed.63
The cross-examination stretched over two days, and at one point, the judge
commented, Youre asking him the same question over and over again. . . . I
feel like a dead horse. 64
Once the defense finished its questioning, the government returned to ask
Duncan one last time, Did you plead guilty because you are guilty?
Yes, he answered.65
The star witness for the prosecution was at times confused and reluctant,
and Andersens lawyer rhetorically asked the press, How can he be a corrupt
persuader? 66 The defense argued that David Duncan had been persuaded
that he committed a crime and had pleaded guilty only under pressure from
prosecutors.67 Nor did Duncan think he had done anything wrong in terms
of his actual work for Enron: I do not believe I committed accounting
fraud, he said.68 He cooperated with the government, but he did not admit
much, nor did he point fingers at others.
The prosecution had another candidate for a corrupt persuader: Nancy
Temple, the lawyer on Andersens crisis response team. While Duncan as-
serted his Fifth Amendment privilege against self-incrimination at hear-
ings before a U.S. House of Representatives committee, Temple had cho-
sen to testify. At trial, it was the reverse, as Temple asserted the Fifth
Amendment and never took the stand. But maybe that meant prosecutors
could attack an empty chair and blame someone who could not respond in
person.
The prosecution had a paper trail. Temples first computer entry on
October 12, 2001, noted a potential government or regulatory investigation.69
Her handwritten notes suggested she was concerned about the possibility of
an SEC inquiry. Also helpful for the prosecutors was a written record from a
second partner (who took the Fifth as well and did not testify) saying he would
use the phrase document retention policy as a euphemism when he wanted
to talk about destroying documents.
Did the jurors follow it all? It was reported after the trial that two jurors
fell asleep during its first two weeks. Andersens defense team had every rea-
son to try to make the evidence seem as complicated, boring, and technical as
possible. The strategy almost worked.
The main goal of the defense was to show there was no Waldo: no one at
Andersen had had criminal intent, and employees had not been trying to
hide evidence from the SEC. The defense asked employees what they thought
about the document retention policy. Some said they thought it just meant
that files needed to be orderly.70 The person to whom Temple sent the email
said that the email was in response to a question about not having seen the
policy before and that nothing was destroyed in response.71 Duncans assis-
tant testified she had had no intent to do anything wrong and that Duncan
had never said anything about the SEC. It was simply that the Enron docu-
ments had been neglected, meaning the files were a mess and needed to be
straightened up.72
Others testified that Duncan had the classic deer-in-the-headlights syn-
drome and simply didnt understand the ramifications of his actions.73
And though Duncan said he had committed a crime, the defense argued that
the crime required persuading others to obstruct justice, and Duncan could
not have been the one to illegally convince others to obstruct justice, since he
had not been listened to or had simply been negligent rather than corrupt.
After six long weeks, the case was coming to a close. What would the jury
do? Would they see Andersens employees as loyal to a fault or see Enron as
the real villain and Andersen as a victim?74 This decision would hinge on
the standard for when a corporate person can be convicted of a crime by an
employee, and on this score, prosecutors had a remarkable weaponthe fed-
eral standard for corporate criminal liability.
The Old and Exploded Doctrine
More than a century ago, the Supreme Court recognized in New York Cen-
tral & Hudson River Railroad that corporations may be held strictly account-
able for a crime by an employee.75 At the time, railroads defined American
industry, perhaps in the way Enron symbolized the high-tech and energy
boom and bust of the 1990s. The New York Central & Hudson River Rail-
road and two employees were indicted for charging a sugar company less
34 Too Big to Jail
than the published shipping rate. This violated the Elkins Act, a federal law
that sought to prevent side deals and favoritism by railroads. Documents
showed that the rebates had been given, so no one disagreed about those facts.
Instead, the railroad argued that the Elkins Act violated the Constitution
when it made the corporation criminally liable for the acts of its employees.
The railroad argued that to punish the corporation is in reality to punish
the innocent stockholders, and to deprive them of their property without
opportunity to be heard, consequently without due process of law. While all
criminal defendants are presumed innocent until proven guilty, the corpora-
tion could not by definition be guilty, since no action of the board of direc-
tors could legally authorize a crime, and the shareholders had not done any-
thing wrong either.
In response, the Supreme Court noted that corporations had long been
prosecuted for crimes. English authorities such as William Blackstone may
have said a corporation cannot commit treason, or felony, or other crime in
its corporate capacity, but as historian Paul Halliday has written, there was
a long history of corporationsoften municipal corporationsbeing held
accountable by having their charter revoked by the English Crown. In the
most famous incident, the City of London was dissolved (as a corporation),
with its rights later restored by Parliament.76 The concept was that corpora-
tions existed as creations of the state. A corporation is invisible, immortal,
and rests only in intendment and consideration of the law, as Sir Edward
Coke put it.77 On the flip side, as Blackstone noted, if the corporation has
broken the condition upon which it is incorporated, then the incorporation
is void.78
The American colonies had direct experience with the uncertain rights
and responsibilities of corporations. In one of the most dramatic incidents,
King James II sought to revoke Connecticuts corporate charter, sending a
governor and soldiers to obtain it. According to the quite wonderful but per-
haps embellished accounts, the Connecticut General Assembly received the
new governor in their chambers with the charter document before them in a
mahogany box. The legislators debated at length the correct approach, pon-
tificating until nightfall, when suddenly all of the candles were mysteriously
blown out. When the candles were relit, the charter was gone. A man had
run off with the charter and placed it in the hollow of a massive oak tree, now
Connecticuts state tree and ever since called the Charter Oak.
After the Founding, states increasingly granted charters to corporations

to provide transportation and other services. Courts held corporations liable
for creating public nuisanceswhat we might call environmental violations.79
Courts also increasingly held corporations liable in civil cases; the New York
Court of Appeals explained in 1860 that failure to hold them accountable for
injuries would turn them into most mischievous monsters.80 Beginning in
the nineteenth century, more courts began to hold corporations liable for
crimes.81 Where states drew the line, and where most states still draw it, is
barring prosecution of a company for violent and intentional crimes such as
assault, battery, and homicide.
As a result, the railroad case was easy for the Supreme Court. The deci-
sion was unanimous, with the Court noting that these employees were au-
thorized to set rates for the railroadthey were clothed with authority by
the railroad corporation and so were bound to respect federal law. As the
Court put it, quoting a well-known criminal law treatise from the time, If,
for example, the invisible, intangible essence or air which we term a corpora-
tion can level mountains, fill up valleys, lay down iron tracks, and run rail-
road cars on them, it can intend to do it, and can act therein as well viciously
as virtuously. Corporations in the Gilded Age were reshaping America; that
is why there was every reason in public policy to hold the corporations
liable for crimes. Regulating railroads simply would not be effective if only
the employees were prosecuted, since these acts were, after all, for the benefit
of the corporations of which the individuals were but the instruments. The
Court could not shut its eyes to the fact that the great majority of business
transactions in modern times are conducted through these bodies. To give a
company immunity from all punishment because of the old and exploded
doctrine that a corporation cannot commit a crime would take away practi-
cally the only means to prevent abuses by corporations.
The federal courts approved the same rule for other federal crimes. In
1918, Judge Learned Hand wrote that there is no distinction in essence be-
tween the civil and the criminal liability of corporations, based upon the ele-
ment of intent or wrongful purpose.82 Some states adopt a narrower stan-
dard for when a corporation can be criminally liable, and many use the Model
Penal Code and its requirement that conduct by an employee be permitted or
tolerated by management. 83 But the federal standard remains broad
broader than standards for corporate liability elsewhere in the world. The
36 Too Big to Jail
corporation is liable when any employee commits a crime so long as the em-
ployee was acting within the scope of employment and for the corporations
benefit.
The Sweep of Federal Criminal Law
Not only is the standard for holding corporations liable broad, but so are the
underlying federal crimes. Consider the obstruction-of-justice statute at
issue in the Andersen case. The statute applies to anyone who knowingly
and corruptly induces others to conceal information from any pending
official investigation. Other bread-and-butter crimes use words such as will-
fully. The required level of criminal intent is often low.
There are also many, many thousands of federal criminal laws. In fact, no
one knows exactly how many; a retired Justice Department official given the
unfortunate job of trying to count them all in the 1980s stated, You [could]
have died and resurrected three times and still have no answer.84 Some of
the laws are obscure and minor, such as the one making it a crime to misuse
the image of Smokey the Bear. And it depends how you count them, as some
provisions have phrases that judges have interpreted as creating separate
crimes.85 When an administrative agency is established to regulate, say, se-
curities or food and drugs, Congress also often makes it a crime to willfully
violate any regulation the agency enacts; over time, the regulations may come
to number in the hundreds or thousands. 86 On the other hand, most obscure
laws are rarely used. Corporations are mostly convicted of fraud, environ-
mental offenses, antitrust activity, food and drug violations, and a few other
crimes.
Some federal criminal laws were product of corporate scandals. Securities
fraud statutes grew out of the Great Depression and the enactment of the
1933 and 1934 Securities Acts. The statutes of the Racketeer Influenced and
Corrupt Organizations (RICO) Act came about as the result of 1960s reve-
lations of the corrupting influence of organized crime. The Foreign Corrupt
Practices Act (FCPA) grew out of the Watergate Special Prosecution Force,
which found that corporations had slush funds dedicated to illegal campaign
donations in the United States and bribes overseas.87 The 1980s brought
still more scandals, including the savings and loan failures, insider trading
cases, and government contracting abuses, with new criminal statutes passed
in response to each, including the Money Laundering Prosecution Improve-

ments Act of 1988, the Major Fraud Act of 1988, and the Antitrust Amend-
ments Act of 1990. In the aftermath of Enron and Andersen, Congress
passed the Sarbanes-Oxley Act and made a series of changes to criminal
laws. The global financial crisis produced the Dodd-Frank Act, with provi-
sions to encourage whistle-blowers to come forward. Federal criminal law
continues to adapt and respond to white-collar crime.
The Andersen Case Concludes
The approach of federal law to corporate crime was expressed in the broad
jury instructions in the Andersen case. The judge told the jury: The Defen-
dant in this case is a partnership rather than an individual. Under the law, a
partnership is a person and may be liable for violating the criminal laws.
However, such an entity is only legally bound by the acts and statements its
agents do or make within the scope of their employment.88 So long as the
agent was dealing with a matter that was generally entrusted to the agent
or in line with his or her duties, the corporation is on the hook. Even if the
employee was violating company policy, the company can be convicted. The
judge explained:
In order for a partnership agent to be acting within the scope of

his or her employment, the agent must be acting with the intent,
at least in part, to benefit the partnership. It is not necessary,
however, for the Government to prove that the agents sole or
even primary motive was to benefit the partnership. Further-
more, the Government need not prove that the partnership was
actually benefited by the agents actions.89
Just one criminal agent was enough. And there was no question that the rel-
evant employees were acting within the scope of their jobs. What did it
mean, though, to corruptly persuade others to obstruct justice?
This key jury instruction was complicatedmaybe too complicated
because it grew out of a fight between the lawyers. The jurors were instructed
that the purpose of the action must have been in part, to subvert, under-
mine, or impede the fact-finding ability of an official proceeding.90 The judge
38 Too Big to Jail
told the jury, It is not necessary for the Government to prove that an official
proceeding was pending or even about to be initiated at the time the obstruc-
tive conduct occurred. Both sides argued at length with the judge about the
crucial question of what employees of Andersen must have been doing when
they destroyed documents.91 The prosecutors asked for the phrase subvert,
undermine, or impede to be included in the instruction. The defense argued
this was vague. The word impede, they claimed, can be anything. Prosecu-
tors countered that employees must have been impeding an official inquiry.92
The defense wanted to include the word dishonestly, to highlight that well-
meaning actions were not enough to convict. In fact, the standard jury instruc-
tion in the Fifth Circuit defined corruptly as knowingly and dishonestly, with
the specific intent to subvert or undermine the integrity of proceedings. The
defense lawyer argued the judge was going where the courts have not gone
beforea Star Trek reference, the lawyer added.93
In the end, the judge gave the jury an instruction without the word dishon-
estly, instead using the phrase subvert, undermine, or impede. The instruc-
tion did not say anything about a specific intent to destroy documents to be
used in a particular official proceeding. The judge reminded the jury that
the fact that David Duncan pleaded guilty is not evidence of the guilt of
Andersen, but you may consider it in evaluating David Duncans testi-
mony.94 The judge also reminded the jury not to think anything of the fact
that Temple and several others were unavailable to testify, nor of the fact
that some people were not charged as defendants.95 Would the jury properly
understand those instructions and be able to sort through the huge body of
evidence?
With the jury having heard the judges instructions, both sides presented
their closing argumentstheir chance to leave a final impression and try to
make the sprawling case simple and clear. The prosecution placed the chief
blame not with David Duncan but with Nancy Temple and the legal team,
arguing, Arthur Andersens legal department was the driving force behind
this. They emphasized that the Andersen partners and lawyers were acting
intentionally. Andersen knew the drill. They knew the stakes with the SEC,
the prosecutor said. They knew that Enron was dj vu all over again with
Waste Management and Sunbeam, two of the previous cases involving An-
dersen and accounting investigations.96 The Andersen lawyers would have
been insane not to be worrying about being sued by the SEC. Why else
would they send out messages about the importance of following the docu-
ment retention policyto simply make sure everyones files were not messy?
The prosecutor emphasized, You dont worry about mopping the floor when
the buildings on fire.97
The defense responded with outrage. The lead defense lawyer almost had
to be restrained by federal marshals when he refused to stop objecting dur-
ing the prosecutors closing arguments (he announced, May the record re-
flect that the marshals have just asked me to sit down).98 Maybe that was
intended to show the depth of emotion the lawyer felt for the corporation
that was on trial. During his own arguments, the lawyer said: They had no
evidence that anybody did this for an improper purpose. . . . Did it look sus-
picious? You bet.99 But the entire case was the most incredible tragedy and
rush to judgment, where everybody assumed this company was guilty.100
Even early on in the trial, he had complained to the judge, I do not believe
were receiving a fair trial.101 With his time running out, the lawyer empha-
sized that it would be wrong to have ruined such a large firm and this trial
was the only chance we have ever had to recapture the legacy and reputation
of Arthur Andersen.102 To the end, the defense sought to portray the com-
pany as a human victim. Perhaps this was like a death penalty casean appeal
to mercy was needed, since the defendant would not survive a conviction.
The prosecution had the last word in rebuttal (although the defense re-
peatedly interjected, behavior the judge called absolutely outrageous). If
Andersen was a person, it was no different from a common criminal. No
criminal can go into a crime scene and say, Because the police might be
coming, lets get rid of the gun. Everyone must be accountable under the
law, even a Big Five accounting firm.103
The jury deliberated for ten days. It included three women and nine men,
most of whom were black or Latino. They were initially split evenly, six to six,
but as they continued to deliberate for days, more changed their votes to
convict.104 During that time, they sent questions to the judge asking to see
things or for clarifications. They asked for the jury instructions, for office
supplies, and to read all of David Duncans testimony again.105 The jurors
also asked to see a dictionary. The judge said they could not have one, telling
them, If you have a word you would like to find, please indicate that word.106
The jury then sent a note on the seventh day, with three jurors apparently
still voting to acquit: We are not able to reach a unanimous decision. The
40 Too Big to Jail
judge gave the jury an instruction colloquially called a dynamite instruction

(because it can blow apart deadlocked jurors), telling them to deliberate more
to see if they could come to a verdict. As time passed, the defense asked for a
mistrial, but the judge responded, Were here. Lets let the jury deliberate
and see what happens.107
The jury then asked a good question: If each of us believes that one An-
dersen agent acted knowingly and with corrupt intent, is it [required] for all
of us to believe it was the same agent?108 This question went to the heart of
the case: who was the corrupt persuaderand could there be more than
one? The government had proposed language suggesting that maybe more
than one employee could add up to a corrupt persuader, but eventually with-
drew it.109 The defense argued, The only issue for 12 people to unanimously
agree on, from our perspective, was obviously the possibility of Duncan or
Temple.110 The defense wanted the jury given more instructions that it had
to be one specific person, and the judge said, I understand your position, but
I am not going to send back another note. Im not going to send back another
instruction.111
After deliberating for ten days, sequestered in a hotel, the jury voted to
convict on June 15, 2002. Apparently there had been a lone holdout juror
who was initially not convinced there was a single person who corruptly per-
suaded, but the holdout seemed to have concluded that, based on the Octo-
ber 16 email, Temple was the corrupt persuader. That juror spoke to re-
porters after the trial, calling the email the smoking gun.112 David Duncans
testimony admitting his guilt was apparently not the deciding factor, at least
not for the holdout juror.
Now Andersen faced up to five years probation and a $500,000 fine. One
prosecutor spoke of how the case sent a message: Dont destroy the evi-
dence. The lead prosecutor commented, We are not finished with Arthur
Andersen. Andersen had been badly damaged even before the verdict, hav-
ing laid off 7,000 employees, sold many of its practices in the United States,
and lost a quarter of its clients.113 Under SEC rules, once it was convicted
Andersen had to give up doing accounting work for public companies. An-
dersen notified the SEC that it would stop auditing public corporations by
August 31, 2002, and on that day Andersen gave up its licenses.114 Its St. Louis
office sold off the contents of its three floors at a public auction; apparently
the designer Herman Miller chairs were the first to go. (Former Andersen
employees were allowed to go to a special pre-sale, perhaps to buy their own

office furniture.)115 Many partners and employees had left for other account-
ing firms, while thousands more employees who had had nothing to do with
Enron were now out of work.
Reversal and Aftermath
The case slowly made its way to the U.S. Supreme Court on appeal. The
Fifth Circuit Court of Appeals unanimously affirmed the conviction, calling
it clear at every step that the SEC was the feared opponent and initiator of
a proceeding and not some other shadowy opponent.116 Then the Supreme
Court took up the case. Among those filing a friend-of-the-court brief on
Andersens behalf was the U.S. Chamber of Commerce, the worlds largest
business federation, which wrote in opposition to the potential criminal-
ization of document retention policies, saying that it could paralyze busi-
nesses.117 It also criticized prosecutors for prosecuting the corporate structure
rather than individual people.
When the Supreme Court held oral arguments, the justices seemed suspi-
cious of the conduct at Andersen. Justice Antonin Scalia noted, We all know
that what are euphemistically termed record-retention programs are, in fact,
record-destruction programs.118 Justice Anthony Kennedy added, Well,
thats like inthe oldthe rule in the Army, Make two copies of everything
you throw out. (That line earned laughter from the spectators.) But there
were also incredulous questions about the broad way the government was
interpreting the obstruction-of-justice statute. Justice Sandra Day OConnor
pointed out that although Duncan had pleaded guilty, it was lawful and
perfectly okay for him to destroy documents on his own. The question was
whether he had corruptly persuaded anyone else to destroy documents.
In May 2005, the justices unanimously voted to reverse the conviction.
The problem, they said, was one of state of mind. The statute required that
someone must knowingly and corruptly persuade. Neither side at trial
had focused on connecting the words knowingly and corruptly, but the justices
suggested that the two words together required the prosecutors to show a
more specific bad intent to keep evidence from officials. The jury was told
that even if [the] petitioner honestly and sincerely believed its conduct was
lawful, it could convict. The justices were troubled that the jury instruction
42 Too Big to Jail
did not really use the word corruptly, instead including language about ac-
tions that subvert, undermine, or impede a proceeding. That instruction
did not clearly tell the jury that they had to find that there had been a direct,
knowing and dishonest intent to specifically convince a person to destroy
documents relevant to a particular official proceeding. That said, judges are
still divided on exactly what the word corruptly means in the statute, since
the Court never said what was the right way to explain it to the jury.119
Meanwhile, the jury foreman told the press that he thought the Supreme
Court has made a grave error.120
The defense lawyers celebrated: Its an incredible triumph for the judicial
system in America to do this even though the company has been destroyed
and the employees are scattered to the winds.121 This outcome suggests a
twin problem. Corporate convictions can have terrible collateral effects on
innocent people: employees, shareholders, and the public. Yet failing to pros-
ecute the firm may let it continue to violate the law with impunity. Andersen
had been repeatedly targeted in civil enforcement actions, and it was on no-
tice long before the Enron case existed.
Federal prosecutors were widely called responsible for destroying Ander-
sen, though they do not really deserve that blame or creditnot fully, at
least.122 Andersen had already been on the edge, rapidly shedding employees
and clients, and the SEC and other prosecutors and regulators were waiting
in the wings. If you are already dying, maybe you do not mind risking the
death penalty a trial might bring. Still, prosecutors were right that in order
to bring more prosecutions against large corporations, they would need a
strategy. As one judge has put it, when prosecutions can be a matter of life
and death to many companies, prosecutors may be the ones who hold the
proverbial gun to [the corporations] head.123 Yet many corporations are
convicted each year without suffering Andersens fate. The reputation of an
accounting firm may be greatly affected by fraud allegations, but how about
those with diverse sets of clients and customers, such as Siemens? Does
someone deciding which coffeemaker to buy care about bribes in a mass
transit project in Argentina? If regulators decide not to suspend or debar a
firm, then the collateral consequences of a conviction may be small.
Enron and Arthur Andersen were just two of the corporations that col-
lapsed as the dot-com bubble burst, an event that uncovered still more major
corporate scandals. No less than 10 percent of publicly listed companies re-
stated their earnings.124 Federal Reserve chairman Alan Greenspan spoke of

how an infectious greed seemed to grip much of our business community.125
In response, Congress enacted new legislation, known as the Sarbanes-Oxley
Act, which included new crimes, corporate disclosure requirements, new
oversight for accountants, regulation of corporate audit committees to reduce
conflicts of interest, and additional enforcement resources.126
Congress also changed the criminal laws, enacting a broader version of
the obstruction-of-justice law that Arthur Andersen was prosecuted un-
der.127 The fraud statute saw an increase in penalties, particularly in major
financial cases.128 Congress created two new crimes, conspiracy to commit a
securities offense129 and retaliating against whistle-blowers.130 Congress asked
the U.S. Sentencing Commission to consider more severe sentences, given the
growing incidence of serious fraud offenses and the need to deter, prevent,
and punish such offenses.131 The commission took the hint and enhanced
punishments for a range of white-collar offenses, including crimes involving
millions of dollars in losses to victims and obstruction of justice.132 More
recently, Congress enacted the Dodd-Frank legislation in 2010, providing
the SEC with additional enforcement resources and adding rewards for
whistle-blowers reporting major corporate crimes.133
Do tougher laws really discourage corporate crime? The newest white-
collar crimes have rarely been enforced. Companies have found ways to
adapt to the new rules, as I will describe, and only a handful suffered the
fate of Andersen. Law professors David A. Skeel and William J. Stuntz
have argued that such get-tough legislation, while moralistic in tone, is
deeply immoral in practice because it is both rarely and idiosyncratically
enforced.134 One question is whether a few unlucky individualscelebrities
such as Martha Stewart or truly notorious white-collar criminals such as
Bernard Madoffreceive the brunt of enforcement while the vast majority
of corporations and executives get off scot-free. Some, including law profes-
sor Vikramaditya Khanna, view seemingly tough corporate crime legisla-
tion as a good thing for corporations: it allows Congress to appear to be re-
sponding to public outcry without creating new forms of regulation, civil
liability, or liability for corporate managers themselves.135 Prosecutors have
limited resourceshow much do corporations have to fear from them,
compared with, say, the SEC, which can issue rules that apply across the
board?
44 Too Big to Jail
Although officials were talking about a new get-tough corporate prosecu-

tion approach, the September 11, 2001, attacks drew federal resources to-
ward national security and away from financial fraud investigations. As a
consequence, the Andersen case resulted in a new approach toward corpo-
rate prosecutions, which is the subject of this book. In the next chapter, I
describe how prosecutors would increasingly emphasize the goal of rehabili-
tating corporate criminals rather than convicting them, with a focus on set-
tling cases and requiring structural reforms.
To this day, a shell of Arthur Andersen remains. It never declared bank-

ruptcy, and it still operates a conference center outside Chicago. As its ranks
melted away, many partners and employees went on to successful careers at
other accounting firms. The consulting wing of the company, which split off
before the trial, is a major multinational corporation called Accenture, hav-
ing discarded the tainted Andersen name. What is left of Andersen is still
defending itself in court, not from prosecutors but from the last remaining
lawsuits by shareholders and other private individuals who claim that An-
dersens shoddy auditing harmed Enron and other companies. The DOJ
could have prosecuted Andersen again after the Supreme Court reversed
the convictionand maybe it would have won again with corrected jury
instructionsbut there was obviously no point. As an anonymous DOJ official
said at the time, Why would you charge a company thats already defunct?136
3
What Happens to a Prosecution Deferred?
According to Google, Dont be evil, its famous unofficial motto, is about

much more than treating customers well.1 Within the company, Google
explains that trust and mutual respect among workers are keys to success,
as is maintaining the highest possible standards of ethical business con-
duct. When Google signed a non-prosecution agreement in Rhode Island in
2011, forfeiting $500 million for accepting illegal Canadian pharmaceutical
advertisements, did that mean Google had violated its motto and done some-
thing evil? When prosecutors began investigating, Google promptly ad-
opted new practices to require screening and certification of online pharma-
cies.2 Prosecutors also required Google to hire an independent company to
screen ads and report to the Food and Drug Administration. Did prosecu-
tors improve the moral character of Google by holding it accountable? That
was the goal: to reshape a companys culture. After the Arthur Andersen case,
prosecutors emphasized a different approach by offering companies deals to
avoid a criminal indictment or conviction. The biggest early test of the ap-
proach came in the case of another major accounting firm: KPMG.
Standing before a U.S. Senate subcommittee in 2003, the partner who
headed KPMGs Personal Financial Planning practice explained how the
company had done nothing wrong. Tax shelters marketed by KPMG were
aggressive and complex and technical, but they were also consistent with
the laws in place at the time and subjected to rigorous review.3
At around the same time that Arthur Andersen was under scrutiny, the
Internal Revenue Service (IRS) announced that KPMG was being investigated
46 Too Big to Jail
for marketing tax shelters to wealthy individuals resulting in billions of dol-

lars in lost taxes. KPMG was not alone in this business, as law firms, major
banks, and other accounting firms set up these tax shelters for their clients.
A Senate committee began an investigation and conducted hearings in
November 2003. Under sharp questioning from Senator Carl Levin, the
KPMG partner denied that the tax shelters were designed primarily to help
customers avoid paying taxes.
Is it not the case that these were designed and marketed primarily as tax
reduction strategies? asked Senator Levin.
Senator, I would not agree with that characterization, the partner
responded.
Levin said, All right. Now, lets look at what other parties involved in
transactions said about that issue. He then cross-examined the witness like
a lawyer at a trial, reading out loud documents the Senate had obtained
showing that an investment advisory firm had asked KPMG to achieve the
desired tax results.
You dont see anything in there about investment, do you? asked Levin.
Senator, my testimony is that these were investment strategies that were
presented to individual taxpayers that had tax attributes that those investors
found attractive.
Senator Levin kept asking whether there was any doubt that these tax
shelters were designed to reduce a persons taxes.
The partner began, Senator, I dont know how to change my answer to
Well, try an honest answer, Senator Levin interjected.
What emerged was that KPMG not only stood to profit from these tax
shelters but also was being paid a percentage of clients tax savings. When
asked about this, the partner said that was true only in a very indirect way. 4
Two months after the Senate hearings, KPMG announced that the part-
ner who had given the opening statement and was in charge of the unit sell-
ing the shelters would be placed on leave. Another senior partner in charge
of tax planning would be retiringnot because of any wrongdoing, but be-
cause of ongoing consideration of its tax practices.5 Much later, KPMG
admitted in a statement to prosecutors that its employees provided false,
misleading, and evasive testimony before the Senate.6
Perhaps KPMG was a good corporation trying to disavow the acts of a
few employees. Can a corporation actually be good, bad, or even evil? I
What Happens to a Prosecution Deferred? 47
was surprised to see the view prosecutors have adopted toward corporations.
I would have expected those who bring criminals to justice to adopt a strict,
hard-nosed approach toward holding companies accountable for crimes.
After all, organizations of all kinds are defined as persons in federal laws,
and prosecutors can take advantage of the unforgiving federal rule holding a
company strictly accountable for a crime by an employee.
Instead, federal prosecutors began to treat corporations in a nuanced and
soft way. By 2003, the overriding goal of corporate prosecutions was to try
to rehabilitate a firms culture, not to punish. At the time of the Enron and
Andersen investigations, President George W. Bush called for a new cul-
ture with a sense of corporate responsibility.7 Shortly thereafter, as fraud
scandals spread to Adelphia, WorldCom, HealthSouth, and other major com-
panies, a deputy attorney general spoke about corporate culture as a web of
attitudes and practices that tends to replicate and perpetuate itself, and how
prosecutors can change corporate cultures that foster criminal conduct.8
New policies for corporate prosecutions would follow.
Rehabilitation is neglected in our criminal justice system, as our overpop-
ulated prisons are designed mainly to punish, not to make convicts better
people. Yet corporate prosecutions are a dramatic exception. Prosecutors say
a central goal is to rehabilitate corporations, to try to help make them better
and more ethical. When deferred prosecution and non-prosecution agree-
ments first became common, I thought they could be a promising develop-
ment. The agreements might structurally reform entire corporations, hold-
ing wrongdoers responsible and preventing future crimes. However, the
more I have examined how prosecutors have actually implemented the new
approach, the more troubled I have become. Prosecutors allow many large
companies to avoid an indictment or a conviction, largely freeing them from
judicial oversight. From 2001 through 2012, 58 percent of the companies
receiving deferred prosecution or non-prosecution agreements were publicly
listed on a U.S. stock exchange (148 of 255), while only about 6 percent of
those convicted without such an agreement were public (125 of more than
2,000 firms).
Prosecutors have entered deferred prosecution or non-prosecution agree-
ments with a long list of household names: AIG, America Online, Barclays,
Boeing, Bristol-Myers Squibb, CVS Pharmacy, General Electric, GlaxoSmith-
Kline, HealthSouth, JPMorgan, Johnson & Johnson, Merrill Lynch & Co.,
48 Too Big to Jail
Monsanto, and Sears. But it is not always clear what prosecutors get in ex-
change for offering leniency to some of the worlds largest companies. The
terms of these agreements often lack any rigorous structural reforms. Most
did require the creation of some kind of compliance program (63 percent, or
160 of 255 agreements), but only a quarter called for independent monitors
to supervise compliance, and fewer required evaluating the effectiveness of
compliance. More typically, prosecutors ask the company to hire new com-
pliance employees (35 percent, or 88 of 255 agreements), but almost one-
third did not mention implementing a compliance program at all (31 per-
cent, or 78 of 255 agreements). The agreements were short-lived, lasting
for an average of just over two years. It is doubtful that a large companys
culture can be reformed in so little time. Despite the genuine ambition of
the new approach, reading the terms of these agreements tells us some-
thing quite unsettling about how large corporate prosecutions are actu-
ally resolved.
The Fourth One Left Standing
After Arthur Andersens fall, the Big Five accounting firms that audit the
largest corporations in the United States were down to the Big Four. The fall
of Enron and a burst of corporate fraud scandals prompted further investiga-
tion into questionable accounting practices.9 While the Senate was conduct-
ing its investigation, the IRS issued summonses to one of the Big Four, KPMG.
KPMG did not fully comply. Now the question loomed: Would KPMG go
the way of Andersen? Would we now have just a Big Three? This looked pos-
sible; prosecutors soon fi led the largest criminal tax case ever against
KPMG.10
KPMG International is a global network of accounting firms with origins
in three different accounting firms, one founded by Piet Klynveld in Amster-
dam in 1917, one founded by William Barclay Peat in London, and one
founded by James Marwick in New York City in 1897. These came together
in the 1980s, with the G in the name coming from Dr. Reinhard Goerdeler,
an accountant who helped merge the firms.11 KPMG International is regis-
tered in Switzerland and provides tax and accounting services all over the
world, while KPMG LLP, the U.S. branch, is a partnership incorporated in
Delaware.
The Big Four operate on a far larger scale than accounting firms that do
work for individuals and small businesses, and they can take on accounting
for major public corporations. In the Andersen case, Enron charged forward
with risky financial and accounting practices, some of which Andersen may
have ratified. But in the KPMG case and other tax shelter cases that would
follow, it was the reverse, with tax advisors, accountants, and lawyers coming
up with the schemes themselves.
What was KPMG like as a workplace? It is hard to tell from the outside,
but KPMG has been ranked highly for its environment. Its website says that
the company promotes a culture of trust and collaboration, flexibility and
diversity, and highlights how clients talk about our high level of professional
ethics, our loyalty and our approachability.12 Its motto, Cutting through
complexity, which presumably refers to solving business problems and not to
avoiding tax laws, is not as catchy as Googles Dont be evil.13 The culture at
KPMG had not been traditionally aggressive; the firm did not try to sell its
services, preferring to offer them in a more genteel way to major corporations
and multimillionaire clients.
For a group of tax partners, that restrained culture changed in the late
1990s. This was a time of a great economic growth, and newly wealthy indi-
viduals turned to the major accounting firms, law firms, and tax advisors to
shield income from federal taxes. Tax evasion is not just failing to pay all of
ones own taxesit is involvement in a scheme to avoid paying taxes. The
employees at KPMG, alongside other accountants, lawyers, and banks, de-
signed a series of complex tax shelters and marketed them to wealthy indi-
vidual clients. KPMG did not just provide tax advice; it actively began selling
tax shelter products. The target customer had $20 million in capital gains
each year, easily enough to justify paying to shelter the funds.
The tax shelters were complicated and confusingly named, going by acro-
nyms such as FLIPS, OPIS, and BLIPS. The main idea was simple, thoughto
create miniature companies for wealthy clients to invest in, allowing them to
deduct their investments or paper losses while taking very little real risk or
actual losses.
Take BLIPS, or Bond Link Issued Premium Structure. This scheme pro-
posed the creation of an artificial loss in order to shelter income from taxes.
Doing so required another firm, known as the promoter. One promoter of
BLIPS was a company, Presidio Advisory Services, founded by two former
50 Too Big to Jail
KPMG employees. The taxpayer would pay a percentage of the taxes he or

she sought to avoid to a shell company. The shell company then got a much
bigger loan from a bankDeutsche Bank was one of the banks and would
later be prosecutedwith interest payments over several years so large that
the client would appear to be facing a loss.14 Yet the banks money would
never be at risk, as careful conditions placed on the loan ensured that it
would basically remain in the banks own vaults. The supposed business in-
vestments of the shell company were very small and made only with the tax-
payers money, not with the loan from the bank. The shell company would
make small investments in foreign currencyperhaps the Hong Kong dol-
lar or Argentinean pesobut these were done only briefly, as a fig leaf.15
One of the employees at Presidio later testified that it would take an unbeliev-
able miracle for the shell company to actually make money on its investments:
Given that BLIPS only lasts 60 days, there is no chance to profit.16 When the
shell company was dissolved, often on the sixtieth day, all the partners received
their money back.17 The taxpayer would claim the millions of dollars of inter-
est due on the huge loan as a loss, trying to take advantage of a quirk in part-
nership tax law. Meanwhile, the bank, the lawyers, KPMG, and the promoter
would all get a fee. Everyone won, except the government.
The other shelters were just as complicated or more so. The FLIPS and
OPIS shelters involved entities set upwhere else?offshore in the Cay-
man Islands. As one of the KPMG partners later candidly put it, these shel-
ters stood out more like a sore thumb, as no one in his right mind would
pay such an exorbitant price for that option.18 Another shelter, the SOS
shelter, was popular within the firm, and fourteen KPMG partners used it
themselves.19 These shelters were among KPMGs top revenue producers
until they were shut down. BLIPS was approved by KPMG for sale in 1999
and sold to 186 people before the IRS listed it as potentially abusive in 2000.
But in just one year, BLIPS earned $53 million in revenue and generated
billions of dollars in tax losses.20
What was the attitude within the firm toward these shelters? We know
something about the culture at KPMG during this time from internal emails
later obtained by the Senate committee that investigated the matter. Its re-
port described a corporate culture that placed ongoing pressure on the
tax professionals at the company to sell these shelters.21 Initially, people at
KPMG went back and forth about whether the various shelters were legal,
ultimately giving an opinion that it was more likely than not they were al-
lowed. High-level partners at both its Tax Department and its Washington,
D.C., office were involved. Internal documents indicated that they felt some of
the regulations were vague, and even if they were caught, the fines would be a
fraction of their profits: no greater than $14,000 per $100,000 in KPMG
fees.
One former KPMG partner testified at the Senate hearings in 2003 that he
was never comfortable that the BLIPS shelter would actually create a rea-
sonable opportunity to make a reasonable pre-tax profit. He had expressed his
discomfort in an email, saying that if there really was no potential for profit,
then our opinion is worthless. He described how he was disappointed with
the decision to let this tax shelter go forward, but because there were a lot of
smart partners with significant experience who approved it, there was re-
ally nothing left for me to say.22
Emails showed major disagreements within KPMG. One KPMG em-
ployee emailed that the whole thing stinks and that I believe we are filing
misleading, and perhaps false, returns by taking this reporting position.23
The discussions at KPMG could at times be crass; one employee declared, I
do believe the time has come to shit and get off the pot, only to receive a re-
ply from the second-in-command at the tax services practice: I believe the
expression is shit OR get off the pot, and I vote for shit.24
Other KPMG partners testified there was a rigorous debate and dispa-
rate views but that they ultimately approved the shelters. One testified that
money was not a consideration and that they had engaged in intensive
meetings and review over several months in 1999 before deciding to go for-
ward.25 To be on the safe side, KPMG also required customers to sign a let-
ter attesting that they had reviewed the shelters themselves. However,
KPMG did not register the shelters with the IRS. The IRS had a procedure
for someone organizing a shelter to notify the agency, describe the transac-
tion, and learn if the shelter posed potential problems. KPMGs lawyers
noted that by not registering the shelters, they risked prosecution, but regis-
tering the shelters might make them harder to sell, and they would not be
able to compete with other tax advisors.26
The internal emails indicated they were not so conservative in their mar-
keting. One read: We are dealing with ruthless execution, hand-to-hand
combat, blocking and tackling. Whatever the mixed metaphor, lets just do
52 Too Big to Jail
it. The Senate Report concluded that KPMG turned its tax professionals
into salespeople, pressuring them to meet revenue targets, using telemarket-
ing to find clients, using confidential client tax data to identify potential buy-
ers, [and] targeting its own audit clients for sales pitches.27 Senator Levin de-
scribed the typical phone call like this:
We know you made a lot of income. Do you want to pay less

taxes on that income? And the people who are supposed to pay
taxes will say, Well, is it legal? Is it proper? They say, Yes, we
got a legal opinion saying its proper.
KPMG created an entire telemarketing center to try to sell tax shelters to

multimillionaires. Emails also shed light on the culture in the group: SELL,
SELL, SELL!! Another warned the partners, Look at the last partner
scorecard. Unlike golf, a low number is not a good thing. . . . A lot of us need
to put more revenue on the board.28
Unlike typical accountants, KPMG was not paid by the hour, did not
charge a flat fee, and was not compensated based on the returns from these
supposed investments. Instead, KPMG, the banks, and other participants in
creating the shelters were paid a percentage of the taxes avoidedusually
57 percent (KPMGs share was usually about 1 percent).29 Yet many states
make it illegal to pay a percentage fee to accountants.30
Enter the IRS
In March 2000, two more tax partners at KPMG advised that these shelters
were frivolous and would lose in court, but the leadership at KPMGs tax
practice decided to continue selling them.31 The IRS became concerned that
the shelters were not real investments with economic substance, and in
August 2000 it issued a notice stating that shelters without real economic
substance were in its opinion not allowed and penalties could result from
their use.32 No court had ever ruled the tax shelters illegal, nor had the IRS
issued a regulation declaring them illegal, as doing so would take time, given
the cumbersome process involved. To more quickly respond to creative new
tax shelters it views as problematic, the IRS can issue a notice to list the
practice as illegal in its view. Congress later changed the IRS Code, and
regulations were adopted making BLIPS illegal.33
Administrative agencies such as the IRS have broad authority to con-
duct investigations, including sweeping powers to subpoena or request
documents, call witnesses, and even require a witness to submit a statement
under oath. The Supreme Court famously said an agency has a power of
inquisition and can investigate merely on suspicion that the law is being
violated, or even just because it wants assurance that it is not.34 Dating
back to 1864, the IRS has had the power to issue a summons to a taxpayer
suspected of fi ling an incorrect return, and the IRS can now inquire into
any offense connected with the administration or enforcement of the inter-
nal revenue laws.35
When the IRS issued its summons, KPMG provided hundreds of boxes
of documents, but it withheld as privileged important documents regarding
some of the shelters. In 2002, the IRS asked a judge to order KPMG to pro-
vide those documents; the judge concluded KPMG had misrepresent[ed]
these tax shelter marketing activities as privileged when they were clearly
not.36 KPMG later admitted it had falsely claimed to have given the IRS all
the documents requested.37 The IRS asked KPMG for the names of their
tax shelter clients, and also asked for names from two of the other Big Four
accounting firms: Ernst & Young and PricewaterhouseCoopers (as well as
another accounting firm, BDO Seidman).
At the same time, the Senate began its own investigation, and KPMG
failed to hand over requested documents related to the SOS shelter and use
of shelters by its own partners.38 At hearings in November 2003, Senator
Levin not only sharply questioned witnesses but also demanded an end to
the practices: The engine of deception and greed needs to be turned off,
dismantled, and consigned to the junkyard where it belongs. Meanwhile,
the IRS estimated tax losses of $33 billion from these listed tax shelters
and another $52 billion from other questionable tax shelters.39
What would the IRS do? Most agencies are hands-off until a problem
comes to their attention, since they do not have the resources to investigate
most companies or even do much spot-checking. The IRS processes millions
of tax returns each year from companies and hundreds of millions of tax re-
turns from individuals, the most complicated of which may be very hard to
54 Too Big to Jail
understand. IRS enforcement budgets have shrunk; the agency has lost thou-
sands of employees, and it can do few audits of big companies.40 An agency
such as the IRS can create detailed standards for companies to follow and
then encourage reporting and self-regulation by promising serious conse-
quences for those that do not comply. As SEC chairman and later U.S. Su-
preme Court Justice William O. Douglas put it, Self-discipline is always
more welcome than discipline imposed from above. 41 That is why agencies
increasingly emphasize transparencydisclosing accurate information to
regulators and the publicso that misconduct does not occur in the first
place, or is disclosed if it does happen. If an agency learns a company has vio-
lated regulations or laws, it has several options. It may give the company a
warning and an opportunity to correct the problem. Or it may decide to pur-
sue civil remedies such as fines or orders to cease illegal activity (injunctions),
either before its own administrative judges or in more formal proceedings be-
fore a federal judge.
However, if the agency thinks a person or corporation is being defiant or
has violated the rules in an egregious way, it may decide that the case should
be criminal. Agencies have different procedures and practices to make this
decision, and no agency refers very many cases for criminal investigation.
The IRS has a strong preference for prosecuting individuals and not com-
panies for tax fraud.42 Yet the KPMG case was seen as worthy of prosecu-
tion, and by December 2003 the IRS had referred the case to its criminal
investigators.
Following the U.S. Senate hearings, the IRS referred the case to the U.S.
attorney for the Southern District of New York to consider a possible pros-
ecution.43 Meanwhile, the IRS gave taxpayers who used these shelters about
six weeks to come forward and pay the taxes they owed, with no penalty
but if they did not pay, they would face more severe consequences later. 44
The IRS ended up settling with about 1,200 individual taxpayers and recov-
ering $3.7 billion in unpaid taxes from those who came forward as part of
the settlement initiative.45
The Brooklyn Plan
How would prosecutors approach KPMG now that they had been called
into action? In 2002, President George W. Bush created the Corporate
Fraud Task Force, consisting of prosecutors to coordinate investigation and

prosecution of companies (in 2009 it was rebadged as the Financial Fraud
Enforcement Task Force).46 The task force was centered at the Department
of Justices offices in Washington, D.C., although it worked with the various
U.S. attorneys offices around the country, regulators such as the SEC and
IRS, and some state prosecutors. A new strategy emerged, using a procedure
that traced its origins back to, of all things, a 1930s plan to deal with first-
time juvenile offenders in Brooklyn, New York.47 The so-called Brooklyn
Plan began with a prosecutors idea to file a case in court but defer a prosecu-
tion, a procedure known as diversion. If the juvenile stayed out of trouble for
a year or so, the charges would be dropped. Diversion programs, now used
around the country, aim to channel low-level offenders out of the system, give
them a chance, and focus on the more serious offenders. The new approach
suggested that corporations were more like juvenilesnot entirely innocent,
but mainly in need of guidance, rehabilitation, and supervision.
The modern corporate culture revolution dates back to 1991 and the im-
plementation of the U.S. Sentencing Guidelines, which emphasize reward-
ing a company for efforts to promote an organizational culture that encour-
ages ethical conduct and a commitment to compliance with the law. 48 Before
then, compliance programs were important only in a few industries where
regulations required them, along with some voluntary initiatives, such as
those in the defense industry after the military procurement scandals of the
1980s.49 Now compliance programs are pervasive across the U.S. economy.
There are entire professional organizations of people who specialize in com-
pliance work. Companies often have dedicated ethics and compliance offi-
cers, separate from their legal department or general counsel, who oversee
this work.50
Shortly before the IRS sent the KPMG case to the U.S. attorney, the De-
partment of Justice had put a new theory of corporate prosecutions into
writing, one that focused on corporate culture and compliance. There had
been a few corporate deferred prosecution agreements before. The first that I
have found was in 1992, with Salomon Brothers, and there were a dozen
such agreements overall in the 1990s. In 1999, under Deputy Attorney Gen-
eral Eric Holder, the DOJ issued its first memo providing guidelines for cor-
porate prosecutions.51 The deferred prosecution approach was more firmly
set out in 2003 in a set of revised DOJ guidelines. These principles for the
56 Too Big to Jail
prosecution of organizations, contained in the U.S. Attorneys Manual, used

by federal prosecutors, were popularly called the Thompson Memo after
Larry Thompson, the deputy attorney general who revised them.52 While
DOJ has revised the guidelines several more times (the McNulty Memo re-
leased in 2006 contained revisions by then-deputy attorney general Paul
J.McNulty, and the Filip Memo released in 2008 contained revisions by
then-deputy attorney general Mark R. Filip), the principles still maintain the
same basic approach.
At the heart of the approach are nine factors to consider when deciding to
prosecute a company. It begins with factors you would think would matter
most to prosecutors: (1) the seriousness of the offense, (2) the pervasiveness of
wrongdoing within the corporation, and (3) the firms history of similar con-
duct. The next three factors turn to cooperation and compliance: (4) the firms
timely and voluntary disclosure of wrongdoing, (5) the firms compliance pro-
gram, and (6) any remedial actions, such as firing wrongdoers and cooperating
with prosecutors. The last three factors discuss whether a criminal prosecu-
tion is a good idea given (7) the harm a prosecution would cause, including to
shareholders, (8) the adequacy of prosecutions of individuals, and (9) whether
it would be enough to impose civil or regulatory remedies. Lawyers hang on
each word in the guidelines to argue that their client should receive leniency.
Without receiving real leniency in exchange for self-reporting and compli-
ance, corporations would have little incentive to disclose their crimes or
adopt compliance measures that might uncover still more crimes, as law pro-
fessor and economist Jennifer Arlen has explored in her work.53 The new
approach encouraged prosecutors to defer prosecution in order to permit a
company to improve its compliance program and to cooperate. The DOJ said
this would make prosecutors a force for positive change of corporate cul-
ture, alter corporate behavior, and prevent, discover, and punish white collar
crime.54 These agreements, as one prosecutor put it early on, provide a way
to get better results more quickly . . . Were getting the sort of significant re-
forms you might not even get following a trial and conviction.55 The new
approach would produce very different negotiations with corporate targets,
ones where the goal is to come to a deal that can rehabilitate the culture of
the corporation. But those guidelines say nothing about how to actually ac-
complish that goal.
The Study of Corporate Culture
Can prosecutors on the outside promote sound compliance inside a com-

pany? There are different ways of categorizing corporate cultures, or subcul-
tures. We all know that working for one employer can be very different from
working at another, even if they are similar companies in the same industry.
In a classic treatment, Terrence Deal and Allan Kennedy talk about a work-
hard, play-hard culture, a tough-guy macho culture, a process culture, and
a risk-taking bet-the-company culture.56 Procedures and codes of ethics
may also help define culture, as may supervision and discipline of employees.
There are competing assessment tools: one well-known example designed by
Kim S. Cameron and Robert E. Quinn uses the Competing Values Frame-
work based on employee surveys, and describes the culture of a firm in four
dimensions: whether it is hierarchical or flexible and ad hoc, and whether it
is internally focused, with a clan culture, or 4 outwardly or market/results
focused.57 Cameron and Quinn acknowledge that some companies may be
more effective with one type or another. None of those cultures necessarily
tolerates poor ethics or criminal conduct, nor do prosecutors use any such
tools to try to assess a companys culture.
If there is a problem with a companys culture, how do managers change
58
it? Some scholars who study corporate crime, such as Brent Fisse and
John Braithwaite, suggest the use of internal controls and procedures.59
Others suggest that compliance procedures and codes of ethics may send a
message that what is valued is just following rules, rather than doing the
right thing for its own sake. As one scholar puts it, There are no quick and
easy techniques for building a new organizational culture. 60 There is an
enormous literature on trying to change an organization, written by people
who study business, corporate governance, management, organizational
theory, and sociology. None suggest that such work is easy. Efforts to im-
prove compliance may need to go beyond rewriting the rules to an ongoing
process affecting how employees think and behave. Compliance may be
most difficult to implement where the legal rules are not crystal clear, as
with much of federal criminal law.61 That said, prosecutors are not trying
to change everything about a companys culturejust its compliance with
criminal law.
58 Too Big to Jail
Negotiating with Prosecutors
The negotiations between KPMG and federal prosecutors began at the high-
est levels, with executives meeting directly with the U.S. Attorney. Those
meetings do not occur in a typical criminal case, and normally such negotia-
tions would remain secret until a deferred prosecution agreement was reached.
The KPMG case was different. A team of six or more prosecutors participated
in negotiations, as did the U.S. attorney himself. There were far more lawyers
on the KPMG side, along with a welter of lawyers from different firms hired
by former KPMG employees. Twenty-two million pages of documents in the
case and details about how the negotiations occurred would later be aired be-
fore Judge Lewis Kaplan in the Southern District of New York.
KPMG hired new lawyers to come up with a new cooperative approach,
with a team led by a former prosecutor who had previously represented
Enron and other major clients. He promised prosecutors that KPMG would
now be as cooperative as possible. Many meetings followed, and the U.S.
attorney told KPMGs lawyer that its cooperation was lacking: Let me put
it this way. Ive seen a lot better from big companies. 62
KPMG then appealed to the U.S. attorneys superiors in Washington,
D.C. In effect, the company was trying to go over the heads of the prosecu-
tors working on the case, even the U.S. attorney, to argue for more lenient
treatment. This is unheard of in run-of-the-mill criminal cases, but it is not
at all unusual in major corporate prosecutions. Large companies hire lawyers
with access, and KPMG secured a meeting with the deputy attorney general
to plead its case and argue that it was in full compliance with the new
corporate prosecution guidelines.63
Meanwhile, the clock was ticking on the prosecution. A grand jury con-
vened, and it is rare for one not to indict. After an indictment, the criminal
process would move quickly toward a trial. At the eleventh hour, Arthur An-
dersen had rejected a deal and gone on to trial, but KPMG made a different
decision. Perhaps the meeting in Washington, D.C., had paid off and KP-
MGs lawyers had been able to emphasize their extraordinary efforts to co-
operate.64 On August 29, 2005, the DOJ and the IRS announced that the
criminal prosecution of KPMG would not go forward, though prosecution
of individual employees would proceed. KPMG itself would get a deferred
prosecution agreement.
Recall the nine factors in the DOJs principles for prosecuting organiza-
tions. Why did KPMG avoid an indictment? On the first factor, seriousness
of the offense, and the second factor, the pervasiveness of wrongdoing, KPMG
may not have come off well. Perhaps on the third factor, the firms history of
similar conduct, KPMG scored better. But on the fourth factor, KPMG
could not cite timely and voluntary disclosure of wrongdoing; it had even
kept documents from the IRS and the U.S. Senate. Perhaps it could cite fac-
tor five, a compliance program, but whatever that program was, it did not
prevent aggressive marketing of these tax shelters. KPMG could cite its re-
medial actions, such as firing wrongdoers and cooperating with prosecutors,
and it could emphasize the harm a prosecution would cause by pointing to
the fate of Andersen. On factor eight, KPMG could say prosecuting employees
would be adequate, and on factor nine, it could pay civil fines.
Attorney General Alberto Gonzales gave a speech at a press conference
announcing the agreement. That alone suggests this was an extremely high-
profile settlement. At the press conference, the attorney general highlighted
the reality that the conviction of an organization can affect innocent work-
ers and others associated with the organization, and can even have an impact
on the national economy. 65 KPMG sounded too big to failand to jail.
While the too big to jail concern is real, I want to emphasize here that
prosecutors are absolutely right to try to avoid collateral consequences of a
corporate conviction. The KPMG case is an important illustration of that.
Particularly after Arthur Andersens collapse, there were few big accounting
firms left. Convicting and destroying KPMG might have weakened the ac-
counting industry, which audits corporations to prevent and detect corpo-
rate fraud. Prosecutors settled the case in a way designed to avoid those neg-
ative consequences. Rather than merely label the settlement as a suspect too
big to jail deal, we should focus on the substance of the agreement and
whether it effectively held KPMG accountable.
As it turned out, there would be no conviction for KPMG, nor any indict-
ment before a grand jury. Grand juries are specialized, with a simple func-
tion: whether to issue an indictment accusing a defendant of a crime. They
decide if there is enough evidence to bring the charges, whether the court has
jurisdiction, and whether the charges are in fact a crime. A grand jury is not
purely a formality, as sometimes it does not return an indictment (although
prosecutors can convene another one). It also provides prosecutors with a
60 Too Big to Jail
chance to obtain documents and call witnesses. Its proceedings are secret,
but the government may rely on the same material to bring other criminal or
civil cases.66 Moreover, the indictment itself can be a blow to a companys
reputation. Deferred prosecutions avoid all of those consequences of grand
jury proceedings.
Would the judge allow a prosecution to be put off? The judge perhaps
could have told prosecutors that the deal was unfair, too lenient, or inappro-
priate given the purposes of a criminal prosecution. However, the judge ap-
parently ratified the deal without any changes to the terms on August 29,
2005, after a hearing at which KPMG entered a plea of not guilty.67 This was
not surprising; no federal judge before or since has rejected a deferred pros-
ecution agreement.
A Corporate Confession
Of the more than three hundred agreements I have read, the one with KPMG
is among the most intrusive. It begins with a detailed admission of wrongdo-
ing under the heading Acceptance of Responsibility for Violation of Law. It
stated that KPMG assisted high net worth United States citizens to evade
United States individual income taxes on billions of dollars in capital gain
and ordinary income by developing, promoting and implementing unregis-
tered and fraudulent tax shelters. 68 KPMG admitted that a number of
KPMG tax partners engaged in conduct that was unlawful and fraudulent.
An additional ten-page, single-spaced statement of facts described the con-
duct and called it deliberately approved and perpetrated at the highest
levels at KPMG.
Why ask the corporation to confess its sins? Like individuals when they
plead guilty, a company may be asked to admit guilt in detail, and be given a
lighter sentence under the sentencing guidelines based on affirmative accep-
tance of responsibility.69 Usually prosecutors ask firms entering deferred pros-
ecution or non-prosecution agreements to admit their wrongdoing and accept
responsibility. Of the agreements obtained, 89 percent included an acceptance
of responsibility or admissions (206 of 232 agreements).70 Regulators, in con-
trast, do not always demand a confession. The SEC had a long-standing pol-
icy allowing a firm to neither admit nor deny wrongdoing when settling a
civil case, which became controversial. A federal judge rejected a civil settle-
ment with Citibank that did not include an admission of wrongdoing, saying
it was neither fair nor in the public interest.71 A series of other federal
judges raised similar questions, and the SEC now says it will typically avoid
such language.72
Federal prosecutors have said they always require a complete admission
of wrongdoing. Appearing before Congress in 2013, a DOJ official explained
that no matter what kind of agreement there is between prosecutors and a
company, the company must fully acknowledge its criminal wrongdoing and
may not retract that. 73 That is not entirely true. Just over 10 percent of de-
ferred prosecution and non-prosecution agreements did not include an accep-
tance of responsibility or admission of guilt. In those cases, there was rarely
any explanation why the company was not required to admit anything.
Many of those agreements date back to the early 2000s, and the practice may
have changed. But still more troubling is that in about one-fifth of the cases,
admissions were not made in any detail.
The vast majority of agreements did include a statement of facts (80 per-
cent, or 186 of 232 agreements obtained). Most of those statements included
detailed admissions, as in the KPMG case. But some companies were able to
keep what happened out of the public eye.74 Roger Williams Medical Center
admitted only that the government had sufficient evidence to prove of-
fenses.75 Similarly, in the Barclays Bank non-prosecution agreement in 2012,
the bank signed an agreement with a detailed description of conduct in
which employees manipulated submissions to key benchmark interest rates.
Barclays admitted, accepted, and acknowledged responsibility for that conduct,
but nowhere in the agreement did Barclays admit to or accept responsibility
for having committed any particular crime.76
When a corporation confesses, it has to do so through its employees.
Deferred prosecution and non-prosecution agreements are signed by the
corporations lawyers or officers to show they entered into the agreement vol-
untarily. Sometimes there is documentation of a resolution in which the cor-
porate board approved the deal; in the Ingersoll-Rand deferred prosecution
agreement, the CEO signed a certificate stating that he was duly authorized
by Ingersoll to execute this Agreement on behalf of Ingersoll and all the sub-
sidiaries named herein. He added that the agreement was voluntary and no
one has threatened or forced me, or to my knowledge any person . . . in any
way to enter into this agreement.77
62 Too Big to Jail
Companies also agree to never contradict or deny their public confession.

The agreement entered with Pfizer said it expressly and unequivocally ad-
mitted that it committed the crimes charged and will not make any public
statement contradicting anything in the charges.78 One company has been
criticized for violating such provisions. In 2013, after entering a deferred
prosecution agreement, Standard Chartered Bank referred to its violations
as clerical errors. This resulted in a meeting between prosecutors and the
top executives of the bank and a public retraction of that statement.79
In any future criminal proceedings, the corporation could be bound by its
confession. In any future civil case, the company would not be able to contra-
dict its statements. The scope of these admissions is a complex subject, and
they are very carefully crafted for a reason, given potential ramifications in
future litigation. More work should be done to examine their scope; cur-
rently there is no uniform policy or practice for admissions in corporate
prosecutions.
These agreements typically state that cooperation is one of the main rea-
sons the company received leniency and that the company is obligated to co-
operate even after the agreement is over. KPMGs agreement was perma-
nent in that it required continuing cooperation with the Department of
Justice, including in any prosecutions of its employees.
The New Regime
A wave of agreements with prosecutors followed the adoption of this strat-

egy focusing on changing corporate culture. Almost two-thirds were pub-
licly listed on U.S. stock exchanges (58 percent, or 148 of 255) and others,
such as KPMG, were private but very large. Many were among the largest
corporations in the United States or the world. Of those receiving deferred
prosecution agreements, 22 percent were on the Fortune 500 and 20 percent
were on the Fortune Global 500 for foreign corporations (some of those were
subsidiaries of Fortune 500 firms). Still more, or 31 percent, were either a
Fortune 500 or Global 500 firm in the year they entered into the deal with
prosecutors.80 The highest-ranking firms include Chevron (fourth on the For-
tune 500 and seventh on the Global 500 at the time), Boeing (twenty-sixth),
and AIG, which was ninth on the list in 2006it had gone up in the rank-
ings since its prosecution in 2004, when it was tenth on the Fortune 500.
There were only a handful of deferred prosecution or non-prosecution

agreements like this before 2001; I have located fourteen of them. The tradi-
tional approach was to either prosecute or not, possibly offering leniency in
exchange for cooperation. Even if a prosecution goes forward, there can still
be a deal. Corporations plead guilty, and a plea agreement can include simi-
lar terms, such as requirements that a company hire a monitor and improve
compliance. A deferred prosecution or non-prosecution agreement is even
more lenient, though, because it does not involve the judge to the same de-
gree, and avoids both an indictment and a criminal conviction.
In most deferred prosecution or non-prosecution agreements between
federal authorities and corporations, prosecutors provide the reasons they de-
cided not to prosecute. Often there is a paragraph or a section describing such
relevant considerations. A typical explanation noted significant remedia-
tion and how the company voluntarily and timely disclosed the misconduct
as part of its extraordinary cooperation.81 These descriptions are quite brief
and often do not explain how forthcoming the company actually was or the
circumstances of the reporting and cooperation. Even if a company timely
disclosed its misconduct, was it an unprompted self-report, or did the com-
pany come forward only after a whistle-blower or competitor had already
tipped off the authorities? One would want conscientious self-reporting to be
well rewarded. The descriptions in these agreements, however, do not usu-
ally offer any basis for assessing whether prosecutors truly reward prompt
self-reporting, valuable cooperation, or other factors.
In some cases, collateral consequences were cited as reasons for offering
an alternative to prosecution. In the Beazer Homes mortgage fraud case,
prosecutors cited the fear that harsher criminal penalties would jeopardize
the solvency of the firm and threaten the jobs of 15,000 employees and con-
tractors who had nothing to do with the wrongdoing.82 Very few firms were
defunct or facing insolvency, however.83 Instead, promises to cooperate and
rehabilitate can be enough to avoid a conviction.
No data were kept on deferred prosecution or non-prosecution agree-
ments. The U.S. Sentencing Commission keeps data on cases in which a de-
fendant is sentenced, but these non-prosecution deals involve no formal sen-
tence. A deferred prosecution is filed with the court and remains on the
judges docket until the term is completed and the case is dismissed. A non-
prosecution is never filed with a judge at all; such an agreement states that
64 Too Big to Jail
prosecutors will not file if the corporation complies.84 Since prosecutors

themselves did not themselves track these agreements until recently, some
are likely missing from public records, including at least twenty-seven agree-
ments entered since 2001. We do not know why those particular agreements
are missing; so far litigation by my students, who have pursued Freedom of
Information Act requests, has uncovered one such agreement, and it was not at
all clear why that agreement had ever been kept from the public in the first
place.85 Such secrecy is troubling; a central goal in prosecuting a corporation is
to send a message to industry that violations will not be tolerated. In fact, DOJ
officials were questioned sharply in the Senate in 2011 because a settlement
with a bank was kept secret; in response, they released the agreement.86
With this new deferred prosecution tool in hand, corporate prosecutions
did not become more frequent, despite a rash of corporate scandals. Even as
deferred prosecution and non-prosecution agreements began their rise in
2003, corporate convictions actually began to decline. Convictions of smaller
corporations and non-public corporations remained stable, but large and
public corporations increasingly received agreements allowing them to avoid
a conviction.
What crimes do companies get prosecuted for? Among the deferred pros-
ecution agreements, the biggest category of crime was fraud (36 percent, or 92
of 255 agreements), followed by violations of the Foreign Corrupt Practices
Act (25 percent, or 63 of 255 agreements). Other cases involve kickbacks,
usually in medical and pharmaceutical sales (16 agreements), bank secrecy act
provisions designed to prevent money laundering (13), immigration violations
(10), violations of the International Emergency Economic Powers Act (9), an-
titrust violations (7), and a range of other crimes. Each federal crime has de-
tailed provisions and is enforced differently. Though it is impossible to do full
justice to the vast array of federal crimes, in the rest of the book I will discuss
some of the major crimes in detail, using important cases as examples.
KPMG was prosecuted for fraud, the most common type of crime among
companies entering deferred prosecution agreements, as well as tax crimes.
Prosecutors described KPMGs crime as helping to prepare tax returns and
other documents that were false and fraudulent in order to hide the true
nature of the tax shelters in question. The federal crime of fraud is typically
defined in flexible terms, involving a willfully conducted scheme to defraud,
a material misrepresentation with intent to deprive another person of prop-
erty or honest services, and the use of the mails or wires as part of the
scheme.87 The mail fraud statute was enacted in the late nineteenth century
to prevent the frauds which are mostly gotten up in the large cities . . . by
thieves, forgers, and rapscallions generally, for the purpose of deceiving
and fleecing the innocent people in the country.88 In 1952, Congress enacted
a wire fraud statute for transactions that pass through wires (this now covers
the Internet), and there are laws prohibiting health care fraud, banking
fraud, securities and commodities fraud, fraud in foreign labor contracting,
and fraud involving the right to honest services, which includes public cor-
ruption, a complicated subject of its own.89 There are separate crimes for con-
spiracy to defraud the U.S. government (which KPMG was charged with).90
Securities fraud cases (23 of the 255 agreements) can involve massive fines.
Fraud is also a common charge against individual people, with over 8,000
cases brought each year, or about 10 percent of the federal criminal docket.
KPMG benefited from a deferred prosecution agreement, but most com-
panies do not. Only 255 received deferred prosecution or non-prosecution
agreements from 2001 through 2012, while more than 2,000 others were
convicted. Was there something irredeemable about their corporate cul-
tures? I have collected detailed data on more than 2,000 corporations con-
victed of federal crimes since 2001. Corporations that are convictedalmost
all of which plead guiltyare often prosecuted for environmental violations
(501) or one of the various types of fraud (403), along with antitrust viola-
tions (167) and more general crimes including false statements (107), viola-
tions of the Foreign Corrupt Practices Act (34), food and drug violations
(68), import and export violations (112), and others. These data reflect the
most specific lead charges against the companies; often, for example, envi-
ronmental or FCPA charges are accompanied by more general fraud or false
statements charges. A mere three companies were convicted of securities
fraud; these cases were instead almost entirely brought as deferred prosecu-
tion or non-prosecution agreements. And generally, banks and other finan-
cial institutions received deferred prosecution or non-prosecution agree-
ments, not convictions.
Although the prosecutors who pursue financial malfeasance have adopted
a lenient approach, other prosecutors do not follow it. Few companies pros-
ecuted for environmental crimes get deferred prosecution agreements, for
example. Why? The DOJs Environmental and Natural Resources Division
66 Too Big to Jail
(ENRD) believes that if a firm does not deserve criminal punishment, it

should get a civil fine. The Antitrust Division has its own distinct approach
to prosecuting companies, giving amnesty to the first company to report an-
titrust violations, such as price fixing, bid rigging, or other illegal dividing of
markets.
There was a rare window into this process in 2010, when prosecutors an-
nounced that Bank of America would pay $137.3 million in restitution, but
no fine. It was the first and only conspirator to come forward and admit to
rigging bids in the municipal bonds derivatives market.91 Such cartels can
involve hidden agreements to raise prices and are viewed as extremely serious
conspiracies. Prosecutors almost always keep such agreements secret, and as
a result, antitrust amnesty deals are not included in my data. The first com-
pany to cooperate may still pay a large fine as part of its amnesty agreement,
but prosecutors disguise its role to better use its information against other
cartel members, though the identity of the amnesty-receiving cooperator
may become obvious later once the other companies in the cartel are convicted.
As a result of this amnesty approach, there are few deferred prosecution
agreements (seven) for antitrust violations and the focus is not on culture or
compliance but rather on punishing price fixing. The corporations that do
not turn themselves in typically receive convictions.
Some of those convicted are public corporations or their subsidiaries, and
some are large private companies. However, most convicted companies are
small and do not have much of a culture that can be rehabilitated, so maybe
it makes sense to convict them. Some are closely held, with just a few owners,
or they are small partnerships. These tiny mom-and-pop organizations are
very different from the likes of KPMG and often cannot pay much of a fine.
Nor do they have a complicated structure or culture. Convicting the owner
or partners may be the most practical way to punish them.
The deferred prosecution approach has attracted a wave of scrutiny from
both the right and the left. Members of Congress in both houses questioned
the tactics used by the DOJ, as did the American Bar Association and busi-
ness groups. Federal legislation was introduced, the General Accountability
Office investigated features of corporate prosecutions, and the DOJ sought
to mollify such critics. White-collar defense practitioners complained that
federal prosecutors exploit[] their virtually unchecked power to extract
and coerce ever greater concessions.92 Law professor Richard Epstein com-
mented that deferred prosecution agreements often read like the confes-
sions of a Stalinist purge trial.93 Other critics of the DOJ strategy offered the
opposite perspective: Ralph Nader called failures to convict organizations a
shocking and systematic derogation of the DOJs duty to seek justice.94
The Government Accountability Office offered criticism of the way prosecu-
tors decided whether an agreement would involve deferred prosecution or
non-prosecution.95
Following the Money
In 2011, only thirty-six companies were convicted of fraud, and they were
ordered to pay over $100 million.96 The KPMG agreement alone included a
much larger payment, $456 million, than all of the other fraud fines paid
that year. However, most of that payment was not a fine but a disgorgement
of fees ($128 million) and restitution of money to the U.S. Treasury for what
the IRS lost in taxes ($228 million). The IRS had already recovered large
sums from taxpayers, but it might not be able to get all of the lost taxes back,
notably because of a three-year time limit for the IRS to collect back taxes.
KPMG agreed not to deduct the fine from its own federal taxes; if it used
insurance to recover any of that money, half of the proceeds would be pro-
vided to the United States.
The punishment, perhaps, was slight, something KPMG had counted on
when deciding whether to sell the shelters. How about rehabilitation
would the prosecutors really change the culture at KPMG? The company
agreed to completely and permanently shut down its entire private tax prac-
tice by February 26, 2006. It would no longer market any of the tax shelters
or anything at all to wealthy individual clients, nor would it take on any new
clients. KPMG was out of the private tax business, but it had avoided an-
other kind of shutdown.
Recall how Arthur Andersen most feared debarment from the SEC, and
after it was convicted at trial, it was barred from doing auditing for public
companies. KPMG did auditing work for the federal governmentin fact,
KPMG was hired to audit the books of none other than the Department of
Justice! According to the agreement, the debarring official at DOJ decided
that suspension or debarment of KPMG was not warranted because KPMG
was still a responsible contractor for having cooperated and signed the
68 Too Big to Jail
agreement.97 The next year, in March 2006, KPMG would review account-
ing at the DOJ and find four reportable conditions repeated from the prior
year, relating to monitoring grants by the Office of Justice Programs.98 It is
more than just a little ironic that at the same time KPMG was implementing
its required new compliance program, KPMG was reporting on inadequate
internal controls at DOJ itself.
Was the fine in the KPMG case representative? Fines are not intended to
directly fix corporate culture, as the message they send to a firm and to oth-
ers in industry is secondary to their role as punishment. While organiza-
tions cannot be imprisoned, they can be fined, as the U.S. Sentencing Com-
mission puts it. There are many ways that a company can pay, from the
criminal fine itself, designed to punish the firm, to restitution paid to com-
pensate victims. There may be civil suits brought by prosecutors or regula-
tors, and there may also be civil suits from victims themselves.
The trend in corporate prosecutions has generally been toward larger
cases and higher average fines, particularly in big cases such as that against
KPMG.99 Antitrust cases, pharmaceutical cases, FCPA cases, and those in-
volving international conduct and foreign firms have driven the increase in
finesmore cases are not being brought, but there are more blockbusters.
For deferred prosecution agreements, 2010 was a record year, with a total of
almost $1.3 billion in fines. The following year saw the imposition of almost
$500 million in fines. The deferred prosecution and non-prosecution agree-
ments since 2001 had a total of $4 billion in criminal fines. Adding restitu-
tion paid to victims, disgorgement of profits, and forfeiture payments to the
mix, the total dollar amounts paid grow by over $7.5 billion.100
Firms also paid civil penalties to regulators. In 91 percent of deferred
prosecution or non-prosecution agreements (233 of 255), a regulatory agency
was involved, most commonly the SEC (69 cases), the Office of Inspector
General at the Department of Health and Human Services (25 cases), the
U.S. Postal Inspection Service (27 cases), and the IRS (24 cases). In almost
two-thirds of the cases, companies faced civil enforcement actions filed by
regulators (65 percent, or 165 of 255 cases), particularly the SEC (88 cases).
Fines by regulators sometimes dwarfed criminal fines. For deferred prosecu-
tion and non-prosecution agreements since 2001, about $12 billion was paid
to regulators on top of the about $11.5 billion in fines and restitution sepa-
rately secured by prosecutors, for a total of over $23 billion. Prosecuted com-
panies also faced private lawsuits and paid at least another $6 billion in civil
judgments. Then one can add costs of complying with reforms required by
the agreements.
Given these numbers, you would expect large public firms that commit
bigger crimes to receive the harshest punishments. Yet punitive fines are of-
ten dwarfed by the payments to victims or regulators. Figure 3.1 puts in per-
spective the different payments by companies entering deferred prosecution
and non-prosecution agreements.
The corporate prosecution agreements are even more lenient than the to-
tals suggest. The fines imposed on companies vary wildly, and in almost half
of the agreements there was no criminal fine at all (47 percent, or 119 of 255
agreements). Only a few companies were defunct or could not pay, and for the
others, prosecutors offered no explanation for not imposing a criminal fine.
The KPMG case and its millions in fines is an outlier; it was the tenth-
largest fine among all deferred prosecution agreements, and the top ten fines
in the deferred prosecution and non-prosecution agreements add up to $1.7
billionalmost half of the total for all such agreements.101 The biggest fines
in deferred prosecution and non-prosecution agreements do not compare to
those in blockbuster cases in which a corporation is convicted. The biggest
deferred prosecution or non-prosecution agreement fine, of $400 million,
in the UBS case, would be outside the top ten fines for convicted firms, a list
led by the record $1.3 billion fine paid by British Petroleum for its role in the
Billions of
Dollars
12
10
2
0
Fines Restitution or Regulatory Private Civil
Forfeiture Payments Suits
Figure 3.1 Total Payments by Firms Entering Deferred Prosecution

and Non-Prosecution Agreements, 20012012
70 Too Big to Jail
Deepwater Horizon spill and the nearly $1.2 billion paid by a Pfizer subsid-
iary. As shown in the Appendix, the twenty largest corporate criminal fines
range from $250 million to $1.2 billion and include eight pharmaceutical
cases, seven antitrust cases, three FCPA cases, and one securities fraud case.
These blockbuster cases have been growing in recent years: six of those top
twenty corporate fines were in 2012, and all but two of the rest were after
2006.
These fines sound significant, but how damaging are they for companies
of this size? Take the Pfizer case. The $1.2 billion paid was just 0.6 percent
of its market capitalization at the time, or the total value of the outstanding
shares of the company. In general, the fines averaged only 0.04 percent of
market capitalizationand public companies had the comparatively larger
fineswhile the total payments made averaged just 0.09 percent of market
capitalization.
Rehabilitating KPMG
Prosecutors also try to rehabilitate corporations using structural reforms.

Indeed, if the goal of prosecuting a company is to single out significant and
systematic violations, one would expect prosecutors to focus on reforming
compliance. However, prosecutors use very different tools than a corporate
manager would when trying to change a company. Moreover, their guide-
lines say nothing about what should happen to a company that enters a de-
ferred prosecution or non-prosecution agreement. The nine factors provide
guidance on when to prosecute, but not on how to reform. As a result, pros-
ecutors have significant discretion.
There was much more to the KPMG agreement than a confession and a
fine. KPMG had to bring in an outsider, an independent monitor, for three
years, to implement an elaborate compliance program. The monitor, a for-
mer SEC chairman, was picked in consultation with KPMG and had sweep-
ing power to hire lawyers, consultants, investigators, and experts to gather
information, make recommendations, and supervise the new compliance
program.102
Every corporation has some kind of a code of ethics and provides training
for employees on the laws and regulations they must follow. But do employ-
ees really carefully read the language in their corporate ethics handbook or
tune in during trainings? Increasingly, corporations realize that making sure

employees follow the law is just as important as making sure they are doing
their jobs well. There are many sorts of tools available, including testing em-
ployees to see if they understand the rules, creating anonymous hotlines, and
performing random auditslike with professional athletes, though not nec-
essarily drug testing. Employers can record calls and randomly check them
(This call may be recorded for quality assurance). They can put automated
systems in place to make sure employees do not bill improperly or fail to re-
port their work on time. They can create new documentation requirements
so that there is a clearer paper trail to monitor employees.
Why was a compliance program necessary at KPMG if the firm closed its
entire private tax practice? The new compliance program would be company-
wide and would create a new whistle-blower hotline to allow anonymous
complaints. The program would pay particular attention to practice areas
that pose high risks. There would be a new permanent compliance office that
would conduct ethics trainings. There was a meta-dimension to all of this: the
compliance effort would itself be audited to measure its effectiveness. The at-
torney general called this the most important part of such an agreement,
vital to help prevent such wrongdoing in the future.103
No prosecutor has the resources to oversee reform of an entire company.
Instead, prosecutors create incentives for the company to do that itself. For
that reason, prosecutors and regulators ranging from the SEC and the EPA
to the Department of Health and Human Services all focus on creating in-
centives for self-policing, giving credit for good compliance, and requiring
better compliance when companies lack appropriate mechanisms.104 The
2010 Patient Protection and Affordable Care Act (colloquially called Obam-
acare) requires health care providers and doctors to maintain effective com-
pliance and ethics programs.105 The compliance approach has even gone
internationalthe Organization for Economic Cooperation and Develop-
ment (OECD) has recommendations for combating bribery of foreign of-
ficials with detailed guidance on how to implement a sound compliance
program.106
Federal prosecutors believe that one key to changing a corporations culture
is an effective compliance program. After all, perhaps the central reason for
prosecuting the company in the first place was a breakdown in compliance.
The KPMG agreement was typical, as the vast majority of the agreements
72 Too Big to Jail
require that the company create or improve a program to detect and prevent
criminal violations. Most agreements required compliance reforms (63 per-
cent, or 160 of 255 agreements) or steps already in place to improve compliance
(64 percent, or 162 of 255 agreements), while others cited compliance reforms
that regulators required (28 percent, or 71 of 255 agreements). The agreements
ask that higher-ups endorse new policies, new trainings of employees, and new
forms of supervision of employees, and that they provide periodic reports sum-
marizing their progress. The agreements also note the firing or disciplining of
employees involved in the crime.
However, compliance programs are often described in fairly general terms.
They refer to appropriate due diligence and effective compliance without
defining it. Some require that the compliance program be updated over time
certain agreements, for example, require an annual review in light of evolv-
ing international and industry standards in the FCPA area.107 The agree-
ment says the company must do periodic review and testing of the compliance
program.
A smaller number of agreements (9 percent, or 23 of 255 agreements)
were designed to change the governance of the business by methods beyond
improving compliance. The KPMG agreement closed down the firms entire
private tax practice. Beazer Homes had already shut down the entire offend-
ing subsidiary that engaged in fraudulent mortgage practices. Other changes
include altering employee compensation; two banking cases changed how se-
nior executives were paid, by allowing banks to claw back prior bonuses to
executives determined to have contributed to compliance failures.108 Sev-
eral pharmaceutical cases resulted in plea agreements that changed how sales
representatives were paid. For example, the GlaxoSmithKline plea agree-
ment provided that sales staff or managers would no longer be paid based on
volume of sales.109 The Abt Associates agreement provided that any em-
ployee who uncovers and reports a significant billing error to the govern-
ment should be given an on-the-spot award of $100.110
More than one-third of the agreements required hiring new employees
(35 percent, or 88 of 255 agreements). Perhaps most intrusive, the Bristol-
Myers Squibb agreement detailed how the company must separate the posi-
tions of CEO and chairman of the board, appoint a new outside director, and
report more information to the SEC than required. Most are not so detailed,
though some require adding a new chief compliance officer or a compliance
committee to the board.111 Some require prosecutors to approve the people

hired. Aibel Group had to secure prior approval before selecting a new ex-
ecutive chairperson of its board of directors, a majority of the members of its
compliance committee, and the compliance counsel. If prosecutors and the
corporation could not agree on names within seven days, prosecutors would
have the right to select them.112 Aurora Foods had to consult with prosecu-
tors on all personnel decisions related to its compliance program.113 Most
idiosyncratically, a company charged with traditional mail fraud, for sending
solicitations that purport on their face to be written by astrologers, was re-
quired to have employees make sure the mailings were reviewed and ap-
proved in writing.114
Some firms clean house on their own. Prosecutors noted how Academi
LLC replaced all of its executive leadership, including its CEO and general
counsel as well as several vice presidents; it also hired a new chief of compli-
ance and added independent members to its board.115 Prosecutors often
named remedial measures as a reason for allowing the company to avoid a
conviction, and noted prior compliance reforms in a majority of the agree-
ments (162 of the agreements).
While it is easy to add language to an agreement stating that the company
must adopt a better compliance program, actually reforming a corporation
may be more difficult. Companies often cite progress in repairing their cor-
porate culture. Yet prosecutors may come into the picture only when there is a
complete breakdown. For example, after the explosion at the Upper Big Branch
mine owned by Massey Energy killed twenty-nine miners and prompted a fed-
eral inquiry, the report found violations of safety standards so rampant that
they could only be explained in the context of a culture in which wrongdoing
became acceptable, where deviation became the norm.116 Yet despite a terrible
track record of several serious prior violations and the egregious safety
breaches that led to these deaths, the new owners of the company received a
non-prosecution agreement. Former chief of the DOJ environmental crimes
section David Uhlmann called this result timid and an erosion of the rule of
law, and he concluded that the Justice Department did not live up to its
name in agreeing not to prosecute Massey for its crimes.117
A lingering question is when and whether compliance programs are effec-
tive. This question goes to the core of the rationale for prosecuting compa-
nies. The pejorative name for compliance programs that are just window
74 Too Big to Jail
dressing is cosmetic compliance, referring to policies expressing lofty ethi-

cal values that are ignored by employees.118 Whether compliance programs
work or not, they are a boon for lawyers and other consultants hired to im-
prove compliance programs. Focusing on compliance may also distract from
the role that management might have played.119 One wonders whether com-
panies can have it both ways: good compliance programs convince prosecu-
tors that no prosecution is necessary, while bad compliance programs earn
the company a lenient agreement aimed at fixing them. If true, there would
be nothing distinctively serious about the violations by companies singled
out for prosecution, or about the consequences of that prosecution. Figure
3.2 depicts the various terms of the 255 deferred prosecution and non-
prosecution agreements.
A substantial number of the agreements, nearly one-third, did not even
require the company to implement a compliance program (31 percent, or 78
of 255 agreements). If the central purpose of a deferred prosecution agree-
ment is to ensure that the corporation reforms itself, how can an agreement
require no compliance at all? Some firms adopted compliance reforms under
a separate agreement with regulators (71 of 255 agreements), and almost
Number of
Firms
250
200
150
100
50
Compliance Reforms No Compliance Auditing Compliance

Imposed Imposed Required
Compliance Already Compliance by Hire New Employees
Adopted Regulators
Corporate Monitor Specific Governance
Imposed Changes
Figure 3.2 Terms of Deferred Prosecution and Non-Prosecution

Agreements
two-thirds (162 of 255 agreements) were said to have already adopted com-
pliance reforms on their ownbut why not require companies to implement
those reforms and assess them before giving a free pass?
As Figure 3.2 depicts, few agreements required a company to evaluate the
effectiveness of its compliance program to find out if it was really working or
not (22 percent, or 55 of 255 agreements). The agreements typically say that
the compliance program must be clearly articulated, rigorous, and effec-
tive, but those terms are not defined. The sentencing guidelines say that no
compliance program is effective if the company does not evaluate periodi-
cally.120 Yet prosecutors generally do not insist that a company do that
typically only the FCPA agreements have brief language that there must be
some kind of periodic testing and review of compliance.
There has been much controversy surrounding corporate prosecutions, but
no company has complained that compliance terms are too lenient. The agree-
ments are also fairly short-lived, with an average length of two years and three
months. Just two agreements lasted for more than three years. Very few have
ever been extended, though in rare cases prosecutors have said more time was
needed.121 Can prosecutors effectively supervise the reform of a major corpo-
ration in just over two years, particularly if not required to audit the effective-
ness of its reforms? These data suggest that prosecutors are not taking struc-
tural reform seriously.
Judges have a role to play in deferred prosecutions, though it is very lim-
ited. Federal law provides that a court may approve deferral of prosecution if
there is a written agreement allowing the defendant to demonstrate his
good conduct.122 However, no judge has ever rejected a corporate deferred
prosecution agreement. The Government Accountability Office spoke to
twelve judges who approved such agreements and found that nine of twelve
did not even hold a hearing to review the agreement and its terms.123 In the
KPMG case, the judge did hold a hearing, but the agreement was accepted
without changes. As I will discuss in Chapter 10, only a handful of judges
have insisted on ongoing supervision over deferred prosecution agreements.
What would happen if KPMG did not comply? Prosecutors would retain
sole discretion to decide what to do. They could extend the term of the agree-
ment or ask the monitor to serve for a longer time. Most threatening of all, if
prosecutors decided KPMG breached the agreement, they could scrap the
deal and prosecute KPMG for federal criminal violations. The agreement
76 Too Big to Jail
provided that all of KPMGs statements to prosecutors and the IRS

including its detailed admissions of its guiltwould be admissible against
them.
Despite those stringent terms, judges have said due process prevents the
government from unilaterally determining that a defendant breached an
agreement not to prosecute and prosecutors must obtain a judicial determi-
nation of the defendants breach.124 In a closely watched case, the Stolt-
Nielsen company asked a judge to bar an indictment after the DOJ decided
the company had breached its agreement to cooperate under the Antitrust
Divisions Corporate Leniency Program. The federal judge found that pros-
ecutors acted arbitrarily, but the appeals court reversed, ruling the judge had
no power to halt a prosecution before an indictment.125 Only after the com-
pany was indicted could the judge dismiss the charges.126
Prosecutors can avoid even the limited role a judge plays in approving a
deferred prosecution by entering non-prosecution agreements where noth-
ing at all is filed with a court so long as the firm complies with the terms. Of
the agreements made since 2001, about half (48 percent, or 122 of 255) were
non-prosecution agreements, while 131 were deferred prosecution agreements
(for two, prosecutors have not released the agreements and it is unclear).
Some terms in agreements have nothing to do with improving corporate
culture. Prosecutors required the New York Racing Association (NYRA), as
part of an agreement, to install video lottery terminals at Aqueduct
Racetrackslot machines, basically.127 Was NYRA somehow criminally de-
priving the public of slot machines? The machines had nothing to do with the
case, which was about tax fraud and conspiracy to defraud the U.S. govern-
ment. The installation of the slot machines, which had already been subject to
a decade-long delay for other reasons, entered the negotiations because state
officials feared that the prosecution might further postpone their installation
at the racetracks, and without that revenue New York State would be unable
to comply with a separate court ruling requiring additional school financing.
The machines could generate an estimated $500 million, and officials were
counting on the gambling hall to help balance the state budget.128
In the Roger Williams Medical Center agreement, the government feared
that indicting a nonprofit hospital for public corruption would jeopardize
health care for poor residents of Providence, Rhode Island. The deferred
prosecution agreement required that the hospital provide $4 million in ad-
ditional free health care to uninsured low-income residentsa form of com-

munity service.129
The deferred prosecution agreement with Bristol-Myers Squibb stated
that the company would fund a new chair in ethics at Seton Hall Law School;
the new professor would teach an annual ethics class that the companys em-
ployees could attend.130 The U.S. attorney said the Seton Hall ethics chair
was added to the agreement at the request of Bristol-Myers Squibb.131 How-
ever, Seton Hall was the law school the U.S. attorney had attended, causing
some to criticize the creation of the ethics chair as not particularly ethical.132
In response, the DOJ adopted a rule that such agreements should not in-
clude terms requiring payments to a person or organization that is not a
victim of the criminal activity or is not providing services to redress the harm
caused by the defendants criminal conduct.133
There is also the lingering question of whether additional side deals re-
main hidden. In 2010, a former employee of American Express Bank Inter-
national sued after learning of an undisclosed side letter to a deferred pros-
ecution agreement with the bank providing that the employee no longer be
employed. The employee sued and settled with the Department of Justice; it
came out that DOJ supervisors were unaware of this side letter.134 Perhaps
other such side letter agreements exist. In cases where prosecutors found no
wrongdoing by particular individuals and do not want to harm those indi-
viduals reputations, then they might be entered for good reason. Without
knowing more about the existence or nature of any such side agreements, it is
impossible to evaluate them.
Some agreements required the use of corporate monitors to implement
changes in corporate culture and ensure compliance reforms (25 percent, or
65 of 255 agreements). KPMG had to permit the DOJ to appoint an inde-
pendent monitor to serve for three years; once his term expired, the IRS
would monitor KPMG for two more years. Furthermore, KPMG would pay
the salaries and other expenses of the monitor and anyone he or she hired.
The monitor had authority to take any other actions that are necessary to
effectuate his or her oversight and monitoring responsibilities. What if the
monitor made unreasonable demands or simply charged excessive feesor,
for that matter, what if the monitor did next to nothing? With such a promi-
nent individual on board, maybe that was not a risk. Regardless, we do not
know. As in the other deferred prosecution agreements, neither the KPMG
78 Too Big to Jail
monitors reports nor any of the monitors actions have been made public. In
Chapter 7, I try to shed more light on how these monitors do their work.
The KPMG agreement quietly ended on December 31, 2006. The DOJ
consented to dismiss the case, stating only that monitorship . . . has been
comprehensive and effective.135 No other information was provided about
what had been done. Did KPMG have a new and ethical corporate culture?
Were the compliance reforms effective?
Those were not the concerns raised by a number of former KPMG em-
ployees who were still being prosecuted; they believed that the judge
should scrap the entire agreement. One former employee argued that the
deal was too lenient and that it was against public policy to end the pros-
ecution given KPMGs actions. Another group of former employees argued
the reverse: that the agreement should be rescinded and fines returned be-
cause it provided prosecutors with unconstitutionally broad power over
KPMG.136
Up until the day the agreement ended, in theory KPMG was under the
gun. The DOJ, at its sole discretion, could have found that KPMG breached
the agreement, and it could have made full use of all statements and admis-
sions to convict KPMG. But with the charges dismissed, the monitoring con-
tinued for two more years, supervised by the IRS, and then that ended as
well. With very few exceptions, the other corporate deferred prosecution and
non-prosecution agreements also ended quietly and without dispute. Indeed,
even companies that appear to have engaged in additional crimes have avoided
the consequences of a breach of an agreement. After Bristol-Myers Squibb
entered a deferred prosecution agreement, new crimes were uncovered, but
the company was not found in breach, as I will describe in Chapter 7. An-
other company, Wright Medical Technology, had the term of its deferred
prosecution agreement extended for a year rather than a finding of a breach.
Only once have prosecutors declared a company in breach of a deferred pros-
ecution agreement, resulting in a guilty plea.137
Snakes and Wolf Packs
Prosecuting KPMG was not enough to change the culture in the industry.
Other companies were prosecuted, and how they were treated very much
depended on how prosecutors viewed their corporate culture. The aftermath
gives a vivid picture of how prosecutorial discretion can work under the new
deferred prosecution regime.
A firm that marketed tax shelters known as snakes received far more le-
nient treatment than KPMG. Ernst & Young, another Big Four accounting
firm, was fined $15 million by the IRS. Four Ernst & Young partners, part
of a group that called itself VIPER (for Value Ideas Produce Extraordinary
Results), were prosecuted for their role in marketing a shelter called CO-
BRA.138 Prosecutors apparently concluded that pursuing those partners was
enough and that it would not serve a useful purpose to prosecute the firm.
Jenkins & Gilchrist, then one of the largest law firms in the country, faced
far more severe consequences. This firm wrote legal opinions approving of the
tax shelters. The IRS sought and received the names of more than a thousand
of its tax clients. Jenkins & Gilchrist eventually paid $81 million to some of its
former clients and $76 million to the IRS. It signed a non-prosecution agree-
ment in 2007, having become practically defunct, suffering great losses and a
mass exodus of attorneys.139 Contrast the law firm of Sidley Austin, which
paid $39.4 million to the IRS but was not prosecuted, in part because prose-
cutors concluded that primarily just one partner had been involved.140
At another firm, BDO Seidman, the partners marketing tax shelters called
themselves the Wolf Pack.141 Years later, in June 2012, its parent company,
BDO USA, signed a deferred prosecution agreement. It had to hire a corpo-
rate monitor and agree to never again market a tax shelter listed by the
IRS.142 It paid a $34 million fine and about $16 million more to the IRS.
(Perhaps it is telling that prosecutors saw fit to remind the tax professionals at
BDO that no part of its criminal penalties could be declared as tax deduct-
ible).143 A former chief executive at BDO Seidman and six others were con-
victed. Some pleaded guilty and cooperated, while others took their case to
trial along with two former partners at Jenkins & Gilchrist and two former
employees at Deutsche Bank.144 Three trial verdicts would later be thrown
out due to juror misconduct, and at a retrial one defendant was convicted
and one acquitted.145
Deutsche Bank also settled with prosecutors and the IRS in 2010, paying
no fine but $553 million in forfeiture. Others fared similarly. HVB Bank,
Germanys second-largest, settled a prosecution over its role in marketing
the tax shelters in 2006, paying almost $30 million in fines and restitution.
One of its former accountants pleaded guilty to tax fraud.146
80 Too Big to Jail
All of these prosecutions had a remarkable impact on the business of mar-

keting tax shelters and advising wealthy clients on tax matters. What changed
at KPMG specifically? There have been no more investigations or prosecutions
of KPMG, and it closed the entire unit marketing the tax shelters. But it must
be emphasized that this agreement, with its detailed structural reforms, looks
very different from the majority of agreements I described in this chapter.
KPMG is the exception, not the rule, and it should disturb us a great deal if
prosecutors are not taking structural reform seriously, since this is a core ratio-
nale for prosecuting corporations in the first place. Only the serious corporate
violators are supposedly targetedthose who lacked effective compliance,
whose misconduct was tolerated by management, or who are recidivists and
fail to report their crimes. Such cases demand serious criminal punishments,
not just the appearance of compliance.
Even if prosecutors allow corporations to avoid convictions in exchange
for reduced fines and too little compliance, some might view that as a good
bargain if the company helps successfully prosecute the individual wrongdo-
ers. Unfortunately, even with the companys cooperation, it is not easy to
prosecute white-collar criminals. In the next chapter, I describe what hap-
pened when prosecutors turned to KPMG employees, and why companies
receiving deferred prosecution and non-prosecution agreements typically do
not have employees prosecuted. The prosecutions of former KPMG employ-
ees did not end neatly, and those cases would change how corporate prosecu-
tions are brought.
4
The Ostriches
Roman author and naturalist Pliny the Elder described the ostrich as the
greatest of the birds, with incredible speed, height, and strength. Yet Pliny
also accused ostriches of having a stupidity no less remarkable, famously
explaining that high as the rest of their Body is, if they hide their Head and
Neck . . . they think themselves altogether concealed.1 But ostriches do not
really hide their heads in the sand. They defend themselves with their pow-
erful beak and legs, and when confronted by their largest predators, they can
run away at speeds over forty miles per hour.2 The evocative image of an un-
gainly ostrich with its head in the sand is, as Judge Richard Posner puts it,
pure legend and a canard on a very distinguished bird.3
Unlike real ostriches, some criminals do put their heads in the sand to escape
the largest predators in the legal kingdom: the prosecutor. Corporations may
argue that managers did not know about the conduct of rogue employees or
bad apples. Formally, an ostrich defense does not work. The corporation does
not have to possess any knowledge of wrongdoing under the strict respondeat
superior rule. Informally, however, corporations can earn leniency or escape
prosecution altogether by convincing prosecutors that they should not be pun-
ished for conduct that did not reach the higher levels of management. In that
way, denying awareness of wrongdoing can be very important for a company.
Further, to demonstrate that the higher-ups do not tolerate wrongdoing, a com-
pany can threaten to fire employees who do not cooperate, and it can provide
prosecutors with the documents, emails, and interview statements to make a
criminal case against them. From the moment a criminal investigation begins,
individuals are caught in a bind between their employer and prosecutors.
82 Too Big to Jail
While corporate executives may try to put their heads in the sand, the
judge in a federal criminal case may provide the jury with what is nicknamed
the ostrich instruction, explaining that a defendant who was not completely
aware of the crime may still be convicted if she deliberately sought to avoid
the truth. As one appellate court put it, An ostrich instruction informs the
jury that actual knowledge and deliberate avoidance of knowledge are the
same thing. 4 And while it is intended to punish those who engage in this
deliberate avoidance, which is sometimes called deliberate ignorance, conscious
avoidance, or willful blindness, the ostrich instruction also raises the risk that
a jury might convict a person who had vague suspicions but did not know
enough about the crime to deserve punishment.5
An ostrich defense can be especially important in white-collar criminal cases,
where the ostriches are higher-ups who argue they did not know what was hap-
pening among subordinates. As one corporate lawyer said, A fundamental law
of organizational physics is that bad news does not flow upstream.6 Some cor-
porate crimes, such as what criminologist William K. Black terms control
fraud, are crimes by higher-ups bent on self-dealing.7 Other corporate crimes
may have benefited the company but were the product of corporate policies and
culture, and may be difficult to pin on any one person. Reflecting the ostrich
problem, higher-ups may have an easier time claiming lack of knowledge and
50
45
40
35
30
25
20
15
10
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of Cases with Number of Deferred and Non-Prosecution

Individual Prosecutions Agreements
Figure 4.1 Prosecutions of Individual Officers and Employees of Firms

Receiving Deferred Prosecution or Non-Prosecution Agreements,
20012012
The Ostriches 83
have far more resources to mount a vigorous defense. Yet they may be the most
important targets. Low-level employees may have far less to gain by violating the
law, and prosecuting them may do little to deter white-collar crime.
The thousands of individuals prosecuted each year for white-collar-related
crimes dwarf the 200 or so prosecutions of organizations each year. For example,
in fiscal 2012 more than 8,500 people were convicted of fraud in federal courts.8
Deferred prosecution agreements almost always require the company to help
prosecutors investigate any individuals involved. Prosecutors say they are intent
on putting people in jail. As a Department of Justice official commented, It is
our view that to have a credible deterrent effect, people have to go to jail.9
Given such statements, I was surprised to find that individual officers and
employees were often not prosecuted when the corporation was. This was
particularly true in the more significant cases involving deferred prosecution
agreements and public companies. In about two-thirds of the cases no indi-
vidual officers or employees were prosecuted for related crimes, while in
about one-third of deferred prosecution or non-prosecution agreements (35
percent, or 89 of 255) there were prosecutions of such individuals. This trend
has not changed over time; as deferred prosecution and non-prosecution
agreements gained popularity, the proportion of cases with individuals pros-
ecuted has remained fairly stable, as seen in Figure 4.1.
The lions share of the individual prosecutions involved fraud, either securi-
ties fraud (16 cases) or some other type (38 cases), as seen in Figure 4.2. While
No Employees Prosecuted
(166 cases)
Fraud (38 cases)
Securities Fraud (16)
FCPA (10 )
Immigration (4)
False statements (4)
Pharma (4)
Other (13)
Figure 4.2 Type of Crime and Prosecutions of Individual Officers and

Employees of Firms Receiving Deferred Prosecution or Non-Prosecution
Agreements, 20012012
84 Too Big to Jail
there were few deferred prosecutions of companies in antitrust cases, individu-

als were prosecuted in three of four antitrust cases. In contrast, no individual
officers or employees were prosecuted in cases involving banks violating laws
related to money laundering. A similar pattern held true for public companies
that were convicted. Slightly fewer (25 percent, or 31 of 125) convicted public
companies or their subsidiaries had officers or employees prosecuted.
The mustache-twirling villain is rarely to be found. Prosecutors may ea-
gerly try to convict a big fish, a higher-up who can be blamed and who does
not raise a credible ostrich defense, but such cases are few and far between.
While the DOJs Antitrust Division does give outright leniency deals to
employees as part of corporate prosecution agreements, most of the time
individuals are simply not prosecuted at all. Th is may be because of a
Wheres Waldo problem, as in the Andersen case, where it is hard to sort
out which officers and employees knew what. Or there may be so many
low-level employees implicated that prosecuting them all would be point-
less or even impossible; prosecutors conserve resources by focusing on the
company.
One goal of this approach is to use the corporation as an informant, to
help build a case against individualsbut agreements with corporations
have not been effective in doing so. Prosecuting interchangeable middle
managers may not change anything where corporate culture is to blame, and
while prosecuting higher officers may change the culture and affect industry
practices, doing so is difficult and can take years. While it may be upsetting
to see how rarely higher-ups are prosecuted, prosecutors have limited re-
sources to pursue white-collar cases, and unless that changes, prosecuting
the company alone may be appropriatebut only if that actually secures
meaningful reforms at the corporate level. Unfortunately, we have good rea-
sons to doubt that it does.
Andersen, Again
In the 1980s, Rudolph Giuliani, then U.S. attorney for the Southern Dis-
trict of New York, famously walked Wall Street bankers in front of the cam-
eras after their arrest to create a media spectacle. In 2002, following post-
Enron scandals, perp walks around the country included Andrew Fastow of
Enron, L. Dennis Kozlowski, the former CEO of Tyco International, John
The Ostriches 85
Rigas, the former CEO of Adelphia Communications, and Samuel Waksal,

the former CEO of ImClone.10 Some, such as Rigas, offered to surrender vol-
untarily, but prosecutors insisted on a perp walk in handcuffs.11 As the fed-
eral appeals court in New York put it, a suspect in handcuffs being led into a
station house is a powerful image of guilt.12 The perp walk sends a message
that white-collar criminals will be treated just as harshly as gangsters or
street criminals.
David Duncan, who pleaded guilty in 2002, was not made to undergo a
perp walk. Instead, he cooperated, and at the Arthur Andersen trial, prose-
cutors pointed out that whatever happened to Andersen, Mr. Duncan stood
up in court and his guilty plea will stand no matter what. It will stand and
subject him to a host of problems; criminal problems, civil problems; he faces
up to 10 years in jail.13 Prosecutors charged Duncan with a single count of
obstruction of justice, the same crime the company was convicted of. When
he pleaded guilty, the judge swore him in. Duncan told the judge that he was
satisfied with the advice his lawyer had given him. He had read the written
plea agreement, spoken to his attorney, and understood it. The details in his
plea suggested he was an ostrichhe had known a crime was occurring.
When the judge asked him to tell me in your own words what it is you did
to commit the crime, he said:
I instructed a number of members of the Engagement team

to comply with the Andersen document policy. I did so with
the knowledge and intent that those people would destroy
documents . . . so that they would be unavailable to the SEC
and other third parties.
He added, I also personally destroyed such documents for such purpose.

Finally, he concluded, I accept that my conduct violated federal criminal
law, and I fully accept responsibility for my action.14
Having pleaded guilty, Duncan could be sentenced to a maximum of ten
years in prison and a fine of $250,000. He could, however, get a downward
adjustment on the recommendation of prosecutors, possibly avoiding jail
time completely, for his acceptance of responsibility and also for his coopera-
tion. Later, a probation officer would do an investigation of the case and
write a report, and the judge would decide how to sentence him.
86 Too Big to Jail
Duncan was released on a $1,000 bond when he pleaded guilty. As the

years went by, his sentencing was put off again and again as the company
pursued appeals, through the end of 2005. After the Supreme Court threw
out Arthur Andersens conviction and prosecutors decided not to retry the
case, Duncan moved to withdraw his guilty plea. It is not easy to withdraw
such a plea, though a judge can approve the motion if the defendant can
show a fair and just reason for it.15 Duncans lawyers argued he had never
pleaded to knowing that what he did was illegal and that the Courts deci-
sion held that a person can only be guilty of obstruction of justice if there is
consciousness of wrongdoing.16 Duncan had said when he pleaded guilty
that he had knowledge and intent that documents would be destroyed.
But he had never said he meant to do something illegal. This question of
knowledge of an actions illegality is different from the ostrich problem of
willful blindness to the action having taken place at all, but both relate to
the larger problem of proving what the higher-ups knew in a complex
organization.
The judge approved the motion, which the prosecutors did not oppose.
Duncan was free of his conviction and never spent time in prison.17 The
SEC had fi led charges against him too, but a federal judge dismissed those
charges in early 2008.18 No other former Andersen employees were ever
charged.
Was Arthur Andersen the right target, or should it have been employees
like Duncan all along? Were Andersens employees well-meaning people or
criminals who ruined the integrity of a great company? The incentives and
mind-set of white-collar criminals are obviously very different from those of
violent criminals. Businesspeople work for legitimate institutions and may
think that what they are doing is not just legal but a valuable contribution to
a business or even society. That may drive them to bend or break rules with
economic consequences far greater than those of many street crimes.
Most of the employees at Arthur Andersen voted with their feet as the
criminal case progressed. In 2001, Andersen had more than 85,000 employ-
ees, but by the end of 2002, only 3,000 remained.19 Many former partners
and higher-level employees went on to successful careers at other major ac-
counting firms, but the lower-level employees, perhaps least to blame for what
happened, were most likely to be out of a job. Some later complained that
while managers were telling them, We want you to stay. Youll be taken care
The Ostriches 87
of, by the time the criminal case ended and everyone knew the ship was go-
ing down, the partners had moved to other firms.20
White-Collar Crime
Cases such as Andersens illustrate just how different white-collar crime is

from other types. Sociology professor Edwin Sutherland coined the term
white-collar crime in the 1940s in his landmark work exploring the causes
and nature of business crime.21 The phrase potentially covers far more than
stealing and more subtle forms of fraud, since corporate employees can
commit nonfinancial crimes geared toward improving the companys bot-
tom line, such as violating environmental standards. There is a sense that
white-collar crimes are not the same as street or violent crimes, though they
may also result in deaths, as can happen with workplace safety violations or
defective products.22 On one hand, lines separating appropriate business
practices from regulatory violations may be quite blurry. But critics empha-
size that the very legitimacy of the business setting makes white-collar
crime troubling. Writer and philosopher C. S. Lewis decried crimes con-
ceived in clean, carpeted, warmed and well-lighted offices, by quiet men with
white collars and cut fingernails and smooth-shaven cheeks who do not need
to raise their voices.23
In 1939, Sutherland complained of the lack of data collected on business
crimes, and although the government has not collected much better data
since, scholars have conducted case studies, interview research, and experi-
mental work studying the causes and types of white-collar crime. Interview
research has suggested that while messages from top management may set
the tone, it is the middle managers or lower-level employees who feel pres-
sure to commit crimes.24 Studies have not found a close connection between
the size of a company and likelihood of violating the law.25
The causes of white-collar crime may seem distant by the time any crimi-
nal case is resolved. Prosecutions of former Enron employees would take far
longer than that of Andersen, with former Enron CEO Jeffrey Skilling not
sentenced until 2006. Skilling said at his sentencing hearing, I am innocent
of every one of these charges.26 His appeals continued for years, ultimately
resulting in a reduced sentence in 2013.27 In white-collar cases, there may not
be much question whether someone did what he or she was accused of. The
88 Too Big to Jail
question may be, as in Skillings case or the Andersen case, whether what that
person did was a crime.
In a large corporation, there is a lot of sand for ostriches to bury their
heads in. The lack of any single villain may enable the largest and most com-
plex organizations to commit the most substantial and damaging crimes.28
One purpose of an organization, particularly a large one, is to allow work to
be specialized and divided among employees. That may make the work more
efficient, but it may also make it harder to blame individuals if something
goes wrong. Criminologists who study corporate fraud suggest it is usually a
team sport and the product of group-think or collusion among groups of
employees.29 Scholars suggest that managers can be socialized together, with
numbing effects on their ability to break ranks and question orders.30 Such
crime may not often be detected, so the risks may be perceived as low. Every-
one else may be doing it and covering for each other. There may be high pres-
sure to conform, make the numbers, hide embarrassing failures, or conceal
violations.
The broader business environment may also play a role. Companies facing
tough economic times may have greater incentive to bend the rules. Corpora-
tions may not take laws and regulations seriously if they are unclear, weak, or
enforced ineffectually. Some who engage in corporate crime may do so for
reasons that seem good at the timeto help the companyand not because
they are scheming or self-centered types bent only on their own reward.31
Employees such as David Duncan are unlikely to see their company as cor-
rupt and incompetent; Duncans claimed uncertainty about whether he had
committed a crime fits the white-collar mold well.
Individuals at KPMG
One corporate scandal can bleed into another, and even as prosecutors learn
lessons from one set of cases, the next set raises new challenges. After An-
dersen, prosecutors targeted KPMG and individuals involved in marketing
tax shelters. Nineteen people were ultimately chargedfar more than in the
typical corporate case. Prosecutions often depend on cooperating witnesses,
often little fish who are minor players willing to flip against big fish.32
Here prosecutors had the help of a powerful cooperatorthe corporation,
KPMG. Did prosecutors use the big fish to prosecute the little fish? And did
The Ostriches 89
prosecutors set the enormous economic power of the firm, which faced
ruin by indictment, against its own employees? KPMG wanted to avoid be-
ing the next Andersen, and it realized that the best defense was to help pros-
ecutors go on the offense.
Informants can be good, bad, or ugly. Jailhouse informants notoriously
seek a better deal for themselves by telling prosecutors that they overheard
cellmates confess to crimes. The informants may be liars, but sometimes
jurors believe them, and DNA and other evidence has proven how lying
informants have sometimes helped put innocent people behind bars.33 More
powerful informants are insiders who were a trusted part of a criminal
organizationthe Mafia turncoat, the co-conspirator who cooperates, or the
corporate officer willing to wear a wire and record conversations. In a white-
collar case, a whistle-blower may produce information that prosecutors could
never obtain otherwise.
A corporation can be the ultimate informant, and it doesnt need to wear
a wire. It can turn over all of its employees emails and documents. It can send
lawyers to interview employees to investigate what happened, and employees
cannot easily refuse to talk to corporate attorneys if they want to keep their
jobs. The power of the corporation over its employees came to a head in the
wake of the KPMG deferred prosecution agreement. A judge combed through
negotiations between KPMG and prosecutors, and as a result, we know far
more about how KPMG negotiated its agreement than in any case before or
since. Prosecutors turned over 22 million pages of documents and antici-
pated a complex trial, with nearly 70 witnesses and 2,000 exhibits totaling
more than 150,000 pages. Prosecutors were preparing for a trial against
nineteen defendants that might take six to eight months.34 Yet when the trial
finally began, only four individuals faced charges. What happened?
Prosecutors had always been interested in individuals along with KPMG
as a whole, and they met with IRS investigators and a confidential informant
who used to work for KPMG as they built their cases. Prosecutors charged
nineteen people for involvement in the byzantine tax shelters, including sev-
enteen current or former KPMG employees. Only two ever pleaded guilty.
Like many employers, KPMG had a long-standing policy of advancing and
paying legal fees if employees were investigated or prosecuted. One of the
seventeen who had worked for KPMG had just signed a contract including
payment for all legal proceedings or actions . . . arising from and within the
90 Too Big to Jail
scope of his duties and responsibilities. However, prosecutors placed the

issue of payment of legal fees high on its agenda for its first meeting with
KPMG counsel. KPMG argued that not paying employees legal fees would
be a big problem,35 and initially announced that any present or former
members of the firm asked to appear will be represented by competent
coun[sel] at the firms expense. 36 At a meeting on February 25, 2004, prose-
cutors emphasized that misconduct should not or cannot be rewarded,
and any payment of legal fees would be look[ed] at . . . under a microscope.
Prosecutors seemed angry and indicated that avoiding prosecution would
be an uphill battle for KPMG. Prosecutors delivered the sober warning
that no one has a get out of jail free card.37
By the next meeting, on March 2, KPMG had gotten the message. KPMGs
lawyer suggested the company might put a cap on legal fees, or only provide
them to employees who cooperated. On March 11, KPMG proposed sending
employees a letter stating that KPMG would pay legal fees and expenses up to
$400,000 if the employees would cooperate with the government and . . . be
prompt, complete, and truthful. The payment would cease immediately if . . .
[the employee] is charged by the government with criminal wrongdoing.
Why did KPMG decide to cut off legal fees to employees? It was not be-
cause of the cost, although the defense would be expensive. In related civil
lawsuits, KPMG paid more than $3 million for most of the same employees
lawyers. Prosecutors later conceded that before 2004, it had been the long-
standing voluntary practice of KPMG to advance and pay legal fees, without
a preset cap or condition of cooperation with the government, for its em-
ployees in civil and criminal cases. KPMGs new chief legal officer, a former
federal judge, testified that he wanted to be able to say, at the right time with
the right audience, were in full compliance with the Justice Departments
guidelines. One of the prosecutors later commented, The company was do-
ing anything it could to cooperate.38 The KPMG lawyers thought it would
be a big problem to face prosecution. After all, KPMG was acutely aware
of the fate of Arthur Andersen.
In addition to telling KPMG that any payment of fees would be looked at
under a microscope, prosecutors apparently referred specifically to the
Thompson Memorandum as a point that had to be considered.39 Recall how
the DOJ, after prosecuting Arthur Andersen, revised its guidelines to en-
courage the use of deferred prosecution and non-prosecution agreements;
The Ostriches 91
that 2003 revision was popularly called the Thompson Memo after the dep-
uty attorney general who issued it.40 The memo noted that cooperation would
be an important factor in deciding whether a company receives leniency, a
policy designed to discourage a corporation from circling the wagons. Coop-
eration requires a willingness to identify the culprits within the corporation,
including senior executives, and the memo noted that supporting culpable
employees by the advancing of attorneys fees or by retaining them with-
out sanction might lead prosecutors to think the corporation is being ob-
structionist. The company should make witnesses available, disclose the
complete results of its internal investigation, and waive attorney-client and
work product protection. 41 The last phrase was the most controversial, since
giving information to prosecutors about who is responsible is standard coop-
eration, but giving up privileged or protected documents sounds like asking
a company to waive its rights.
Corporations have important rights in criminal investigations that give
them great power over employees. When lawyers talk about privilege, they
typically are referring to an individual right to protect a conversation be-
tween an attorney and a clientthe attorney-client privilege. There is an-
other type of privilege, work product privilege, that covers the lawyers notes
and memos. If the other side could see a lawyers thought process, it would be
impossible to keep ones strategy private. Corporations own privilege in a
way that powerfully affects how criminal cases are investigated and litigated.
Under the Supreme Courts 1981 decision in Upjohn v. United States, the
corporation decides whether to assert privilege and protect a lawyers work
product and privileged conversations.42 This places employees in a bind. If
they refuse to speak to company lawyers investigating possible wrongdoing,
the company can fire them, as many companies have talk or walk policies.43
If the employees do talk to the companys lawyers, an admission of wrongdo-
ing may be used against them.
They may not understand that the corporations lawyer is not really their
lawyer. Lawyers for the corporation typically inform employees that they
represent the interests of the corporation and that employees may wish to
consult their own separate lawyer.44 But however well informed the employ-
ees are, for them the stakes remain the same. If the company decides to waive
privilege, records of those interviews can be turned over to regulators and
prosecutors. While difficult for employees, this rule gives corporations great
92 Too Big to Jail
power and control.45 Corporations have something to offer prosecutors in

exchange for leniency: waiver of privilege, granting prosecutors access to ma-
terials useful for charging employees.46 If employees try to play ostrich, pros-
ecutors can turn to the corporation to get information.
KPMG was already in hot water over this issue; a judge had found that in
response to a 2002 request by the IRS for documents concerning the tax
shelters, the company misrepresent[ed] documents as privileged when they
were clearly not.47 That obstructionism helped convince prosecutors to take
an aggressive posture, and in response, KPMG abandoned its claims. The
deferred prosecution agreement highlighted how KPMGs eventual cooper-
ation was an important factor in the decision not to prosecute. KPMG
agreed to provide prosecutors with all relevant documents and not to assert
any claim of privilege.48
There had been howls of protest from the defense and corporate commu-
nities in response to the parts of the Thompson Memo discussing waivers of
privilege.49 In fact, most companies did not waive it.50 Yet many registered
fierce objections; the Chamber of Commerce complained that this policy
deals a serious blow to the ability of employees to vindicate their legal rights
without suffering financial ruin.51 In 2005, the DOJ made a small change to
the policy, asking each office to review waiver requests to see if they were
necessary.52 Complaints continued that DOJ policy had created a culture of
waiver,53 even as most agreements did not include a privilege waiver. From
2001 to 2012, 19 percent of deferred prosecution and non-prosecution
agreements (49 of 255) required a waiver, and in eighteen of these forty-nine
cases, employees were prosecuted.54 However, companies can turn over in-
formation without agreeing to a formal waiver of privilege.
What if employees do not want to talk to investigators or to federal pros-
ecutors? The Fifth Amendment provides the right not to incriminate oneself.
While employees have the right against self-incrimination, the U.S. Supreme
Court has held that an organization such as a corporation has no such right
to remain silent. A company has a lot of information to offer prosecutors,
and the Supreme Court has recognized that the greater portion of evidence
of wrongdoing by an organization or its representatives is usually found in
the official records and documents of that organization.55 Those records
will include the fruits of internal investigations. A company can also threaten
to fire employees for not cooperating, or for just about any nondiscrimina-
The Ostriches 93
tory reasonand firing employees for suspected wrongdoing can be a good

thing.
What if the government tells the company to fire any employees who will
not talk?56 Does that resemble the situation where a detective threatens a
suspect in an interrogation room? The Supreme Court in Garrity v. New Jer-
sey and subsequent cases held that threatening government employees (not
private ones) with career-ending consequences for failing to waive privilege
violated the Fifth Amendment. In Garrity, a New Jersey law required that
police officers agree to be interviewed about misconduct or risk losing their
jobsthe choice was either to forfeit their jobs or to incriminate themselves.
Such employee statements obtained in violation of the Fifth Amendment
cannot be used at a criminal trial.57 But in the KPMG case, the individuals
involved were not government employees.
As noted, each of the employees under investigation received a letter saying
that KPMG would advance up to $400,000 in legal fees, but only if employees
would cooperate with the government and . . . be prompt, complete, and
truthful. Almost all of the employees spoke to prosecutors, signing a standard
proffer agreement to be interviewed. Two employees chose not to sign and did
not talk; one refused to speak with prosecutors, and the other spoke to prose-
cutors once but refused to speak again except on certain conditions. Attorneys
for those two holdout employees received a letter on May 28, 2004, that said:
Absent an indication within the next ten business days from the
government that your client no longer refuses to meet with the
government pursuant to its standard proffer agreement, KPMG
will cease payment of [the clients legal] fees.
Finally, please note that KPMG will view continued non-
cooperation as a basis for disciplinary action, including expul-
sion from the Firm.58
Both of the employees changed course. One agreed to talk, acting against the
advice of his attorney and in order to keep his job, after the prosecutors re-
ported his noncooperation to KPMG, which had implicitly but unmistakably
threatened to fire him if he did not fall into line.59 The other also agreed to
talk, but KPMG ultimately cut off payment of legal fees and fired the em-
ployee for being uncooperative.
94 Too Big to Jail
In July 2006, federal Judge Lewis Kaplan ruled that prosecutors had in
effect forced KPMG to force the employees to talk, violating their Fifth
Amendment rights.60 The judges ruling was unusual. I have studied dozens
of disturbing false confessions by innocent people later freed by DNA test-
ing and have found that often judges did not sufficiently consider the coer-
cive impact of lengthy, high-pressure interrogations.61 In the KPMG case,
these were not police interrogations. The company was not acting as an arm
of the state. The prosecutors were adversaries of KPMG. Judge Kaplan,
though, concluded that prosecutors quite deliberately coerced, and in any
case significantly encouraged, KPMG to pressure its employees to surrender
their Fifth Amendment rights. As a result, prosecutors would not be able to
use the statements from the two employees or any other fruits of the state-
ments. This was undoubtedly a blow to their case, but prosecutors were still
moving forward with plans for a major trial.
The judge was clearly troubled by everything that had happened in the
KPMG case. He next turned to KPMGs decision to stop paying employees
legal fees, ruling in a lengthy July 2006 decision that prosecutors had in ef-
fect forced KPMG to cut off employee legal fees in violation of the employees
Sixth Amendment right to counsel.62 Of course, most criminal defendants
cannot afford lawyers, much less very good ones. The prosecutors made just
that point: if these defendants were financially eligible, the federal court could
appoint lawyers for them. There is no constitutional right to the very best
lawyers. Judges often reject claims by convicts that they were unfairly tried
because their court-appointed lawyers were underfunded and inadequate,
even in cases where the lawyers were openly sleeping in court or otherwise
incompetent.
Judge Kaplan noted that the maximum pay court-appointed lawyers can
get is $7,000, and they are paid $94 an hour. That entire federal courthouse
had paid less than $20 million a year to court-appointed lawyers. In the
KPMG case, defendants had already incurred fees ranging from $500,000
to a high of $3.6 million, and there was a long trial to come. The government
agreed that a single defense might cost $3.3 million, and defense lawyers es-
timated total costs higher than $10 million. For this complex tax fraud trial,
the group of lawyers could be paid $50 million or more. That is hardly unique
in the world of white-collar defense; in the Enron prosecutions, Kenneth Lays
defense cost $25 million and Jeffrey Skillings cost $70 million. And the defen-
The Ostriches 95
dants, some wealthier than others, would all have to be wiped out financially
before they would be eligible for court-appointed lawyers.63 The judge was con-
cerned that the government had interfered directly with the legal representation
KPMG had given the defendants by encouraging KPMG to, in effect, fire their
lawyers. KPMG normally paid for lawyers for its employees, changing its policy
only when prosecutors pressured them to do so. Despite another setback for
prosecutors, the judge had not yet decided whether to dismiss the case.
Larger Ripples: Who Is Going to Jail?
The KPMG case became the focal point for concerns about the role of law-
yers and employees in corporate prosecutions. Senator Arlen Specter intro-
duced legislation to bar federal officials from considering a firms waiver of
privilege, payment of employee attorney fees, or employee cooperation with
an investigation.64 The legislation went nowhere, but the bar and business
groups carried the cause forward. As noted, most companies receiving leni-
ency do not waive privilege, and no one was suggesting that something should
be done to give employees more rights against at-will firing. Nevertheless, the
KPMG case eventually would help smooth out matters a little.
In the halls of Congress, prosecutors are apparently damned if they do
and damned if they dont. When prosecutors took a more aggressive tack
against corporate employees, they faced outrage from the bar, corporate in-
terests, and judges. Now prosecutors face the reverseoutrage that corpo-
rations are getting leniency but no employees are being held accountable.
In Senate hearings on the Foreign Corrupt Practices Act in 2010, Senator
Specter demanded to know why so few individual employees had been
prosecuted. He pointed to high-profile cases, such as the Panalpina World
Transport case, with $236 million in fines but no individual prosecutions,
and the record $1.6 billion in fines in the Siemens case, which at that point
involved no individuals. The DOJ said cases were ongoing, and it had im-
posed more than $1 billion in penalties in FCPA cases.
Senator Specter pointed out that fines come out of the corporation . . .
but that doesnt deal with the individual conduct violating the law. He put it
bluntly: My question is, whos going to jail? 65 Perhaps responding to the
concern, in 2011 the DOJ announced charges against a group of eight former
Siemens executives. The officers were all allegedly involved in paying $100
96 Too Big to Jail
million in bribes to secure a $1 billion contract to make national identity

cards in Argentina.66 As the DOJ announced, This is the first time weve
charged a board member of a Fortune Global 50 company with FCPA
violations. But none of these executives resided in the United States, and
arresting and extraditing them to face charges in this country may be impos-
sible. Still, the move pleased Senator Specter, who noted that just the filing
of a criminal prosecution is a salutatory action. 67 Since then, some of the
former Siemens executives have settled civil charges with the SEC, but none
has been convicted of crimes.68
How often are employees targeted? The KPMG case stands out for hav-
ing so many employees charged. Looking across all of the deferred prosecu-
tion and non-prosecution agreements with corporations, most do not involve
employee prosecutions. In response to Specters questions, the DOJ said it
had charged fifty people in FCPA casesfar fewer than the number of cor-
porations targeted (more than ninety). The DOJ could point to only a few
resulting in jail sentences, the longest of which was eighty-seven months. Of
the nearly 100 FCPA prosecutions over the past decade, fewer than thirty
involved employee prosecutions. Only ten companies that entered deferred
prosecution or non-prosecution agreements for FCPA violations had their
officers or employees prosecuted as well. The FCPA does pose special chal-
lenges, since it may be hard to arrest foreign employees who were involved. It
may require extradition, requiring the cooperation of another government,
and some countries do not extradite to the United States, effectively leaving
people outside the reach of U.S. authorities unless they travel to the United
States or a country that will extradite.
The largest and most serious corporate prosecutions did not result in indi-
vidual prosecutions. As noted, individual employees or officers of companies
were prosecuted in only about one-third of cases involving deferred prosecu-
tion or non-prosecution agreements. In addition, slightly fewer (25 percent,
or 31 of 125) of the public companies and their subsidiaries that were
convicted between 2001 and 2012 had individual officers or employees pros-
ecuted. There is usually not a formal deal to let employees off the hook, or at
least not one that is made public. The exception is in antitrust immunity
deals, which reward the first company to come forward with immunity for
the company, its officers, and its employees. The policy is designed to provide
a powerful weapon to prosecute the other companies and employees collud-
The Ostriches 97
ing in a price-fixing cartel. Antitrust agreements often include a promise not

to prosecute cooperating employees, but prosecutors also carve out and pros-
ecute those employees who do not cooperate, particularly high-level ones.69
Outside the antitrust setting, I found few deferred prosecution or non-
prosecution agreements discussing employees: the exception was an agreement
in the AmSouth Bancorp case, which said that if the firm complied, then the
United States will not prosecute any current or former AmSouth employee
based upon any of the conduct described.70 The case was about failure to file
suspicious activity reports concerning unusual bank transactions, reports
designed to detect money laundering.71 It may have been that no particular
employee was at fault, but rather that automated systems were not designed
correctly. We do not know. The document describing what prosecutors un-
covered in the case is under court seal and cannot be accessed.
Cases in which both the company and employees were prosecuted in-
volved almost exclusively domestic firms: of the eighty-nine companies enter-
ing deferred prosecution or non-prosecution agreements, eighty were do-
mestic corporations. This may speak to the difficulty of prosecuting foreign
employees of foreign corporations. The cases in which employees were pros-
ecuted had the same average fines. Well over half of the cases, fifty-four of
them, involved fraud; only ten involved FCPA violations. None of the bank-
ing or currency-reporting violations resulted in individual prosecutions, nor
did export violations. Some officers and employees have been held civilly ac-
countable by agencies such as the SEC; they may be debarred from doing
work for public companies or pay substantial fines. In such cases, prosecu-
tors may conclude that civil consequences for individuals were enough.
There were a total of 385 individual officers and employees prosecuted in
cases related to the eighty-nine deferred prosecution and non-prosecution
agreements. Several companies with large numbers of prosecuted employees
had violated immigration rules, and low-level employees were convicted for
using fraudulent visas. But in some cases, upper- and lower-level employees were
prosecuted in large numbers; the twenty-three employees of the New York
Racing Association convicted include its director and a vice president. There
were the seventeen KPMG employees prosecuted (and two nonemployees).
HealthSouth had eighteen officers and employees prosecuted, from the
CEO and CFO to the treasurer and a series of vice presidents. What hap-
pened to the prosecuted individuals? Most pleaded guilty, like the vast ma-
98 Too Big to Jail
jority of criminal defendants, but some took their cases to trial, and in some
high-profile cases, such as that of HealthSouths CEO, the defendants were
acquitted.
There is little data on how many corporate employees have been prose-
cuted in the past. A study in the mid-1970s by Marshall Clinard and Peter
Yeager found that only 1.5 percent of federal enforcement efforts resulted in
the conviction of a corporate officer.72 There may be far more prosecutions of
employees of smaller companies, where owners or higher-ups may be closely
involved. A study by Mark Cohen in the late 1980s found that in 65 percent
of non-antitrust-related federal corporate prosecutions, employees were pros-
ecuted.73 Such data raise the concern whether elites, such as executives at
major corporations, can resist prosecution by hiring high-paid lawyers and
arguing a lack of knowledge of crimes by their subordinates.
Sometimes prosecution of employees is considered sufficient. The envi-
ronmental nonprofit Greenpeace was prosecuted when eleven members tres-
passed and hiked to the top of Mount Rushmore. On the courthouse steps,
one of the hikers explained, We climbed Mount Rushmore because we wanted
to send a message to President Obama that this is an issue that is important to
us, and to the future generations who will face the increasing impacts of global
warming.74 When the hikers pleaded guilty and were sentenced to fines and 50
to 100 hours of community service (including work in the park at Mount Rush-
more), prosecutors thought that was enough. They dropped the charges against
Greenpeace, although it did pay a $30,000 civil fine.
When Morgan Stanley disclosed FCPA violations in its Chinese real-
estate business, the DOJ and SEC charged the Morgan Stanley manager in
China with violations but announced that they would not prosecute Morgan
Stanley itself:
After considering all the available facts and circumstances, in-

cluding that Morgan Stanley constructed and maintained a sys-
tem of internal controls, which provided reasonable assurances
that its employees were not bribing government officials, the
Department of Justice declined to bring any enforcement ac-
tion against Morgan Stanley related to Petersons conduct.
The company voluntarily disclosed this matter and has cooper-
ated throughout the departments investigation.75
The Ostriches 99
The DOJ and SEC explained that a rogue employee used a web of deceit
and actively evaded the controls that the company had in place in order to
get control of a multimillion-dollar building in Shanghai along with his
friends and conspirators.76
One of the largest immigration raids in history swept a kosher meatpack-
ing plant in Postville, Iowa, in May 2008. More than 300 employees were
arrested, all immigrants, and within days more than 250 had been prose-
cuted and had pleaded guilty to immigration crimes. Prosecutors gave them
exploding offers of leniencythat is, offers that have an expiration date
for pleading guilty to felonies right away, and they were interrogated without
access to immigration lawyers.77 Prosecutors threatened severe aggravated
identify theft charges and denied bail; defendants might have served six to
eight months in pretrial detention if they did not accept their exploding of-
fers, which were mostly for only five months of jail time. Congress later held
hearings examining what had transpired.78
A local Postville official complained, They dont go after employers. They
dont put CEOs in jail.79 But the government did bring charges against higher-
level employees, including the CEO, and the corporation itself, Agriprocessors,
Inc. Unlike the cases against immigrant workers, which were fast-tracked and
resolved within days, this case plodded along slowly and was intensively liti-
gated. The CEO went on trial in late 2009 and was convicted. The govern-
ment dismissed all of the charges against Agriprocessors, Inc., but for a good
reasonthe company was bankrupt, had ceased doing any business, and
had been effectively divested of all property.80 The company could not pay a
fine because it was an empty shell. Other corporations dissolve as a conse-
quence of prosecutions, or because an underlying fraud ruins the company,
leaving the employees as the only target. This often happens in prosecutions
of fairly small companies. For example, a contractor was fined $4,400 for
Clean Air Act violations, since the company was basically defunct, but the
owner had to pay $303,000 in restitution and was sentenced to six years in
prison.81
Should more employees be prosecuted? Prosecutors are supposed to pri-
oritize holding real people accountable, not corporate persons. In 2008, the
deputy chief of the Justice Departments Fraud Section said that individual
prosecutions have gone up and thats not an accident . . . to have a credible
deterrent effect, people have to go to jail.82 But in most corporate deferred
100 Too Big to Jail
prosecution agreements, no employees are prosecuted, so the credible deter-

rent must be prosecution of companies.
Systems Failures
In some types of cases, prosecutors do not focus on identifying who knew

what in a company. Instead, they focus on structural reforms to prevent fu-
ture crimes. This is particularly true in prosecutions under the Bank Secrecy
Act, a 1970s law that deals with the bank secrecy laws of other countries and
includes rules designed to protect against money laundering by requiring
banks to track large deposits of cash.83 Banks must file reports for transac-
tions that involve more than $10,000 in cash, and in particular transport of
such sums into or out of the country. Banks file massive numbers of those
reports, more than 15 million a year.
There are also tough laws against money launderingit is illegal to enter
financial transactions or transmit funds to and from the United States if one
has knowledge that those transactions involve specified crimes, such as fraud,
and to conceal or disguise where the proceeds of those crimes came from.84
Federal law bars structuring transactions to avoid reporting requirements85
or engaging in money transactions in criminally derived property worth
more than $10,000.86 In addition, federal laws, such as the USA PATRIOT
Act of 2001, require banks to adopt procedures to identify transactions by
suspected terrorists or terrorist organizations.87
Violations of laws such as the Bank Secrecy Act absolutely involve com-
pliance failures, since banks are required to have systems in place to flag and
report troubling transactions.88 Yet no U.S. bank has ever been convicted of
money laundering.89 If a bank is convicted of money laundering, federal law
requires the comptroller of the currency to terminate the banks license.90
This turns a money laundering conviction into a corporate death sentence.
Instead, banks typically are charged with Bank Secrecy Act violations, giv-
ing the comptroller discretion as to the banks license, including considering
whether the bank cooperated with the authorities and adopted improved
internal controls.91 Almost all banks receive deferred prosecution or non-
prosecution agreements for Bank Secrecy Act violations; only a handful have
been convicted. Banks are usually charged with a failure to maintain an effec-
tive anti-money-laundering programa crime of inadequate compliance.92
The Ostriches 101
The best-known example is the prosecution of HSBC in the largest money

laundering case in U.S. history. Once called Hong Kong Shanghai Banking
Corporation, HSBC is now headquartered in London, operates in more
than eighty countries, and has $2.5 trillion in assets and almost 90 million
customers. The U.S. branch of HSBC became the subject of an inquiry by a
U.S. Senate committee concerned about its weak anti-money-laundering
program.93 The committee found that billions of dollars had been diverted to
Mexican drug cartels, groups in Iran and Syria, and groups linked to terror-
ism. HSBC apparently had systems designed to flag suspicious transactions,
but employees were told to disregard red flags. The bank also failed to con-
duct due diligence on its foreign affiliate branches opening accounts in the
United States despite a law requiring that it do so.94
Among the beneficiaries of these lax controls were Mexican drug cartels,
who need to get hard U.S. dollars back to Mexico after smuggling drugs in
the other direction.95 It is much easier to wire-transfer the money, but with
U.S. banks adopting strict anti-money-laundering controls, cartels took cash
across the border and deposited the money in lightly regulated Mexican
banksincluding HSBCs Mexican subsidiary. The subsidiary was moving
billions a year into its U.S. operations. Authorities in Mexico and the United
States warned HSBC that the volume of dollars could only be due to illegal
narcotics trade. HSBC should have known this would be a problem; when it
bought the Mexican bank in 2002, it learned that the other bank did not in
reality, have a Compliance Department. In the late 1990s, this same Mexi-
can bank had been implicated in Operation Casa Blanca, a U.S. undercover
money laundering sting.96
Prosecutions of other banks should have also been a warning. For example,
Sigue, a company that provided electronic transfers of money to Central and
South America, faced prosecution for not having adequate controls to prevent
money laundering. Sigue was given a deferred prosecution agreement, in part
because it was already spending tens of millions to enhance its internal con-
trols. When the agreement was reached, Sigues lawyer said, It is important
to note, the issues identified did not involve Sigues officers or employees but
instead involved a relatively small group of independent agents providing
Sigues services during the period of November 2003 through March 2005.97
Banks are also supposed to monitor transactions to the most dangerous
persons and countries, places such as Burma, North Korea, and Sudan.
102 Too Big to Jail
Multiple federal laws make it a crime to violate economic sanctions imposed

on such regimes, yet HSBC apparently altered transaction information to
disguise links to Iran (to avoid the careful review that regulations require for
such transactions). HSBC was active in Asia, Africa, and the Middle East,
particularly in Saudi Arabia. Despite terrorist financing concerns, HSBC
reopened business with a Saudi bank and others with possible links to ter-
rorism.98 One employee pointed out in an email that over the last couple of
months investigators have approached me about cases in the Middle East,
especially in Palestine. . . . It appears that most investigators do not under-
stand that the government of Palestine is the terrorist organization Hamas.
(Hamas has been designated as a terrorist organization since 1995.) Yet his
supervisor angrily responded, Are you out of your f mind? and I
should fire you right now.99
After these transactions came to light, the Senate issued a report calling
the culture at HSBC pervasively polluted. In an age of international ter-
rorism, drug violence in our streets and on our borders, and organized crime,
stopping illicit money flows that support those atrocities is a national security
imperative, said Sen. Carl Levin. The head of compliance at HSBC announced
his resignation at U.S. Senate hearings in July 2012. He added, I am happy,
however, to be able to say that the bank has learned from its past and is already
on a path to becoming a better, stronger banking institution.100
One problem was a simple lack of staffing. Despite being one of the largest
banks in the world, HSBC had only 200 employees working full-time on
compliance, and even fewer on anti-money-laundering compliance. These
employees claimed to be overwhelmed by the vast number of transactions
with anti-money-laundering alerts and complained that they were in dire
straights [sic] . . . over backlogs. The bank kept staffing low to keep costs
low; when the head of compliance raised the issue of insufficient staff and
resources at a board meeting, she was fired, and her comments were called
inappropriate.101
Will HSBC finally shape up its compliance programs now that it has been
prosecuted? While money laundering charges were not broughtas we have
seen, a conviction on those charges would have led to the bank losing its
charterHSBC paid $1.92 billion in forfeiture and fines.102 The bank also
entered a deferred prosecution agreement that cited its failure to adopt due
diligence and have an effective anti-money-laundering compliance pro-
The Ostriches 103
gram.103 No employees at HSBC have been prosecuted, although HSBC

agreed to cooperate in ongoing investigations. What changed? HSBC re-
placed all of its top leadership, from the CEO down to the chief compliance
officer and anti-money-laundering director. The bank clawed back bonuses for
senior officers. It spent $244 million on anti-money-laundering efforts in 2011,
nine times what it spent in 2009, and ramped up the number of full-time em-
ployees working on those efforts from 92 to 880. It embarked on a $700 mil-
lion review of all of its clients. It adopted new automated systems to monitor
wire transfers and transactions. And the bonuses of senior executives will
now be based on the extent to which the senior executive meets compliance
standards and values.104 Similarly, MoneyGram International Inc. signed a
deferred prosecution agreement in 2012 agreeing to evaluate all executives
based on adherence to compliance policies.105 These are remarkable changes
to the terms of employment at major banks.
In another banking case, this one involving Barclays, the judge who held
hearings before approving a deferred prosecution agreement expressed out-
rage: No one goes to jail, no one is indicted, no individuals are mentioned as
far as I can determine . . . theres no personal responsibility.106
The prosecutor explained, In every case . . . we look . . . to see is there
someone or an entity that has committed a crime. But in this case, there . . .
was not someone who we could prove to a court beyond a reasonable doubt . . .
had committed an offense.
The judge was incredulous: Theres no paper trail of $500 million being
funneled illegally to other countries? I mean, senior management . . . has to
know whos responsible for it. I mean, these werent just computer transfers.
Someone had to mastermind this.
The prosecutor responded, We certainly looked . . . and to date . . .
theres no one that we have any charges pending against.
The judge would not let this go: Theres no basis to hold senior manage-
ment criminally responsible?
The prosecutor responded that Barclays spent $250 million in internal
investigations, but the judge was not impressed. They spend $250 million
and couldnt find anyone responsible. Thats just shocking, you know. It is
shocking, isnt it?107
No employees were prosecuted, and nor have any HSBC employees been
prosecuted. We know from the statement of facts in the deferred prosecution
104 Too Big to Jail
agreement that some of the beleaguered compliance officials at HSBC knew

there was a problem and complained, asking for more resources. Perhaps
prosecutors could have shown, using an ostrich instruction, that the higher-
ups were at least willful blind. Instead, as is typical in Bank Secrecy Act
cases, the bank settled its case, and no employees or officers were held indi-
vidually accountable.
Big Pharma and Corporate Culture
Prosecutions of major pharmaceutical corporations (often known as Big

Pharma), including several of the largest corporate prosecutions of all time,
also involve massive compliance failures but rarely any prosecutions of indi-
viduals. These Big Pharma companies can have many thousands of sales pro-
fessionals, either on staff or as consultants who market drugs to doctors. The
Food, Drug, and Cosmetics Act (FDCA) makes it a misdemeanor to cause
adulteration or misbranding of any food, drug, cosmetic, or device in inter-
state commerce.108 Doctors have freedom to prescribe drugs based on their
medical judgment, but a drug company must not market drugs to doctors for
unapproved or off-label uses that have not been tested and approved by the
Food and Drug Administration (FDA.)109 It is also unlawful for drug sales
representatives to offer kickbacks to doctors if they prescribe a drug.110
Other laws make it a crime to falsely report prices of drugs or medical de-
vices. It is estimated that health care fraud in general costs the government
tens of billions of dollars a year.111
The biggest of the Big Pharma corporations is Pfizer. In 2009 Pfizer and
a subsidiary paid $2.3 billion for off-label marketing of a painkiller and an
antipsychotic drug. This sum included a criminal fine of almost $1.2 billion,
a record at the time. The case began, like most of these cases do, with the ac-
cusations of a whistle-blower. One of Pfizers most widely prescribed drugs
was Bextra, a painkiller. (In 2005, Pfizer would remove Bextra from the
market after studies showed it created a risk of heart attack.) Sales represen-
tatives were paid a $50 reward when they convinced doctors to add Bextra to
the standard protocol after an operation.112 A Pfizer sales representative,
whose team of sales reps was nicknamed the Sharks, recalled, If you dont
aggressively sell your products . . . youre labeled a non-team player. This
representative was fired from Pfizer after he complained to supervisors in
The Ostriches 105
2003 about sales of Bextra for unapproved uses. The rep, a Gulf War vet-
eran, lost his $125,000-a-year position and had to take a much lower-paying
job, later commenting, It was a lot of stress on the family. I pretty much
depleted my entire 401(k).113 He added, In the Army I was expected to
protect people at all costs . . . At Pfizer I was expected to increase profits at
all costs, even when sales meant endangering lives.114
He turned whistle-blower and filed a qui tam suit, which is a lawsuit
brought by an individual to report actions that defraud the federal govern-
ment. Those who file a qui tam suit may be motivated by money, since they
can take a share of the funds recovered for the government. Such a bounty
can be millions of dollars. Federal regulators at the Department of Health
and Human Services Office of Inspector General (HHS-OIG), working
with DOJ lawyers, may take on the litigation themselves, and criminal pros-
ecutions may follow. The DOJ has created a joint task force to pursue health
care fraud cases and has obtained billions in fines.115
When the Pfizer case was settled in 2009, the former sales representative
received a $51.5 million reward, along with a share of the money recovered by
the states. Three other whistle-blowers recovered tens of millions more. Yet it
was a Pfizer subsidiary that was convicted, not the parent company. This is
because HHS-OIG wields another powerful weapondebarment from Med-
icaid or Medicare, which could be the death knell of a major pharmaceutical
company. For some crimes a felony conviction requires mandatory exclusion or
debarment from participating in all federal health care programs.116 HHS can
offer waivers to avoid that serious sanction,117 as major companies may be con-
sidered too big to debar if they sell critical drugs that doctors and patients
rely on.118 Big Pharma companies may pay some of the largest fines in all of
federal criminal law, but often a subsidiary pleads guilty to the crime, or the
company is convicted of a misdemeanor rather than a serious felony.
The fines may not seem so large after all, given the sums of money in-
volved in health care spending. Consider the case of antipsychotic drugs,
on which Americans spend $15 billion a year. In 2012, Abbott Labs paid
$1.5 billion, about half of which was in criminal fines, to settle claims
about off-label marketing of antipsychotics.119 In 2010, AstraZeneca set-
tled new charges with the federal government over off-label marketing of
antipsychotic drugs (it had previously paid $355 million in 2003). This
time it paid a massive $520 million civil fine with no prosecution. Eli Lilly
106 Too Big to Jail
paid $1.4 billion, over one-third of which was a criminal fine regarding off-
label marketing of an antipsychotic. In 2007, Bristol-Myers Squibb and a
subsidiary paid $515 million regarding marketing of yet another antipsy-
chotic drug.120
Perhaps industry practices will eventually change. Take the case of Glaxo-
SmithKline, which in 2012 paid almost $3 billion, including nearly $1 bil-
lion in criminal fines, as part of a global settlement of multiple whistle-
blower actions.121 One of the allegations involved a drug called Wellbutrin
SR, an antidepressant. Operation Hustle was GSKs nickname for its pro-
gram to gain a greater market share for this product. Sales representatives
were told it was useful for combating a wide range of mood disorders, not
just depression. They promoted Wellbutrin as an add-on to help prevent
weight gain and improve patients sex lives while on antidepressants. Sales
shot up, and Wellbutrin SR became the product of choice for adding . . . pa-
tients who experience sexual dysfunction or efficacy poop-out.122 Salespeople
called Wellbutrin the happy, horny, skinny pill, according to prosecutors,
to remind doctors of unapproved uses.123 GSK paid its sales representatives
bythe volume of sales, with special bonuses, such as vacations to Hawaii, for
top sellers.
After these violations were revealed, a GlaxoSmithKline spokesperson
said the company had taken action at all levels in the company to ingrain a
culture that aligns with our values and puts patients first.124 A plea agree-
ment, together with a detailed corporate integrity agreement with HHS-OIG,
changed how sales representatives were paid, based not on the volume of sales
but on business acumen, customer engagement, and scientific knowledge
about GSKs products. The plea agreement added a $20,000-a-day penalty
for any breach.125 Other recent agreements have similar languagethe Ab-
bott Labs agreement has penalties ranging from $1,000 to $5,000 a day.126 A
detailed agreement entered in 2013 with a Johnson & Johnson subsidiary
also included similar language regarding penalties and altering the compen-
sation of employees. In late 2013, GlaxoSmithKline announced that the
changes adopted under the plea agreement would be extended to its entire
global business: it will no longer pay sales staff based on numbers of prescrip-
tions written by doctors, nor will it pay doctors to promote its products.127
Whether that is a harbinger of a real shift in industry practice remains to be
seen.
The Ostriches 107
Why not prosecute the employees? Pharmaceutical sales employees have

not typically been targets, but some doctors have.128 To prosecute hundreds
or thousands of sales employees would be an enormous task, and singling out
one or two might seem unfair. Perhaps prosecutors decided only the company
can pay fines and prevent improper drug sales and marketing.
The Higher-Ups
Sometimes prosecutors do take on the ostriches and overcome the challenges

to holding higher-ups accountable. In the eighty-nine deferred prosecution
and non-prosecution agreements in which individuals were prosecuted, 385
people were prosecuted, including ten presidents, twenty CEOs, and twenty-
seven CFOs. Among the thirty-one publicly listed firms convicted between
2001 and 2012 that had individuals prosecuted, one chairman, one presi-
dent, four CEOs, and one CFO were prosecuted. Far more individuals are
prosecuted for white-collar offenses each year in cases in which no company
is prosecuted, but no good data are kept on how many of those are higher-
ups versus lower-level actors. The Department of Justice has occasionally
reported on successes in holding higher-ups accountable, although with-
out clearly explaining where its figures come from; one such DOJ report
stated that between 2002 and 2008, the members of its Corporate Fraud
Task Force prosecuted 200 CEOs, more than 120 vice presidents, and
50CFOs.129
Perhaps the highest-profile individual prosecution related to a deferred
prosecution or non-prosecution agreement was that of the former CEO of
Kellogg, Brown and Root (KBR), now a subsidiary of Halliburton. He pleaded
guilty in September 2008 to conspiring to violate the FCPA, among other fed-
eral crimes, as part of a decade-long scheme to obtain $6 billion dollarsworth
of engineering, procurement, and construction contracts by paying millions
of dollars in bribes to Nigerian officials.130 In his plea agreement, the former
KBR CEO admitted to hiring consultants with the expectation they would
pay bribes.131 In addition, he admitted to repeatedly meeting with high-level
Nigerian government officials to discuss whom bribes should be paid to, and
meeting with Nigerian officials in a London hotel to negotiate the amount of
bribe money to be paid. The total paid by KBR to Nigerian officials was re-
portedly around $180 million.132
108 Too Big to Jail
All of this made it an easy casehe admitted to being personally involved

in the bribery scheme. He even admitted an illicit motive, personally obtaining
more than $5 million through an illegal kickback scheme. He hired a former
employee as a consultant, received portions of the consultants bonuses from
KBR, and sent the money to his secret Swiss bank account.133 Contrast the
guilty plea in this case with the Tyson Foods deferred prosecution agree-
ment, in which the company paid about $5 million in fines and no action
taken was against executives, the highest-ranking of which retired, taking a
compensation package that included a $1 million payment, a consulting con-
tract for $3.6 million, and other perks.134
Perhaps the best-known example of the ostrich instruction in action is the
trial of WorldCom CEO Bernard Ebbers. During his early days working as
a basketball coach, a warehouse manager, and a motel operator, Ebbers in-
vested in a small long-distance company in Mississippi. Through a series of
remarkable mergers beginning in the late 1980s and continuing through the
1990s, he turned the company into WorldCom, a global telecommunica-
tions behemoth with 90,000 employees and billions in annual revenue. Yet
in 2000, WorldComs financial situation began to crumble. In the last quar-
ter of 2000, when $800 million in costs surfaced, accounting gimmicks were
used to hide them. As actual earnings continued to disappoint and costs
rose, a Close the Gap program was created to continue concealing the true
scope of the problem from investors and regulators. The CFO called these
techniques accounting fluff, one-time stuff, and junk.135
After WorldComs true financial situation came to light, the company
collapsed in bankruptcy. In 2002, federal prosecutors charged the CFO with
securities fraud, and he pleaded guilty. They also charged Ebbers, alleging he
routinely reviewed WorldComs financial situation and ordered his CFO
to fraudulently report high profitability. They said Ebbers had a selfish
motivehe owned large quantities of WorldCom stock and had large debts.
Ebberss lawyers argued he was unaware of what the CFO and others were
doing.
At trial, the CFO testified that Ebbers intimidated him into committing
the fraud by ordering that WorldCom must meet Wall Street expectations.
Ebbers also took the stand. He testified that he made deals but left the de-
tails of running the company to the CFO. He threw out budget reports
The Ostriches 109
without reading them and signed documents without reading themwas

that willful blindness? On the stand, he politely denied knowing anything:
Q: Did you ever believe that any of the statements contained in

those public filings were not true?
A: No, sir.
Q: Did you ever believe that WorldCom had reported revenue
that it was not entitled to report?
A: No, sir.
Q: Did you ever believe that WorldCom had an obligation to
announce changes in accounting practices that it had failed
to announce?
A: No, sir.
Q: Did you ever believe that WorldCom was putting out bad
numbers in its financial statements in any way at all?
A: No.136
The judge instructed the jury that conscious avoidance or willful blind-
ness could be a reason to convict: You may consider whether the defendant
deliberately closed his eyes to what otherwise would have been obvious.137
The jury could treat deliberate avoidance of positive knowledge as the equiv-
alent of knowledge.138 In March 2005, after eight days of deliberating, the
jury found Ebbers guilty of all nine counts. He was sentenced to twenty-five
years.139 The jurors apparently concluded that Ebberss claims of ignorance
were simply not true.140 On appeal, the judges agreed the ostrich instruction
was proper, saying that based on all of the evidence, a rational juror could
find [that Ebbers] was consciously trying to avoid knowledge that the finan-
cial reports were inaccurate.141 If higher-ups keep themselves in the dark,
they can be convicted.
There is another way to hold higher-ups accountable besides the ostrich
instructionthe responsible corporate officer doctrine. Some statutes al-
low an executive to be convicted of a crime without knowing anything about
it, so long as the executive was responsible for that area of the companys op-
erations and it was a strict liability type of misdemeanor offense that did
not require knowledge of the wrongdoing. This weapon has rarely been used,
110 Too Big to Jail
coming up mainly in violations of pharmaceutical regulations. Misbranding

under the FDCA is a strict liability offense and executives can be held respon-
sible even if it cannot be proved they knew what was happening. However, the
FDA tends to recommend prosecutions only if executives were aware of what
was going on, or if they were reckless.142 For example, three executives of
the Purdue Frederick Corporation, which itself pleaded guilty to mis-
branding OxyContin by promoting it as less addictive than it was, pleaded
guilty as responsible corporate officers. The three were sentenced to 400
hours of community service, a $5,000 fine, and five years of probation each
the crime was a misdemeanor. They also had to disgorge compensation total-
ing approximately $34.5 million. This was no trivial punishment for a crime
where prosecutors did not have to prove executives had any knowledge or
consciously avoided having it.143
Regulators can also hold individuals accountable. Some employees have
faced civil actions by regulators, while some executives have been barred
from work in an industry. When the CEO and president of Forest Labs, a
pharmaceutical company, was told HHS-OIG was considering barring him
from federal health care program work, the firms general counsel called this
unjustified, adding that doing so would create uncertainty throughout the
industry and discourage regulatory settlements. Exclusion is meant to alter
the cost-benefit calculus of the corporate executives, said the chief counsel
for HHS-OIG, though ultimately HHS decided not to pursue this case.144
Civil sanctions have been challengedincluding by the Purdue Frederick
executives, who argued HHS overreached by excluding them for twenty
years, with career ending consequences. On appeal to higher-level HHS
administrators, this was reduced to twelve years, but the executives sued to
regain their employment. A three-judge panel then reversed the bar com-
pletely, suggesting that misdemeanors that did not require intent to do wrong
were insufficient to justify a lengthy exclusion.145
Few results look worse than the prosecution of a few underlings while
higher-ups are let off the hook completely. Massey Coal was prosecuted
following a massive explosion at its Upper Big Branch Mine in West Vir-
ginia that killed twenty-nine workers. After the company was bought out,
it received a deferred prosecution rather than a conviction. Families of vic-
tims expressed concern that no higher-ups were targeted, including the
The Ostriches 111
CEO, who left with a multimillion-dollar package before Massey was

sold.Building a case that can overcome an ostrich defense can take time
and resources. A superintendent and a president of a subsidiary have
pleaded guilty and are cooperating, but so far the former CEO has not been
prosecuted.146
Other Strategies: Corporate Conspiracy Theory and

Victims of the Corporation
A company may be charged with conspiring with its employeesan odd

concept, since the company cannot act except through employees. Judges
have ruled this is impossible for a sole owner and operator of a company, but
many companies are convicted of conspiring.147 One of the most common
charges is conspiracy to defraud the United States.148 Even if the employee is
acquitted, the company can still be convicted; judges have said, following the
usual rule in the law of conspiracy, that you can convict one co-conspirator
even if the others are found not guilty.149 Companies can also conspire to-
gether, for example in cartels to fix prices, but a company can leave a conspir-
acy only by renouncing the conduct and cooperating with prosecutors.150
Some corporate cases involve a united front, where the corporation stands
by its employees and they all act as one giant ostrich denying wrongdoing
together. This may happen more often when top executives are allegedly in-
volved in the crime, or in antitrust cases where the company could face mas-
sive civil suits for price fixing. If the united front breaks down, fingers can be
pointed in both directionsthe company blames rogue employees, while
employees say they were following orders. If the company is on trial along
with employees, a unified defense may hurt the firm. After all, the company
may argue that an employee was a rogue and that the company should not be
blamed just because one person broke the law. Perhaps it could not be ex-
pected to hire a cop looking over everyones shoulder.151
In one jury study, a set of mock jurors was presented with a case where
both an employee and the corporation were tried for a crime. All of the jurors
heard the same facts, but in one version, the lawyers for the employee argued
that he was a victim of the corporations attempt to avoid responsibility. The
results were dramatic: the rate of acquittal doubled when the defendant made
112 Too Big to Jail
this victim of the corporation argument.152 This suggests that the role of
the corporation will be crucial in a white-collar trial.
KPMG: The Outcomes
In July 2007 Judge Kaplan finally dismissed the cases against most of the
KPMG defendants. Sixteen defendants had complained that KPMG had
refused to pay their legal fees, and the judge found that prosecutors had vio-
lated the constitutional rights of most of them. Mincing no words, the judge
said: Justice is not done when the government uses the threat of indictmenta
matter of life and death to many companies . . . to coerce companies into de-
priving their present and even former employees of the means of defending
themselves against criminal charges in a court of law.153 The judge said pros-
ecutors had been economic with the truth. He added: Prosecutors used
KPMG to coerce interviews with KPMG personnel that the government
could not coerce directly, used its leverage over KPMG to induce KPMG to
coerce proffers by certain defendants, and denied the indicted defendants
the means of defending themselves.154
The judge also suggested the Thompson Memo might violate the Con-
stitutions due process clause, adding that the governments outrageous
misconduct in the case shocks the conscience. This shocks the conscience
phrase is very rarely invoked, and only in cases of highly intentional and abu-
sive conduct. The judge argued prosecutors used KPMG to strip any of its
employees who were indicted of means of defending themselves that KPMG
otherwise would have provided to them. Very few criminal defendants can
afford a lawyer, and the judge admitted thisbut held that the government
had interfered with lawyers the company already provided. The judge dis-
missed charges against thirteen defendants, and the appeals court approved,
deferring to the judges findings.155 Two more KPMG employees pleaded
guilty, and four went to trial.
Even for those who went to trial, the largest criminal tax case in Ameri-
can history ended with more of a whimper than a bang.156 The four remain-
ing defendants showed how complicated it can be to hold individuals ac-
countable in corporate cases. Of the four, two had left KPMG before the
prosecutions and formed their own company. A third left under strained
circumstances, and the judge concluded KPMG would not have paid that
The Ostriches 113
persons fees regardless. A fourth had worked for a law firm that provided
opinion letters for the tax shelters.
The jury had to decide if there was a reasonable possibility tax shelters
had economic substance or whether there was no reasonable possibility that
the transaction would result in a profit.157 The question was whether these
people willfully evaded federal taxes, or conspired to willfully file false tax
returns.158 The judge did interpret the tax evasion statute as broadly apply-
ing to any person attempting to evade or defeat federal taxes. There was
not much law on what makes a transaction a sham versus one with economic
substance that might turn a profit, but at trial there was testimony from sev-
eral of the people involved in the scheme that the chances of profiting from
the investments was remote or basically zero.159 A star witness for the
prosecution was one of the promoters of a shelter who pleaded guilty and
cooperated (he faced 195 years in prison and instead received five years).160
This witness testified that the chance these schemes could lead to a profit
was by far less than 1 percent, and a pie in the sky or zero possibility that
would take an unbelievable miracle.161
Ultimately, one defendant was acquitteda former tax partner at KPMG
and the other three were convicted of tax evasion, receiving about ten years
each. The judge commented: There does come a time when a scheme is so raw,
so brazen, and so outrageous that it crosses the line that separates bad or in-
competent or unsuccessful tax planning from crime. More colloquially, the
judge said, Anybody who thought this was on the whole . . . really an invest-
ment transaction was smoking weed. Speaking of the trials outcome, the
judge added, I personally considered it an intelligent, a thoughtful, and care-
ful verdict.162 The convictions were upheld on appeal.163 No KPMG employ-
ees were convicted, but two former employees who worked at the separate
promoter firm were. Other cases against those involved in the shelters fared
similarly, with companies ranging from law firms to accounting firms and
major banks prosecuted and settling with the government. Additional em-
ployees were prosecuted and convicted; however, the appeals court reversed
convictions of two of three Ernst & Young partners, finding insufficient
evidence against them.164 All of this highlights how hard it can be to hold
employees responsible.
How important were the key phrases in the DOJ memo that the judge
fi xed on when deciding to throw out most of the KPMG prosecutions?
114 Too Big to Jail
Another court called the DOJ policy unquestionably obnoxious.165 The

Department of Justice made a series of revisions to the policies on the eve of
congressional hearings in 2006 and again in 2008, taking seriously several
important policy considerations raised by critics. It restricted pursuit of
privilege waivers to cases raising a legitimate need, with procedures to
limit the scope of such requests, and required written approval from the
main DOJ office.166 The DOJ also emphasized that a company following
policies on paying legal fees cannot be considered a failure to cooperate,
and prosecutors generally should not take into account such payment of
legal fees.167
After criticism from a broad array of voices, in 2008 the Department of
Justice made the rule on privilege waivers simple and direct: Prosecutors
should not take into account whether a corporation is advancing or reimburs-
ing attorneys fees or providing counsel to employees, officers or directors un-
der investigation or indictment. The policy allows a company to waive privi-
lege or work product, but only if the corporation voluntarily chooses to do
so, and prosecutors are directed not to ask a company to do so.168
In the years after the changes, fewer companies signing deferred prosecu-
tion or non-prosecution agreements waived privilege. The practice was never
a dominant one, although it has not disappeared, eithernineteen of the
forty-nine deferred prosecution and non-prosecution agreements requiring a
privilege waiver were entered since December 2006, when the DOJ first
changed its policies. Eight more cases since then noted that withholding doc-
uments based on privilege may be considered as a factor in deciding whether
the company fully cooperated. In no other area do federal prosecutors pro-
vide such detailed guidelines for how they exercise their discretion, particu-
larly in ways that can significantly limit it.
It is common to hear complaints, including from prominent politicians,

judges, and commentators, that the government has prosecuted only a hand-
ful of individuals in the Wall Street meltdown of 2008.169 I have described
the difficulties in doing so, and the result: deferred prosecution and non-
prosecution agreements are typically not accompanied by individual prosecu-
tions. In certain areas in particular, including in cases of bank violations, indi-
vidual prosecutions are especially rare. Although an important justification
The Ostriches 115
for corporate criminal liability is the firms ability to locate the wrongdoers
and turn them in, the full cooperation of the company is not enough, as the
KPMG case illustrates.
The lack of individual prosecutions is also understandable given the os-
trich problem and other challenges that make white-collar cases so difficult
to bring against corporate officers and employees. These cases require mas-
sive resources and can be hard fought. In the wake of the dot-com bust and
corporate scandals such as Enron, high-profile CEOs were prosecuted and
convicted, including Bernard Ebbers of WorldCom, Ken Lay and Jeff rey
Skilling of Enron, and L. Dennis Kozlowski of Tyco. However, some of the
highest-profile white-collar prosecutions ended in acquittals, such as the
2009 prosecutions of two Bear Stearns hedge fund managers.170
White-collar prosecutions of individuals have not declined, though that
may not reassure those critical of how rarely such prosecutions occur. No
statistics are kept on white-collar crime as a category, and there are impor-
tant debates about how to define it. There are statistics kept on fraud prose-
cutions, however, and although fraud includes everything from minor of-
fenses to massive financial schemes, these data on fraud prosecutions provide
at least a rough sense of how white-collar prosecutions are handled. The
number of federal fraud convictions rose between 1996 and 2012 from about
6,000 cases per year to more than 8,000 cases per year, though they fell as a
percentage of the federal docket. Average fraud sentences nearly doubled
during that time, yet judges often grant more lenient fraud sentences than
the sentencing guidelines call for.171 Some judges may be sympathetic to
nonviolent white-collar offenders; a twenty-year sentence might be in effect a
life sentence for older offenders, and even a short sentence may be enough to
end a persons career and prevent him or her from committing corporate
fraud again.
People should be concerned when a company admits to its wrongdoing in
detail and yet no individuals are held criminally accountable. When corpo-
rate culture is to blame, just prosecuting the company is certainly better than
not prosecuting at all, but such a corporation-focused prosecution strategy
works only if prosecutors vigilantly pursue criminal punishment and reform
of the company. The lack of employee prosecutions makes it all the more
troubling that prosecutors are likely to offer corporations alternatives to a
116 Too Big to Jail
conviction without insisting on strict compliance. The ostrich problem, to-

gether with all of the other practical and legal difficulties in prosecuting
officers and executives, makes it all the more crucial that we effectively pros-
ecute the corporation as a whole. Prosecutions should hold individuals and
corporations accountable for serious crimes. Far too often, both are let off
the hook.
5
The Victims
The Foreman was driving a forklift early in the morning on March 23, 2005,
at a refinery complex in Texas City, Texas. The facility was owned by BP, the
British multinational oil and gas company. A hundred yards away was a
double-wide office trailer where his wife and father-in-law, who both also
worked at the refinery, were in a meeting. Suddenly he heard an explosion
behind him, in the direction of the trailer. He recalled:
I turned and looked around in time to see, hear and feel two
more explosions, much larger than the first. There was a giant
fireball shooting into the sky taking flaming debris up with it
into the air.1
The Foreman saw the trailer, with his wife, father-in-law, friends, and col-
leagues inside, fall to one side, then disappear, flattened by the force of the
explosions. He ran toward it.
The world had turned into smoke and flames; there was burning
debris falling from the sky and black, thick, acrid smelling oil
smoke everywhere. All I could see of the trailer was a flattened
mass of burning wreckage. I jumped on the trailer and starting
digging.
Another explosion blew him over. He got up and found a forklift, which he used
to move a burning truck from the wreckage covering the trailer. Meanwhile,
118 Too Big to Jail
it was amazing how long burning stuff kept falling from the sky. He moved
about six cars from the top of the trailer, and most of them exploded while
being moved. He then jumped on the trailer and through the debris. He
was not leaving without finding his wife.2
High Octane
The Texas City Refinery is the third-largest in the United States. It refines
475,000 barrels of crude per day and occupies a massive 1,200-acre site. This
makes it one of the most important energy facilities in the country, refining
almost 3 percent of the gasoline used in the United States in 2005.3 March
23, 2005, would be the worst day in its history.
Anyone who has driven by a refinery has likely seen a bewildering com-
plex of smokestacks, storage tanks, flares, and other intricate industrial
structures. Every refinery is different, but in general, that equipment is used
to turn crude petroleum into useful products, including gasoline, jet fuel,
and diesel fuel. A single refinery complex is made up of many smaller refiner-
ies that make those products. The Texas City Refinery had more than thirty
separate units at a sprawling site and more than 2,000 workers. One such
unit produced high-octane gasoline.4
High-octane gasoline detonates relatively slowly, resisting what carmak-
ers call premature ignition, or engine knock. This makes it valuable for high-
performance engines, where precise timing of pistons in the engine is impor-
tant. High-octane gasoline is made by distilling a higher-octane liquid and
blending it into normal gasoline. The factory complex used to make the
higher-octane liquids is called the isom unit, short for isomerization unit,
and it used a raffinate metal tower, 12.5 feet wide and 170 feet tall. The bot-
tom of the tower had a large furnace that boiled low-grade hydrocarbons,
causing high-octane liquids to rise in vapors to the top of the tower, where
they were collected.
That morning, the tower was being restarted after having been shut down
for several weeks. The start-up of a massive industrial distillery is a signifi-
cant operation, but the topic was not discussed at the mornings safety meet-
ing.5 Why? The tower was not supposed to be restarted that day, but some-
how supervisors never told the workers to leave the tower idle, and many
others on-site had no idea it was being restarted. The workers at the isom
The Victims 119
unit were also exhausted from working twelve-hour shifts for almost a month
straight.6
BP had not kept the towers safety measures in shape. If there was too
much pressure, the overflow was shunted through pipes to a container off in
the corner, called a blowdown drum. This particular blowdown drum,
though, had been built in the 1950s and had a history of catching fire, releas-
ing flammable vapors, and corrosion problemsyet BP had never repaired
it.7 BP should have installed a flare at the top of the drums smokestack; the
flames from such flares may look ominous, but they can safely burn off excess
liquids in a controlled burst. Engineers and regulators had been saying for
years that BP should install a flare, but their requests, along with many oth-
ers, had been ignored for cost reasons. The blowdown drum was also too
small, and with the hot high-pressure fuel needing to go somewhere, it began
to erupt from a 113-foot-tall smokestack connected to the drum.
The Foreman recalled that he and others working at the office trailers
close to the blowdown drumonly 121 feet awaydid not initially notice
anything happening. After all, they were not working on the isom unit and
had nothing to do with it. The drum was supposed to be put in an out-of-
the-way place, and it was unsafe for workers to be near it. He recalled that it
was not common for our trailers to be located so close to an operating unit
and that his father-in-law was not happy with the location, but we had to
follow BPs directions. The workers in the trailers had no way of knowing
that the unit was being restarted that morning or that there was a problem
with it.
Highly explosive fuel began shooting out of the blowdown drum smoke-
stack into the air like a geyser. Raining back to the ground and evaporating,
the hot fuel formed a growing vapor cloud that could explode at any time. A
cloud of toxic fumes spread from the site, but workers in office trailers nearby
had no idea of the danger. No alarms or sirens went off; they were broken.
Some refinery employees eventually noticed what was happening and
started to run awaybut not fast enough. A diesel truck was out of place,
parked and idling about twenty-five feet from the blowdown drum. It back-
fired, and sparks from the truck landed in the growing pool of hot liquid fuel,
igniting a massive blast.8
The Foreman, having survived the explosion and cleared the exploding
vehicles from on top of the flattened trailer, combed through the debris and
120 Too Big to Jail
found his father-in-law. He was dead. At some time I stopped long enough
to say a prayer over his body. Finally, he found his wifes office:
A bookcase had fallen over on her while she was at her desk and,
I guess, it partially shielded her. She was in an area where there
was fire and smoke and was burned and unconscious. I was ter-
rified that she would die. . . . I lifted the bookcase with my
shoulder and picked her up. . . . she was carried to a lifeflight he-
licopter and I saw it fly away.
Fifteen people died, all employees in or near those office trailers, and more
than 170 were injured. Debris rained on nearby Texas City, and people work-
ing downtown felt the ground shake, as if there had been an earthquake.
Houses were damaged as far away as three-quarters of a mile from the ex-
plosion.9 There were billions of dollars in damage.
The Foremans wife survived. She was unconscious for about 90 days,
and was in the burn unit ICU after that. Injuries to her lungs from the toxic
vapors are permanent. She is frequently short of breath; her lungs create
fluids all of the time, and she coughs constantly.10
A Systems Failure
For years, employees asked that added safety precautions be installed at the
refinery, including fixing smokestacks and adding flares. BP bought the plant
in 1999, and to be sure, it was an old plant with long-standing problems. The
local BP manager asked for a report on the refinery in 2002, which found
serious problems, concluded the facility was in complete decline, and ex-
pressed serious concerns about the potential for a major site incident. Far
more spending was needed to fix up the refinery, but BP was not willing to
pay those costs.11
The corporate culture may have had something to do with this. BP had a
Getting Health, Safety, and the Environment Right program, which
sounded very conscientious. However, an audit in 2003 found that there was
a checkbook mentality in which budgets were not sufficient to achieve all
commitments and goals.12 The Occupational Safety and Health Adminis-
tration (OSHA), the federal agency responsible for worker safety, had cited
The Victims 121
the plant for the unsafe condition of a similar type of smokestack, but repairs
were not made. The U.S. Chemical Safety Board did a review after the ex-
plosion and found extensive evidence showing a catastrophe waiting to
happen.
Meanwhile, BP had been rebranding itself as the environmentally friendly
oil company, changing its logo to a green and yellow flower or sunburst and
introducing the slogan Beyond Petroleum. CEO John Browne made a state-
ment the day after the explosion at city hall in Texas City, telling reporters
this was a dark day in BPs history. He had been at BP for thirty-eight years,
he said, and it is the worst tragedy that Ive known. He assured families of
the victims that BP would help in whatever way we can do it to make the
future feel a bit better. To make tomorrow better than yesterday.13
Enter the Lawyers
Lawsuits over the refinery explosion quickly multiplied. To respond to this

tragic accident, BP immediately fired six operators and employees at the re-
finery. A BP internal investigation report blamed those employees for misus-
ing equipment and failing to take emergency action. Those six employees
sued and they eventually settled their cases.14 Meanwhile, victims of the ex-
plosion, like The Foreman, filed thousands of lawsuits blaming the company.
BP began to quietly settle those cases as well. Such settlements of civil law-
suits are typically confidential; a company like BP may prefer to avoid the
publicity.
The Foreman described how he and his wife had settled our case against
BP very early; we did not want to go to court; we wanted to get it over with
and try to rebuild our lives. While BP agreed to pay his wifes medical bills,
after the settlement, they didnt do it. After many letters and phone calls
and finally filing another lawsuit, it took over a year to get BP to move, and
then they demanded a discount from the hospital and only paid about half
of what was owed on the bills.15
Unlike private civil settlements, criminal cases are typically public. The
goal is to punish criminals so they suffer the stigma of societys most serious
sanctions. Federal prosecutors decided to prosecute BP under the Section
112(r) of the Clean Air Act, nicknamed the Bhopal Provisions, after a cata-
strophic 1983 release of tons of poisonous gases at the Union Carbide pesticide
122 Too Big to Jail
plant in Bhopal, India killed tens of thousands of people. The law was de-
signed to ensure that nothing similar ever happened in the United States. It
criminalized knowing failure to comply with detailed measures to detect and
prevent releases of hazardous substances into the air.16 BP was the first com-
pany prosecuted under the Bhopal Provisions. An official with the Environ-
mental Protection Agency (EPA), which enforces federal environmental laws,
commented that the case would send a message that these types of crimes
will be prosecuted.17 What part would the victims of the blast have, if any,
in this major criminal prosecution?
The Victims of Corporate Crime
Victims play an important role in our criminal justice system. They are no
longer expected to behave like good Victorian childrenseen but not heard.18
In the English common law system that formed the basis for our own, there
were no prosecutors. Victims typically had to ask judges to arrest wrongdoers,
and they had to bring cases themselves in order to punish criminals and be
compensated for their injuries. Beginning in colonial times, professional po-
lice departments and prosecutors began to represent victims, rather than let-
ting them bring cases, and prosecutors focused more on incarcerating con-
victs than on compensating victims.19
Lawmakers have increasingly created space for victims to be heard in
criminal cases. Many states enacted victims rights laws over the past few de-
cades, giving victims or their family members the right, for example, to make
a statement at sentencing, explaining how the crime affected them. Laws
also aim to protect the privacy of victims, shield them from intimidation,
require greater sensitivity to their concerns, and allow participation in crimi-
nal cases. Restitution has long been awarded to victims in criminal cases to
compensate for their injuries, and in the past few decades, lawmakers have
expanded restitution by making payments mandatory for more crimes and
making it easier for victims to collect compensation.
There are debates about whether this kind of victim role is appropriate,
but none of these have considered the role victims of corporate crimes should
play, especially in light of the increasing use of agreements that permit a cor-
poration to avoid standing trial. Victims rights can mean something very dif-
ferent in corporate prosecutions, and it is not clear that lawmakers thought
The Victims 123
through what would happen if victims became an important part of the pro-
cess in these large-scale cases. A corporate crime may be nothing like a street
crime in which one person injures another. The corporation is being prose-
cuted for acts of its employees; it is an artificial or legal entity. Can a victim
achieve closure by speaking at the sentencing of a corporation? In a corporate
prosecution, there may be thousands or hundreds of thousands of victims,
and identifying and contacting all of those affected by the crime may be
difficult.
The prior chapters have described how prosecutors increasingly allow cor-
porations to avoid a conviction and reduce fines in exchange for adopting
structural reforms, but it is often doubtful whether meaningful changes are
required. The victims could theoretically play an important role in insisting
on stronger accountability, and if prosecutors accept insufficient fines, vic-
tims could insist on compensation for their injuries. I wondered how victims
rights would work in complex financial crimes, or whether large numbers of
victims could provide meaningful input. As I will describe, victims are indeed
an increasingly important part of corporate prosecutions, and payments to
such victims are in the hundreds of millions of dollars each year. Victims can
speak to the public interest in holding a company accountable, but they are
not always heard.
Along with the right to participate, federal laws provide for victim com-
pensation, which is known as restitution. Victims can receive monetary
awards separate from any criminal fine in order to try to make them whole
for their injuries. Restitution is now mandatory in many federal prosecu-
tions, mostly due to two laws: the Victim and Witness Protection Act of
1982, which states that a judge may order restitution to victims when sen-
tencing a defendant for certain federal crimes, and the Mandatory Victims
Restitution Act of 1996, which states that the judge shall order restitution
to victims of certain federal crimes, including crimes of violence, fraud, and
property crimes.20 Under the sentencing guidelines, restitution is always an
option for organizations so long as there is an identifiable victim.21 The
victims do not have to request restitutionprosecutors will work to identify
the victims and the judge will ensure they are paidand it is ordered regard-
less of the defendants ability to pay at the time of sentencing.
A restitution payment is considered part of the criminal punishment, and
it can be made a condition of probation. The judge may set a schedule for
124 Too Big to Jail
paymentsan installment planif the defendant cannot afford to pay it all

at once.22 There is also a process for distributing restitution, with private
victims paid first, before the government, and direct victims getting priority
over insurance companies and other third parties.23 Victims cannot recover
twice: any money received from civil lawsuits or insurance is deducted from
restitution.24
Forfeiture provides a second way to compensate victims in federal crimi-
nal cases. Criminals cars, artwork, jewelry, and other assets can be forfeited
and auctioned off. This can occur in a criminal case or in a separate civil or
administrative proceeding against the property itself. Giving forfeited assets
and money to victims is called remission. Unlike restitution, this does not
cover lost income, lost profits, or bodily injury, and victims just receive the fair
market value of property lost after filing a petition requesting compensation.25
The Asset Forfeiture and Money Laundering Section at the Department of
Justice handles complex forfeitures, and it returned more than $400 million to
victims in 2008 alone.26 In addition, forfeited money can be added to a restitu-
tion fund, a process called restoration. Forfeited assets can also be given to law
enforcement (the vast bulk go to state and local law enforcement).27
JPMorgan paid the largest forfeiture in any corporate prosecution
agreementthe sum of $1.7 billionin early 2014 for the failure to report
suspicious activity concerning Bernard Madoff s use of accounts at the bank
as part of his Ponzi scheme. Had JPMorgan paid a criminal fine, the money
would have gone to the U.S. Treasury. Instead, prosecutors pursued the $1.7
billion forfeiture for property traceable to the Ponzi scheme so that the
money would go to a fund set up to compensate the victims of the scheme.28
Corporate crime can turn victim participation and restitution into com-
plex litigation all its own. Restitution does not have to be awarded if the
number of identifiable victims is so large as to make restitution impractica-
ble, or if calculating restitution involves resolving complex issues of fact
and would unduly delay sentencing.29 However, there are ways for a judge to
handle cases with large numbers of victims and complex facts, including by
appointing a trustee to help administer the compensation process.30
We normally think of criminal fines as a form of punishment and not as a
way to compensate victims, as they can file civil suits to claim damages for
their injuries. As I collected data on corporate prosecutions, I did not expect
to see compensation for victims to be such a prominent part of the cases. Yet
The Victims 125
in some of the largest corporate prosecutions, prosecutors create enormous

funds to compensate victims, sometimes in cooperation with civil lawyers
and regulators. The restitution amounts can dwarf the fines paid.
Figures 5.1 and 5.2 include total fines, restitution, and forfeiture from
1994 until 2012. The U.S. Sentencing Commissions data are depicted in
black, and the data I collected manually from federal docket sheets are in
lighter gray. Corporate fines are in the hundreds of millions (if not billions)
of dollars each year and increasing. Restitution and forfeiture awards are
more modest but can also be large, often totaling in the low hundreds of mil-
lions each year, and there have been several blockbuster awards.
There are striking differences between data collected from court dockets
and the Sentencing Commissions data. The commission is missing what I
believe to be the largest restitution award to date in a criminal case, $606
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
1994 1999 2004 2009
$5,000,000,000
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
1994 1999 2004 2009
Figures 5.15.2 Total Restitution and Fines Paid by Prosecuted

Corporations, 19942012
126 Too Big to Jail
million paid by Republic Securities, a subsidiary of the multinational bank

HSBC, in 2002.31 The commission does not collect data about deferred
prosecution agreements, which add still more massive fines, restitution pay-
ments, and forfeitures, the last of which may occur in separate civil proceed-
ings that would not be reported to the commission or necessarily reflected on
criminal dockets. The average restitution paid by convicted companies was
just under $3 million, while the average restitution and forfeiture in deferred
prosecution agreements was $94 million.32 For deferred prosecution and
non-prosecution agreements from 2001 to 2012, there was over $7.5 billion
in restitution, disgorgement, and forfeiture.
Just as the lions share of fines comes from a small number of corporate
prosecutions, the vast majority of restitution money comes from a few block-
buster cases. A minority of the deferred prosecution agreements involved
awards to victims (31 percent, or 80 of 255, paid restitution or forfeiture), but
some involved enormous awards, such as the $1.7 billion forfeiture by
JPMorgan, $1.256 billion in forfeiture by HSBC, $310 million in restitution
paid by ING Bank, N.V., and $370 million in restitution paid by Science
Applications International Corp. A similar number of convicted corpora-
tions pay restitution, but most pay none at all. For example, in 2008, when
the Sentencing Commission reported that companies paid $390 million in
restitution, that amount came from fewer than one-third of the corporations
involved. The rest paid none. The big numbers for 2008 came from just a
handful of casesa mail fraud case against Health Visions Corp. with an
almost $100 million restitution award, and three others with awards of $78.4
million each.
Even large restitution awards may disguise how hard it is to recover money
for victims. The Sentencing Commission reported the three companies
above as being sentenced to $78.4 million in restitution in 2008. In that case,
three people jointly controlled a fake hedge fund that defrauded investors
of almost $200 million.33 Nothing close to that amount was ever recovered.
Under the statute, mandatory restitution must be ordered regardless of the
defendants ability to actually pay, so huge restitution awards imposed by the
judge may not reflect what the victims actually recover. The victims claimed
over $130 million in losses. The receiver sold off mansions, country club
memberships, jewelry, and cars but recovered only about $6.6 million in as-
sets and distributed $2.8 million to victims, all while spending over $3 mil-
The Victims 127
lion in legal and administrative costs, even more than the typical 30 percent
consumed by costs in such cases.34 Obviously, perpetrators may spend the
money before being caught, leaving little for victims to recover.
In the case of Bear Stearns, the bank whose collapse helped trigger the
global economic crisis in 2007, the Securities and Exchange Commission en-
tered a settlement with managers of two hedge funds responsible for $1.6
billion in losses. JPMorgan bought out Bear Stearns, and while the managers
were acquitted at their criminal trial, the SECs civil suit went forward. The
settlement involved just over $1 million, an amount the judge called chump
change in comparison to $1.6 billion in losses to investors. He asked the
parties to reconsider, but eventually concluded he had to approve the settle-
ment, saying it was little wonder that many believe that the SEC is simply
not up to the task of enforcing the securities laws.35 While the defendants
lacked assets to cover much of the losses, perhaps the judge should be ap-
plauded for asking whether a settlement was fair and in the public interest.
Under Seal
In the BP case, the judge did not initially tell victims that plea negotiations
were under way. Most had already settled cases with BP and received com-
pensation, but they wanted to participate in the criminal case to ensure that
BP was held accountable. Under the 2004 Crime Victims Rights Act, vic-
tims of crimes have a right to be given notice and to participate in criminal
cases even if not entitled to restitution.36 Giving notice to a large group of
victims may be complicated and expensive, and judges can decide what is
reasonable and order defendants to defray the cost of notifying victims.37
The Crime Victims Rights Act defines a crime victim as a person directly
and proximately harmed as a result of the commission of a Federal offense.38
Sometimes no victims can be readily identified, and judges also look at what
the crime is and ask whether the alleged victims were really harmed by the
crime or not.39
Very few corporate criminals are required to give notice to victims in fed-
eral courts.40 In the Texas City refinery case, the criminal case was filed under
seal so that it would not be public. Two days later, the plea agreement was
signed, and prosecutors soon publicly announced it as a done dealwithout
any involvement by the victims.
128 Too Big to Jail
The victims were not hard to find. They and their families had filed more
than 4,000 civil suits against BP. To be sure, some who filed lawsuits were
not injured in the blast or were not family members of those killed, but in-
stead had suffered less direct property damage.41 Still, the most directly in-
jured victims could easily be reached. Prosecutors asked for the proceedings
to be filed under seal, yet the statute gave the victims a right to be involved
and informed, and the Department of Justices own guidelines said that fed-
eral prosecutors should be available to consult with victims about major
case decisions such as plea negotiations.42 Still, these prosecutors appar-
ently did not keep the victims informed of what was happening.43
Only after the plea was publicly announced did prosecutors finally send
out notices telling victims they could participate. The victims were not happy
to have been told about an already done deal. Still, the judge sided with the
prosecutors, citing the large number of victims and the extensive media cov-
erage that might result from victim participation and prejudice BP by hurt-
ing its reputation.44 The judge concluded that victims could submit letters
and participate in a sentencing hearing to lodge their objections, after the
fact, to the plea agreement. The court added that victims could have reached
out to prosecutors during the investigation.
At this hearing, victims lawyers presented their objections to the plea
agreement and asked why they had been left out of the process. Later, 134
victims provided victim impact statements to the judge, describing how they
had been injured by the Texas City Refinery blast. The Foremans statement
was one of those. In addition to describing his familys ordeal and losses, he
noted he was unspeakably angry that the doctors, and hospitals and nurses
who slaved to save lives should get stiffed on their bills by BP. And it tells us
that BP cannot be trusted to keep their word about what they will do. He
added that if BP was emphasizing to the judge all they have done to pay the
damages, the judge should be concerned that BP was not really assuming
responsibility for what happened.45
Environmental Prosecutions
Environmental prosecutions of corporations stand out for their numbers. A

quarter of the corporate convictions from 2001 to 2012 that I studied were
environmental prosecutions (25 percent, or 502 of 2,016). Environmental
The Victims 129
violations can involve air or water pollution, rules for handling hazardous
wastes, and protections for fish and wildlife. Each area has detailed regula-
tions, and those rules can be accompanied by criminal penalties. For exam-
ple, it is a crime to negligently discharge pollutants by failing to exercise or-
dinary reasonable care to prevent the pollution, and there are more serious
penalties for knowing violations made with some awareness.46
Environmental laws are highly technical, and the Department of Justice
has a specialized Environment and Natural Resources Division that handles
such cases in cooperation with the EPA.47 Very few deferred prosecution
agreements are environmental cases (only 6 of 255 agreements), because this
divisions prosecutors have long believed that an environmental case should
either be handled as a civil matter by the EPA or result in a criminal convic-
tion.48 That said, a criminal case will usually be settled in a plea bargain, and
how serious a punishment that criminal conviction imposes will depend on
the deal the company reaches.
What were the terms of BPs plea agreement, and was it in fact a done
deal? The agreement required BP to admit guilt, pay a $50 million fine, and
serve three years of probation. As I discuss in the next chapter, corporate
probation means that a company may have to submit reports to the proba-
tion office, and any new criminal offense may violate probation. The victims
felt that this was a sweetheart deal, and they argued that they should have
been allowed to provide input and that the agreement should be changed.
However, a federal judge, despite considerable power, has little leeway to
change a plea bargain the sides reach in a criminal case. A judge may not re-
write a plea agreement, though in unusual cases a judge may reject one out-
right.49 Judges have rejected agreements that offer a defendant undue leni-
ency or that go against the public interest.50 The victims may offer input on
that question; this is one reason they have a right to participate.
On October 25, 2007, BP formally pleaded guilty in court. At the hear-
ing, victims and their lawyers were finally permitted to speak, and they asked
the judge to reject the plea agreement. The victims were not looking for
money; they did not need restitution, as most had settled civil cases. Instead,
they wanted BP to be effectively deterred from endangering more lives. They
pointed out that this agreement did not impose a corporate monitor to su-
pervise a compliance program to make sure that more workers were not
harmed in the future. In addition, they argued the fine was far too low, and
130 Too Big to Jail
called the entire agreement shockingly lenient.51 Later that month, the
judge rejected the victims objections and approved the plea agreement with-
out any written explanation. The victims filed an emergency appeal.
The Pinto Again?
BP pleaded guilty to violating detailed environmental statutes, but could the

company have been prosecuted for something more serious, such as homi-
cide? According to one of the victims lawyers, The fact is, they are a serial
killer.52
Federal courts stated in the early twentieth century that a corporation
can be guilty of causing death by its wrongful act.53 Yet rulings by judges
since then have been mixed. In the 1970s, several state laws allowed corpo-
rate criminal liability for homicide, and there were a series of noteworthy
criminal trials.54 But most states had laws like New Yorks, which defined
manslaughter as the killing of one human being by . . . another.55
The best-known corporate homicide trial is that involving the Ford Pinto.
In 1977, media reports described how the Ford Pinto might be prone to fires
even in fairly mild rear-end collisions because of the placement of its gas
tank.56 Documents suggested that Ford executives, desperate to sell a small,
fuel-efficient car during the oil crisis, knew of the danger but decided that
changes would not be cost effective. A federal investigation by the National
Highway Traffic Safety Administration ensued, as did civil suits by crash
victims, with some resulting in millions of dollars in damages.57 Ford even-
tually ordered a recall telling owners that the government had found an un-
reasonable risk of substantial fuel leakage in a collision, and it asked dealers
to add a new shield to the gas tank. But in 1978, before the recall letters were
sent out, three teenage women died in Indiana when their Pinto exploded
after a rear collision.58
The local prosecutor decided to prosecute Fordthe first attempt to hold
a company criminally accountable for an unsafe product. State courts al-
lowed the case to go forward, finding that Ford had had sufficient notice
that it could be prosecuted for reckless homicide.59 The trial lasted about a
month, with detailed exhibits showing how the Pinto had been designed and
dozens of witnesses.
The Victims 131
After almost becoming deadlocked, the jury ultimately acquitted Ford.

Perhaps the jurors decided the particular car was driving so fast that even a
safer car might have had a gas tank leak in a crash.60 The judge commented,
I wont quarrel with the verdict. It was the right one. 61 Back at Fords head-
quarters, the board of directors was assembled for Henry Ford IIs retire-
ment, and they erupted into applause when they heard that the company had
been found not guilty.62
Today, judges are reluctant to hold corporations liable for manslaughter
or reckless homicide.63 Prosecutors may have been right to charge BP under
environmental laws and with homicidebut that does not mean that they
reached the right plea deal with the company.64
Victim Statements
One of the main rights of a victim under the federal law is simply to be heard.
Those affected by explosions or environmental disasters may suffer physical
harm, but what about financial crimes? Recall the WorldCom case, in which
former CEO Bernard Ebbers was convicted of fraud. One victim who made
a statement at sentencing was a former shareholder and employee of World-
Com. He described how he represented the working professional, one who
suffered indescribable trauma as a result of the crimes. He had to deal with
abuse and skepticism from clients who no longer trusted him after hearing
about misconduct at the top of WorldCom. Laid off as WorldCom collapsed,
he lost his savings, medical benefits, and retirement benefits, and wanted to
have the record reflect the experiences of people like him, who were trying
to piece back the broken pieces of our lives in the wake of this disaster. 65
Such written statements are sent to the probation office and may contribute
to the pre-sentence report prepared for the judge.
Victims can also speak in person at the sentencing hearing, though it may
be difficult to know whether this has any influence on the resulting sentence.
The victim statements in the WorldCom case may have helped to counter
efforts by Ebberss lawyers to seek leniency, including more than 150 letters
from friends and family mentioning his charitable giving, age, and declining
health. The judge said it was not possible to overstate the seriousness of the
fraud, and sentenced him to fifteen years in prison.66
132 Too Big to Jail
Who would be heard in the BP case? In the emergency appeal by the vic-
tims to the Fifth Circuit Court of Appeals, the appellate judges quickly ruled
that keeping the plea deal secret violated the Crime Victims Rights Act,
as there were fewer than 200 victims and they could be easily reached.
However, the appellate judges said they were sure that, going forward, the
conscientious district judge would now take the time to fully consider the
victims objections and concerns. 67
The judge did allow the victims to speak at a hearing in October 2008
this time before the plea agreement was finalized.68 At the hearing, prosecu-
tors walked a fine line between expressing sympathy for the victims and
defending their work. While nothing can bring back the 15 dead, they said,
the plea agreement was effective. Prosecutors admitted that in 2007 they
had told BP there was a significant problem, as they were not satisfied that
the company was complying with OSHAs requests, but that the disagree-
ment eventually had been resolved. Prosecutors emphasized how two
agenciesOSHA and Texas environmental regulatorswould make sure
the refinery was fixed. And probation could be extended if BP failed to com-
ply.69 Prosecutors did not try to defend the size of the fine, but called it
adequate. 70
The victims said regulators were not doing enough to restore safety at BP.
They implied that OSHA was giving BP a sweetheart deal, and they sug-
gested OSHA lacked adequate resources to monitor BP. 71 Major problems
had still not been fixed. Equipment had still not been tested for mechanical
integrity. OSHA did not ensure that workers had basic safety information
for devices throughout the refinery, and it had postponed documenting cer-
tain improvements until 2012. OSHA had inspected the refinery in the
years before the explosion in response to prior worker deaths but had not
noticed the likelihood for a catastrophic incident. 72 Meanwhile, more than
three years had already passed since the explosion, and BP was saying im-
provements would take years more.
While victims called for an independent monitor to oversee compliance,
BPs lawyer countered by saying good progress had been made in upgrad-
ing equipment.73 The judge found the reasoning of BP and the prosecutors
persuasive. OSHA regulators were using this as a poster child case to im-
prove their methods.74 The judge did not have the power to rewrite the plea,
and could only find it so deficient as to reject it.75 The victims suggested the
The Victims 133
judge could accept the plea but impose special conditions of probation, such
as a monitor or a special master to help ensure compliance. The judge de-
clined to do so.
The judge once again approved the same plea agreement, with its $50 mil-
lion fine and three years of probation. There would be no special conditions
of probation or oversight, as the victims had requested. To be sure, BP would
have to comply with its settlement with OSHA to remedy conditions at the
refinery and with an agreement with the Texas Commission on Environ-
mental Quality.76 By late 2007, BP had paid $1.6 billion in compensation to
victims and $21.4 million to OSHA.77 It had also spent $1 billion in making
safety improvements to the refinery and would spend billions more.78
The $50 million fine could have been much larger. The criminal law that
BP was convicted under had a maximum fine of just $500,000, but as the
next chapter discusses, under a federal law called the Alternative Fines Act,
a company can be ordered to pay up to twice the gross gain or loss from the
offense.79 How is that calculated? Perhaps it was based on the profits at the
refinery in the months or years prior to the explosionor the loss caused to
lives and property. BP could certainly afford to pay a lot more. At the time, it
was ranked second on the Global Fortune 500, with a market capitalization
of $225 billion and annual profits over $20 billion.80
The victims pointed out that BP had obtained a local property tax reduc-
tion of $12 million per year, based on the deteriorated (and unsafe) condi-
tion of the plant, and that the proposed fine is less than the plant property
taxes for two years.81 This was not the largest fine in an environmental di-
saster; Exxon had paid far more in criminal fines, $125 million, after the
massive Valdez oil spill in Alaska, and in that incident no people had been
killed. Interestingly, in the Valdez case the judge had rejected an initial plea
agreement with a fine of $100 million, explaining that the spill was off the
chart in its seriousness, and saying, Im afraid these fines send the wrong
message and suggest that spills are a cost of business that can be absorbed.82
The judge in the Texas City Refinery case did no such thing.83
A Recidivist
A month before the final hearing about the BP plea agreement, another
worker was killed at the Texas City Refinery. BP had argued it had a history
134 Too Big to Jail
of two prior violations; the victims noted at least thirty. They pointed out
that the same key employees were still in their jobs, or had since been pro-
moted or retired with generous benefits.84 In his victim impact statement,
The Foreman argued that this criminal agreement would let them off with
paying just a few pennies on the dollar of the billions of dollars they made,
and let them keep breaking promises. This isnt justice, and it isnt punish-
ment, and it isnt fair.85
The victims also pointed out that prior history is supposed to enhance
the punishment of a corporation, but that as a recidivist, BP provided spills,
fines, probation and the promise to do better.86 After a March 2006 oil spill
from the Trans-Alaska Pipeline caused a shutdown of the largest oil field in
the United States,87 BP pleaded guilty to Clean Water Act violations, paid a
$12 million fine plus $8 million in community service to fund environmental
research, and was placed on three years of probation. The guilty plea in this
case was announced in October 2007, around the same time that BP pleaded
guilty in the Texas Refinery prosecution.88 There was a third October 2007
case: BP North America entered into a deferred prosecution agreement for
commodities and wire fraud regarding the market for Texas propane, result-
ing in $100 million in criminal fines and $200 million in civil fines and
restitution.89
The victims argued BP is back to its old ways.90 Even after the explosion,
nothing meaningful is being done to actually bring the plant into full com-
pliance with Federal law. They concluded that meaningful change will oc-
cur only if forced by strict oversight through the court system. Consumer
rights advocates also expressed outrage about the settlement: These accom-
modating prosecutors march into court and announce that all this human
wreckage is not worth even a single day of BPs precious profits. The head of
Public Citizen said, A democracy cannot tolerate two standards of justice
one for street criminals and another for corporate criminals.91
After the victims protests were waved away and the plea agreement was
approved, BP did not properly fix the refinery. OSHA would later conclude
that after the explosion, BP allowed hundreds of potential hazards to con-
tinue unabated.92 It was exactly what the victims had said would happen. In
2009, OSHA issued hundreds of notifications of failure to abate and hun-
dreds more notices of willful violations for failures to follow industry safety
controls, with penalties totaling over $87 million.93 Employees continued to
The Victims 135
die at the refinery. On July 22, 2006, a contractor was crushed between a
scissor lift and a pipe rack. On June 5, 2007, a contractor was electrocuted
on a light circuit. On January 14, 2008, an employee was killed when the
top of a pressure vessel blew off. On October 9, 2008, a contractor was hit by
a front-end loader and died from his injuries.
In December 2010, the EPA entered into a civil consent decree with BP,
which included a $15 million penalty and a requirement of regular reports
for three years regarding leaks and fires at the refinery, two of which took
place just months after the explosion.94 While one might think a serious
criminal matter would require more oversight from a judge than a civil case,
the judge often plays a greater role in a civil case. The judge can decide
whether or not to approve a civil consent decree based on whether it is fair,
reasonable, and consistent with the purposes of the laws or regulations.95 A
judge will still defer to the agencys decision that a settlement is appropriate,
but the judge can examine its terms, hold hearings, and consider input from
the public. Once the consent decree is finalized, the judges role does not end,
as the judge supervises compliance with the decree and resolves any disputes
that arise. I believe that this broader judicial role is justified in criminal cor-
porate settlements as well.
When settling the case, the EPA cited BPs ongoing program of corrective
actions at the refinery, currently estimated to cost almost $2 billion.96 The
agency noted $500 million in changes made in 2010 as a result of violations of
the 2005 agreement with OSHA.97 And it claimed that a penalty of this
magnitude provides a strong deterrent to BP Products and the regulated
community against future non-compliance.98 No mention was made that the
$15 million fine was less than the $50 million paid after the refinery explo-
sion, and the earlier settlement had apparently not been a strong deterrent.
Once again, there was no new prosecution. The victims returned again,
claiming to have been right all along and that BP should be prosecuted in
earnest now that it had violated the terms of its probation. Yet there was no
effort to resurrect the criminal charges or find BP in violation of its proba-
tion. In fact, the Department of Justice considered taking stronger action,
telling BP in early 2010 that if it failed to resolve the allegations of non-
compliance to OSHAs satisfaction, the government might seek revocation
and/or extension of probation. Yet the DOJ ultimately decided not to do
more, stating it is not seeking a revocation or extension of probation at this
136 Too Big to Jail
time. Instead it gave BP even more time to try to fix the refinery.99 A former
EPA investigator later complained to the press that the EPA and the DOJ
simply gave in to pressure from BP. He recalled: I was smelling blood in the
water and they wanted to drain the pool.100 Victims may now have a stron-
ger right to be heard in federal court, but their stories may not change the
minds of the prosecutors who decide how to handle a criminal case.
Who Is a Victim?
Victims are supposed to have a voice, but defining who is a victim is not al-
ways as simple as in the BP case. Recall that the 2004 Crime Victims Rights
Act obliges prosecutors to involve victims in the process, give them notice,
and allow their views to be heard in the courtroom. The victims entitled to
these rights must be people directly and proximately harmed as a result of
the crime.101 Some corporate crimes do not have clearly identifiable individ-
ual victims (foreign bribery); others harm the U.S. Treasury (tax fraud) or
the environment (pollution), or they assist criminals without harming iden-
tifiable victims (money laundering).
Even for crimes with direct victims, there may be hard questions as to
whether a particular person was harmed. In another environmental prosecu-
tion of a refinery in Texas, CITGO was convicted in 2007 for toxic emis-
sions. At sentencing, prosecutors argued that more than 300 members of the
nearby community had been exposed to emissions of benzene, a toxic sub-
stance, and should be compensated as victims. CITGO moved to have these
people excluded as purported victims. Initially the judge ruled that they
lacked victim status, finding no proof that refinery emissions had caused
their health problems. Many were elderly, smoked cigarettes, or had other
medical conditions, so their injuries might have been caused by other factors.102
A year later, the community members tried to raise new arguments, but the
judge said it was too late. The appeals court reversed and directed the judge to
look into the matter further, saying that there is no time limit under the
Crime Victims Rights Act.103
The judge, moved by the testimony of community members who said
they suffered symptoms such as burning eyes, bad taste in the mouth, nose
burning, sore throat, skin rashes, shortness of breath, vomiting, dizziness,
nausea, fatigue, and headaches, concluded they should be allowed to give
The Victims 137
victim impact statements at sentencing and seek restitution, including medi-

cal monitoring of their health.104 Although CITGO was convicted in 2007,
almost seven years later, the judge finally finished reviewing over 800 victim
impact statements. The government had asked for $25 million in restitu-
tion, but the judge ruled that calculating restitution would be too complex,
and no restitution at all would be provided to the victims.105 The victims are
appealing.
Civil Suits
Paying restitution to victims is particularly important where they are unable

to hire lawyers and be compensated in civil suits. In many corporate crime
cases, though, victims do file separate civil suits, and the company knows
that settling with prosecutors can mean admitting wrongdoing and giving
ammunition to the victims.106 Lawyers call facing multiple types of lawsuits
parallel litigation, and it can include criminal prosecutions, civil suits, and
regulatory suits by both state and federal officials. It is a new thing for pros-
ecutors to compensate large groups of victims, and it is also fairly new for
regulators to act like a massive collection agency.107 The Sarbanes-Oxley
Act, passed in response to the Enron-era scandals, gave the Securities and
Exchange Commission the power to collect money for victims of securities
fraud, and the SEC now supervises multimillion-dollar funds to compensate
shareholders.108
There is no official information about how many companies face parallel
civil litigation while being prosecuted. I collected data on the 255 companies
that received deferred prosecution or non-prosecution agreements from 2001
to 2012 and whether they faced civil suits, finding such suits against 36 per-
cent, or 93 of the 255 companies. While not all civil settlements may be pub-
lic, I identified $6.1 billion in civil settlements in those cases, far more than
the $4 billion in criminal fines imposed by federal prosecutors. Although
regulatory enforcement and civil suits may provide more compensation for
victims than restitution efforts by prosecutors, the latter can fill an impor-
tant gap when civil or regulatory remedies are inadequate.
Some of the biggest civil suits filed against companies facing prosecution
were class action suits. At least 35 of the 255 deferred prosecution and non-
prosecution agreements studied had parallel class actions. A single person
138 Too Big to Jail
can file a case representing the entire class of injured people, a group that can
number in the thousands or even in the millions. One main goal of class ac-
tion lawsuits is efficiency; if a group was injured in the same way, there is no
sense in forcing each to hire lawyers and bring separate cases. If 1 million
stockholders each lost $15 because of securities fraud, none would bother to
pursue a case individually. But if they can sue collectively in one class action,
the company may have to pay for the entire $15 million in injuriesand a
$15 million case is one that lawyers will clamor to bring.
There are detailed rules for how the judge decides whether to approve a
class action. For example, the lawyers and injured parties leading the case
must be fair representatives for the class and must share common interests
and claims. In the Computer Associates case, victims brought a securities
fraud class action alongside the criminal prosecution. The prosecution re-
sulted in a $225 million restitution fund for anyone who purchased Com-
puter Associates stock (or stock options) from early 1998 through early 2002.
The prosecutors asked that a professional administrator develop a road map
for how the funds would be distributed, and the choice could not have been
more famous: Kenneth Feinberg, known for his work administering complex
class action funds and government compensation funds, including the Sep-
tember 11, 2001, victims fund.109 The prosecutor asked for input from share-
holders on distributing the funds. None responded.110 Feinberg then came up
with a plan to distribute the funds, which the judge approved.111 An expert
was consulted to calculate how much Computer Associates stock had been
inflated due to the securities fraud. Victims had to file a proof of claim, show-
ing they really did purchase stock during the right time period, and almost
100,000 victims responded. Another firm was hired to distribute the money,
and accountants were brought in when human error resulted in some victims
getting incorrect payments.112 Outside of this process, other victims filed
class actions, which settled for millions of dollars. Victims could not get
double payments, of course, so they had to choose compensation from class
actions or from prosecutors.113
If the company is itself a victim of bad management, companies can be
sued by shareholders in a manner designed to compensate the company it-
self, rather than the victims. At least twenty of the companies that received
deferred prosecution agreements faced derivative lawsuits. These are called
derivative suits because shareholders are suing in the name of the company
The Victims 139
to force the management personnel who harmed the company to compensate

it. For example, Bristol-Myers Squibb entered into a deferred prosecution
agreement and a consent decree with the SEC, paying a $100 million civil
penalty and $50 million to compensate shareholders. Shareholders also filed
eight derivative actions, all consolidated in the Southern District of New
York, and ultimately settled. Plaintiffs brought another set of derivative law-
suits against PriceWaterhouseCoopers, the firm that had audited BMSs
books.114 Some of those lawsuits settled, while others were dismissed.115 The
money recovered in such a derivative lawsuit may benefit the company, or the
shareholders indirectly, and the plaintiff s attorneys may recover fees.
There are not clear rules on how prosecutors or judges should handle par-
allel and competing lawsuits. One way to handle logistical problems is to
consolidate the lawsuits before the same judge. For example, when Eli Lilly
was prosecuted regarding the drug Zyprexa, victims had already reached a
$1 billion settlement.116 Prosecutors then sought an additional $1 billion in
restitution.117 A judge in the Eastern District of New York was asked to coor-
dinate all of the cases against Eli Lilly, to ensure that all victims were compen-
sated but that none were paid twice. Other courts have decided it was too
difficult to compensate victims in a particular case. Newspaper publishers
Newsday and Hoy agreed to pay $15 million in forfeiture to the United
States, but the judge rejected a recommendation that they should also provide
$5,966,000 in restitution to 30,724 of their commercial advertisers in the
amount of about $25 each.118 The judge concluded that such restitution, even
if normally mandatory, would prolong and burden the sentencing process.119
The victims had been given a chance to claim forfeited funds, and a year
later, not one had done so. The $15 million in forfeited money would go di-
rectly to law enforcement.120 (In contrast to forfeiture, unclaimed restitution
goes not to law enforcement but to the U.S. Treasury.)121 When people lose
large amounts of money in a Ponzi scheme, they may quickly file lawsuits.
But when a card arrives in the mail saying that filling out a form will mean a
$25 refund from a lawsuit, most people do not bother.
In civil class actions, lawyers represent the victims, and the lawyers are
required under federal rules to send out notices to them. A judge must su-
pervise the process, and must approve any settlement after a second round of
notice to victims. Those protections do not exist in criminal cases. Yet cor-
porate prosecutions can involve vast restitution funds that dwarf the fines.
140 Too Big to Jail
The judge may appoint a special master to help, or she can fashion a reason-
able procedure if there are multiple victims who might be hard to locate or
reach, but there are no clear rules for how to do so.122 The system should
ensure adequate notice to victims, adequate representation of victim inter-
ests, and coordination with parallel civil cases. Law professors David Jaros
and Adam Zimmerman argue that criminal restitution funds are like a
criminal class action and deserve some of the same protections.123 There
should be clear procedures for complex restitution just as there are for class
actions in civil cases.
Victims and Deferred Prosecutions
A judge must approve a plea agreement, and federal law requires that victims
play some rolebut can that role include intervening to object to deferred
prosecution agreements? This agreement is fi led in court, but a judge has
limited supervision. A non-prosecution agreement is never filed in court at
all, so there is no opportunity for victims to be involved. Victims have not
objected that such agreements harm their rights, but perhaps they should.
In a creative move, the state-owned electric utility company in Costa Rica,
the Instituto Costarricense de Electricidad (ICE), objected to a deferred
prosecution agreement, claiming it was the victim of bribery by Alcatel-
Lucent. Alcatel-Lucent had entered a deferred prosecution agreement, and
three of its subsidiaries pleaded guilty to Foreign Corrupt Practices Act vio-
lations in Costa Rica. Prosecutors alleged that officers and directors of ICE
accepted bribes in exchange for telecommunications contracts with Alcatel-
Lucent, but ICE asked to be recognized as a victim and sought restitution.
The prosecutors kept ICE informed of developments in the case.
At hearings in 2011, ICE argued that this case involves worldwide cor-
ruption, but the Department of Justice refused to return the money to Costa
Rica.124 They said only a handful of employees at ICE were involved in brib-
ery, and that they were brought to justice.125 Major phone line purchases
were never delivered due to the bribery scandal, but there was already a set-
tlement with the government of Costa Rica for $10 million.126 The prosecu-
tors emphasized: Were talking about a $147 million resolution. It is one of
the largest resolutions in the history of the Foreign Corrupt Practices Act.127
The Victims 141
The judge asked who the victim was in the case.128 Was it the electric util-
ity or the people of Costa Rica? The judge said evidence indicated that even
higher-ups at ICE were involved in the briberybasically it was Bribery Is
Us. 129 The judge concluded there was no need to figure out who was harmed
by the bribery. On appeal, the Eleventh Circuit agreed and ruled that par-
ticipants in a crime cannot usually be entitled to restitution or status as
victims.130
In other cases, foreign victims have been compensated. A prosecutor
agreed not to prosecute Chevron for violations related to the U.N. Oil for
Food program, which operated while Saddam Hussein controlled Iraq, but
the company agreed to pay $20 million to the Development Fund of Iraq as
restitution for the people of Iraq.131
Corporate Community Service
A few corporations perform community service, but rather than sending

employees to clean up graffiti or pick up litter, they send money. Corpora-
tions donate to environmental cleanup or awareness groups; payments to the
National Fish and Wildlife Fund are common in environmental cases. The
average community service payment was $160,500, but I found that only 12
percent of prosecuted companies paid community service (262 of 2,262 com-
panies). The largest community service awards were paid by BP (a record
$2.75 billion payment, described below), Alpha Natural Resources ($48 mil-
lion), AIG ($25 million), BP again ($25 million), Blue Cross Blue Shield of
Rhode Island ($20 million), and General Reinsurance Corp. ($19.5 million).
More creatively, when the U.S. Attorneys Office of the Western District of
Virginia prosecuted the ITT Corporation for exporting unlicensed and se-
cret night vision technology, causing harm to the militarys technological
edge, the agreement allowed some of the fine to be spent on research for im-
proving U.S. night vision technology.
Sometimes the community gets an apology. Style Craft Furniture, plead-
ing guilty to importation of baby cribs with an endangered type of Indone-
sian wood protected by international treaty, agreed to run advertisements in
Mandarin in China and in English in the United States describing a com-
mitment to ensure that our entire wood supply chain is legal and urging
142 Too Big to Jail
other manufacturers to do likewise, both for their own business interests,

and for the protection of the forest resources for our children.132
Corporations can also perform community service the traditional way. In
another export-violation case, Metric Equipment Sales, Inc. was ordered to
do 250 hours of community service through its employees. The Roger Wil-
liams Medical Center in Rhode Island was asked to contribute to health care
for the poor.133 Sometimes prosecutors may not be the best judges of what
types of service are useful to the community, and the DOJ responded to crit-
icism with a new policy stating there would be no more extraordinary resti-
tution in corporate prosecution agreements.134 That did not mean commu-
nity service could not still be required as part of a sentence, but it has to be
closely related to remedying the harm experienced by victims.
The Public Interest
Whether a settlement serves the public interest can decide whether it is ap-
proved. Merck, a major Big Pharma company, faced a mass of litigation sur-
rounding its marketing of the painkiller Vioxx, which was linked to heart
attacks and withdrawn from the market in 2004. The judge delayed the set-
tlement to examine objections by victims, though Merck had already created
a $4.85 billion settlement fund to compensate victims and spent $1.9 billion
in legal costs.135 Finally, in April 2012, the judge approved the settlement,
stating, Im certainly going to accept this agreement because I think its in
the public interest.136
In contrast, another judge expressed concerns about a plea agreement in a
case about defrauding Medicare, one where Orthofix International N.V. en-
tered a deferred prosecution agreement and a subsidiary pleaded guilty. This
judge commented: It seems in this case the courts hands ought not be tied. . . .
I have extreme unease of treating corporate criminal conduct like a civil case.137
Six months later, the judge rejected a proposed guilty plea, which carried a
fine of almost $8 million and five years of probation, saying the agreement
did not ensure the public interest.138
We should rethink the way that victims are involved in corporate prosecu-
tions, as they may speak for the public interest and sometimes have an im-
pact even if a judge does not have to formally consider their views. There is
little need for restitution when victims can get compensated through private
The Victims 143
suits, but there is no current substitute for their role in influencing the terms
of the plea bargain. Law professors Richard A. Bierschbach and Stephanos
Bibas have argued that public participation could also play a far greater role
in improving the sentencing process.139 This may be particularly true in cor-
porate prosecutions. As noted, in a civil decree, a judge must consider the
public interest, public input, and the fairness of the settlement. Once the
agreement is reached, a judge supervises its implementation. Judges should
exercise similar oversight over deferred prosecution agreements by carefully
considering the public interest. In Chapter 10, I discuss possibilities for
greater judicial oversight of plea agreements and deferred prosecution agree-
ments. Formal rules for ensuring participation of the victims should be put
into place to ensure that corporate settlements are fair. And the public or
public interest groups should be given a chance to contribute their views as
well.
Macondo
Macondo is the name of the fictional town in Colombia where Gabriel Gar-
ca Mrquez set his classic book One Hundred Years of Solitude. The town
begins as a spot on a riverbank, but when a banana plantation brings great
wealth, a larger city springs to life. After seven generationsapologies for
spoiling this part of the endinga massive hurricane destroys the town, re-
turning it to dust.
Those charged with naming a new oil well, one located 5,000 feet under
the sea off the coast of Louisiana in the Gulf of Mexico, were probably not
thinking of the disastrous fate this fictional town suffered when they named
the well the Macondo Prospect. Apparently a group of BP employees won a
United Way contest when they picked Macondo.140 Maybe the employees
and the judges of the contest had not read to the disturbing end of Mrquezs
beautiful book when they named the well. Or maybe they had a very dark
sense of humor.
While the name may have been accidentally prophetic, the victims of the
Texas City refinery explosion were quite specific with their repeated predic-
tions that the corporate culture at BP would result in new fatal disasters
unless change was mandated. Just a few years after that explosion, on the
evening of April 20, 2010, a massive flow of water, oil, and gas blew out of the
144 Too Big to Jail
drilling pipe on the Deepwater Horizon, a giant mobile offshore rig that was
drilling at the Macondo site.
There were several explosions, and after burning for a day and a half, the
Deepwater Horizon sank into the Gulf of Mexico. Eleven workers were killed.
Others evacuated in lifeboats or jumped into the water, and many were res-
cued by the heroic efforts of those in nearby boats. A fireball could be seen
for miles, and the oil from the well continued to gush for months, until it was
finally capped and sealed.141 The problemsfailures to detect high pressure
and malfunctioning of defenses and emergency alarmswere much like the
systemic problems that had led to the refinery explosion at Texas City.
Afterward, a presidential commission found that underlying failures of
management and communication contributed to the disaster. These sys-
temic failures were so serious that they place in doubt the safety culture
of the entire industry.142 The presidential commission highlighted the im-
portance of organizational culture and noted that BPs inadequate safety
culture had played a role in the Texas City Refinery explosion as well.143 An-
other report stated that the corporate culture at BP had been embedded in
risk-taking and cost-cutting, and when given the opportunity to save time
and moneyand make moneytradeoffs were made for the certain thing
oil production and money.144 This was not just an unpredictable accident but
a systems failure rooted in organizational culture. The victims had been say-
ing all along that unless there was an independent monitor or outsider to
ensure change, it would happen again.
The newest victims brought lawsuits, and BP created a multibillion-dollar
restitution fund. This time, prosecutors began investigating employees at BP
and built their case step by step. In April 2012, a BP engineer was charged
with obstruction of justice for deleting hundreds of text messages sent dur-
ing the early days of the spill discussing how much oil was leaking from the
well.145 The resulting criminal complaint hinted that more might be coming.
Some of those text messages were recovered from the engineers iPhone,
and they apparently suggested that BP officials knew more oil was flowing
from the leak than the company had publicly acknowledged. Some of the
deleted texts indicated that the engineer and others knew that the first effort
to stop the leak, a top kill tried in May 2010, would not work.146 Yet at the
time, BP was reassuring the public that the top kill had a high probability
of success.
The Victims 145
Meanwhile, BP remained in trouble over its refineries. The company was

prosecuted for emissions violations at a refinery in Whiting, Indiana, paying
a penalty of just $8 million despite once again being in violation of a prior
consent decree with the EPA.147 Ordinarily, people face greater and greater
punishment each time they are recidivists. Yet these new violations by BP
did not lead to criminal charges.
In November 2012, BP settled the Deepwater Horizon case with federal
prosecutors, pleading guilty and paying the largest criminal fine of all time
$1.256 billion. BP pleaded guilty to several counts, including Clean Water
Act violations, obstruction of Congress, andmuch like in the Ford Pinto
casenegligent manslaughter of sailors on the Deepwater Horizon, under a
law that makes it a crime for a person on a vessel to cause deaths through
negligence or misconduct.148 BP also agreed to pay the largest community
service payment of all time: $2.4 billion to the National Fish and Wildlife
Foundation and $350 million to the National Academy of Sciences.
BP also paid about $500 million to the SEC regarding charges that its
statements mislead investors.149 Meanwhile, a class action lawsuit by victims
may result in an almost $8 billion settlement. Civil environmental fines paid
to regulators may dwarf anything paid in the criminal cases, however, and
may top $17 billion. BP is taking that case to a lengthy trial, disputing whether
it was grossly negligent and must pay enhanced fines. Alongside these other
penalties, the criminal fine is a drop in the bucket.
Five years after the Texas City victims stood in front of a judge and de-
manded more accountability and oversight, prosecutors finally did the same.
BP was placed on probation for five years. BP was required to hire two cor-
porate monitors for four-year terms: one to supervise safety procedures and
another to focus on ethics and compliance. BP was to revise its oil spill re-
sponse plan within sixty days, conduct annual oil spill response drills, create
a new compliance program, hire outside auditors, and post information on-
line about lessons learned, annual progress reports, and safety incidents. The
government also suspended the company for over a year from entering new
contracts with the federal government.150 Whether this changes a corporate
culture of risk-taking and cost-cutting remains to be seen.
The BP cases show how victims tend to play only a sideline role in corpo-
rate prosecutions. Regulatory enforcement and civil suits provided far more
compensation for victims than restitution from criminal cases. Victims can
146 Too Big to Jail
stand in for the public interest, but despite their right to participate, their
voices are often not heard. The story of victim litigation in corporate prose-
cutions suggests that unless fundamental changes are made, victims will not
be the ones to ensure that corporations are held fully accountable. The next
chapter turns to the judges and asks whether they can use sentencing guide-
lines to better hold a company accountable. Already, we have seen how judges
may ignore problems raised by victims and remain reluctant to review plea
deals between prosecutors and corporations. Unfortunately, as the next chap-
ter discusses, one of the reasons for judicial ambivalence is that the sentencing
guidelines provide little guidance on how to properly sentence a corporation.
Meanwhile, residents of Texas City are still suing BP. At the same time
that the Deepwater Horizon spill was occurring in the Gulf of Mexico, the
Texas City refinery was emitting 500,000 pounds of toxic chemicals, includ-
ing carbon monoxide and benzene. More than 50,000 residents have sued in
separate lawsuits and in a class action saying these emissions made them
sick.151 BP has now sold the Texas City refinery.152
Asked about his reaction to the Deepwater Horizon disaster, The Fore-
mans view was simple: Theyre still doing it. . . . If you get hurt, they throw
a little money at it and go on.153
6
The Carrot and the Stick
We will go to our grave saying we are not guilty.

This statement, according to the lawyer for Arthur Andersen who made it
at the companys sentencing hearing, is not defiant . . . We truly believe our
people were not guilty. By this time, in October 2002, Andersen had just
about gone to its grave. It was a shell of the Big Five accounting firm it had
been a year before, with only 1,000 employees and no remaining auditing
work for public companies. The prosecutor argued Andersen should receive
the maximum penalty of a $500,000 fine and five years of probation, as the
government did not destroy Arthur Andersen, the management destroyed
Arthur Andersen.1
What happens when a corporation is convicted of a crime? How is the
corporation punished? A federal judge first looks to the U.S. Sentencing
Guidelines. The Supreme Court has ruled that a judge has discretion to im-
pose a harsher or more lenient sentence, but judges begin by calculating
the range that the guidelines recommend, and they often impose a sentence
within that range.2 The guidelines for individual defendants, which took ef-
fect in 1987, include a large grid with six vertical columns based on a persons
criminal history, and forty-three horizontal rows based on points calculated
using complex provisions that score the seriousness of a crime.3 Adding just
a few points can double a persons possible sentence. Since many of these
provisions would not apply to corporations, judges use separate organiza-
tional sentencing guidelines, but the concept of points is still relevant.4 These
organizational guidelines also inform the settlements that prosecutors enter
148 Too Big to Jail
with corporations, and their structure helps to explain why corporate pros-
ecution settlements can be so lenient, regardless of whether prosecutors
settle with a company or a judge sentences it.
The judge gave Andersen a fine of $500,000, the maximum fine listed in
the statute for obstruction of justice.5 The sentencing guidelines for organi-
zations ask the judge to calculate a fine based chiefly on the seriousness of
the crime and the characteristics of the firm. The company might get a small
break if it accepted responsibility, self-reported misconduct, or had a good
compliance program. Andersen had not accepted responsibility and was still
proclaiming its innocence. The judge noted that Andersen was a recidivist,
having violated a prior Securities and Exchange Commission consent decree.
Along with the fine, the judge ordered Andersen to save all documents, re-
frain from doing auditing work, and tell others it had a criminal record. What
was left of Andersen was now branded a criminalat least until a 2005 Su-
preme Court decision reversed the conviction resulting in the $500,000 fine
being refunded.6 That was small consolation, though, because by then the
company was defunct.
Carrots and Sticks for Corporations
Do you need both a carrot (a reward) and a stick (a punishment) to discipline

a corporation? We mostly punish criminal convicts with stickslengthy
prison terms. Juveniles or first-time offenders are sometimes treated more
leniently to give them an opportunity to learn from their mistakes. Compa-
nies are treated a bit like children, as neither can be put in prison. Instead,
judges may order them to pay fines and to make reforms. However, compa-
nies are also rewarded with carrots in the form of leniency, such as reduced
fines, to encourage them to report crime, cooperate, and help to prevent fu-
ture violations.
When prosecutors offer carrots and sticks together, it is rarely clear how
they exercise their discretion. For example, when settling with Johnson &
Johnson in 2011, they cited the companys effective compliance program
but should that have been relevant, given that the program hadnt been effec-
tive enough to prevent the crimes from occurring? Prosecutors then listed
eleven factors and five more subfactors as relevant considerations, ranging
from compliance to cooperation to self-disclosure of the conductbut they
The Carrot and the Stick 149
did not say what role each played.7 We have seen how prosecutors offer cor-
porations leniency and forgo prosecution in exchange for ill-defined compli-
ance and rarely useful cooperation in pursuing charges against individual
employees. And we have seen how, even when victims intervene, the terms of
the prosecution settlements typically do not change.
Perhaps judges could more carefully wield carrots and sticks, focusing on
deterrence more single-mindedly than prosecutors, who take so many other
factors into account. A judge must at least explain the reasons for the sen-
tence, and this sentence can be appealed. Unfortunately, as I will show, a judges
decision how to punish a company often depends on a similar weighing of
multiple factors, beginning with those found in the organizational sentenc-
ing guidelines. This chapter explores how sentencing for organizations works
and how prosecutors and judges actually punish companiestypically quite
lenientlyin practice.
These concerns are borne out by data concerning the use of fines as a stick
to deter corporate misconduct. When I finished collecting information about
2,262 companies prosecuted federally between 2001 and 2012, I was sur-
prised at how inconsistent and how lenient corporate fines were. After all,
federal sentences are known for being severe. In fact, the guidelines were
adopted because Congress wanted to get tougher on crime, particularly
white-collar crime, and Congress has repeatedly enhanced the sentences for
white-collar offenses in recent years.
Large numbers of companies paid no fine at all. Almost half of the de-
ferred prosecution agreements, 47 percent (119 of 255 agreements), included
no criminal fine. Of convicted corporations, 23 percent paid no fine (455 of
2,008 companies). Some were defunct or unable to pay a fine, while others
were given credit for payments to regulators. In some situations, the owners
are the party able to pay, and the brunt of the punishment falls on them.
Other companies may forfeit property or pay restitution to victims or com-
munity service rather than pay a fine. At the other end of the spectrum is the
largest criminal fine ever, the approximately $1.2 billion paid by BP. Yet
prosecutors rarely explain how they calculate fines, even in the biggest corpo-
rate cases.
In deferred prosecution and non-prosecution cases, a judge is not involved
in approving a sentence, so no justification must be given. Prosecutors appar-
ently feel little need to volunteer onein only a few deferred prosecution
150 Too Big to Jail
and non-prosecution cases did prosecutors provide a calculation of the fine

(12 percent, or 30 of 255 agreements). Almost without exception, they ex-
plained that the fine was at or below the very bottom of the guidelines range,
even for cases involving large public companies. Only three agreements noted
fines at the top of the range. But even when a company is convicted and sen-
tenced by a judge, similar patterns are apparent, although far more convicted
companies are small and unable to pay any kind of fine.
Which companies are fined the most? I wondered whether larger fines
were correlated with certain types of companies or certain types of crimes.
The results of regressions conducted to analyze those relationships are pre-
sented in the Appendix. I found that public companies received fines four
times larger on average than other companies, controlling for the type of
crime and certain other characteristics of the cases. This is reasonable, as
larger public companies may commit more substantial offenses. Foreign
companies were punished more heavily, paying average fines over seven times
larger.
Prosecutors secured the lions share of the blockbuster fines in cases in-
volving antitrust violations, violations of the Foreign Corrupt Practices Act,
and pharmaceuticals. I knew there were record-setting fines in each of those
areas, but I did not expect the degree to which those cases stood out, even
when controlling for characteristics such as whether companies were public.
The average fine levied in antitrust cases was a remarkable 102 times larger
than the average fine in other comparable corporate prosecutions. FCPA
cases received an average fine 76 times larger, and pharmaceutical cases re-
ceived a fine 53 times larger. In contrast, more run-of-the-mill federal crimes
such as fraud or money laundering did not involve much larger fines.
Fines are not the only way to punish a criminal convict. Just as individual
convicts can be put on probation and must report to a probation officer, com-
panies can also serve probation. But very few such companies are carefully
monitored. I found that the average amount of time a company is put on
probation or kept on a deferred prosecution agreement is just over two years.
That is minimal. Nor are the collateral consequences of a conviction typi-
cally very serious. The true death sentence for Arthur Andersen was not the
$500,000 fine but the SEC debarment. However, suspension and debarment
are highly uncommon. One might expect prosecutors to treat recidivist com-
panies more harshly, but there is little evidence of that happening.
Siemens Pleads Guilty
The role of a judge in sentencing a corporation can be quite deferential and

limited, and observing a typical sentencing hearing gives a sense of why. The
sentencing hearing for Siemens, in the biggest foreign bribery case of all
time, was a genteel affair, with a touch of the celebratory. Siemens and three
subsidiaries all pleaded guilty, and the judge began by complimenting the
lawyers for Siemens and the prosecutors: this is not the typical everyday
criminal case we get in this courtroom, and an awful lot of hard work from
both sides has been put into coming up with a resolution in the case that is in
the interest of the United States and in the interest of the parties.8
Who could plead guilty for a major multinational corporation? A lawyer
introduced himself by saying, Im a member of the managing board of Sie-
mens AG and its general counsel. The judge asked, Youve been authorized
duly by the Corporation to represent them in the taking of this plea today?
He answered, Yes.9 A second lawyer was authorized to take pleas for Sie-
mens of Argentina, Bangladesh, and Venezuela. Signed corporate authori-
zations were given to the judge. The judge asked more specifically: Have the
boards of directors of these corporations authorized you to enter pleas of
guilty to the charges set out in the information pending against them? The
lawyers answered, Yes.10
Normally the defendant must be present in court for the initial arraign-
ment, trial, and plea or sentencing. Failure to appear will subject the defen-
dant to arrest. However, the Federal Rules of Criminal Procedure say an
organization does not have to appear in person when it pleads guilty if its
attorney is present.11 Some judges have nevertheless been upset when a com-
pany pleads guilty through a lawyer, rather than sending the CEO to per-
sonally acknowledge responsibility. This judge did not mind.
The judge next asked the same questions that are posed to any individual
who pleads guilty, though the questions make less sense for a corporation.
The judge asked if counsel for either side had any question as to the defen-
dants competence to enter a plea. Could a corporation be incompetent to
understand criminal charges or stand triala criminally insane corpora-
tion? No such concept exists, and no one had questions about that possibil-
ity. The judge then asked if they had had adequate time and opportunity to
discuss this case with your attorneys and if they were satisfied with your
152 Too Big to Jail
attorneys representation. Unsurprisingly, given that the attorneys them-

selves were sent to enter the plea, they were satisfied. The judge asked if the
companies understood they were waiving the right to a jury trial, to cross-
examine witnesses, to present evidence, to have a day in court, and to appeal.
The judge explained, If there were a trial, each would be presumed to be in-
nocent, and the government would be required to prove each was guilty by
competent evidence beyond a reasonable doubt. They understood.12
The judge then reached the details of the chargesinternal controls and
books and records violations of the FCPA by Siemens and its subsidiaries
(with the Bangladeshi and Venezuelan operations also pleading guilty to
bribery violations). The judge asked if the companies understand the nature
of the offenses, and the lawyers said they did. The lawyers had not been in-
volved in the crimes themselves; as the prosecutor noted, Obviously, none of
these gentlemen have personal knowledge of the facts that they have agreed to
here today. Instead, its based on information and belief. The judge asked the
prosecutor to describe the charged crimes. Since this was perhaps the largest
international bribery case of all time, the judge cautioned, Hit the high-
lights. Otherwise the hearing might have taken days. The lawyers for Sie-
mens agreed that the description of the case was fair and accurate. The judge
emphasized, So, in the case of each of your companies, they are pleading
guilty because they are in fact guilty; is that right? They answered, Yes.13
The judge walked the group through the potential fines for Siemens and
the subsidiaries. He asked about the other conditions of the plea agreements:
In signing those, the company acknowledges that they not only understand
those conditions, but theyre agreeing to comply with those conditions?
Now the prosecutor enumerated the terms of the detailed plea agreement,
describing the $450 million in fines to be paid by Siemens and its subsidiar-
ies, the responsibilities of the corporate monitor, and the continued coopera-
tion with the SEC, IRS, and prosecutors in the United States, and Germany.
Has anyone threatened your companies in any way to enter into these plea
agreements? the judge asked. They answered, No.14
The judge noted that the proposed $450 million fine, while large, was well
below the sentencing guidelines range of $1.35 billion to $2.7 billion. And
Siemens pleaded guilty only to violations of FCPA accounting requirements
and not to payment of illegal bribes, which are also prohibited by the FCPA.
There was more leniency. Investigators had uncovered over $1 billion in
worldwide bribes by Siemens, but the fine was based on a calculation that
only represented bribery related to the U.N. Oil for Food Program in Iraq.15
The fine could have been up to twice the pecuniary gain derived from the of-
fense, which was $843,500,000.16 How about the gains from other Siemens
bribery schemes around the world?
The judge did not have to accept the amount that the parties had agreed
on, and asked the prosecutor to explain why this reduced fine was nonethe-
less . . . fair and appropriate and in the best interest of the United States in
this particular case. The prosecutor described thousands of man hours
spent on the case and noted the crimes were farther reaching in scope and
magnitude than the Department has ever seen in any previous Foreign Cor-
rupt Practices Act case. What justification was there for so deeply discount-
ing the fine in the most serious foreign bribery case of all time? The prosecu-
tor noted extraordinary efforts with respect to cooperation and remediation,
and filed a sealed document with the judge explaining which individuals and
corporations Siemens provided important information about. That was why
the corporation received a substantial reduction from the low end of the
guidelines range. Siemens had already paid approximately $856 million to
Munich prosecutors and $350 million to the SEC in disgorgement of profits,
amounting to a total of $1.6 billion. Siemens was cooperating extensively, but
at the same time, the company had not self-reported the conduct, keeping it
concealed for years.
Obviously, Siemens had no reason to complain about a reduced fine. Even if
victims or others had intervened to raise that issue, as discussed in the last
chapter, little may have changed. The judge concluded, Well, its the finding of
the Court that the plea agreement in this case is a reasonable and fair resolu-
tion of this matter.17 The judge did not rely heavily on the guidelines, instead
deferring to the judgment of the prosecutors. The judge notified the companies
of their right to appeal, asked if they had anything to add, and then called an
end to the proceedings. Siemens was a sentenced criminal convict.
Too Lenient
In another case, outsiders did express concern that a corporate plea was
too lenient. The Guidant Corporation made medical devices, including
defibrillator implants, devices implanted in the chest of people with heart
154 Too Big to Jail
problems in order to detect abnormally fast heart rhythms and use electric
shocks to prevent heart attacks. More than 20,000 patients received the de-
vices. According to the plea agreement, Guidant changed how it made those
implants in 2002, correcting a flaw that could cause them to short-circuit
and shut down. Rather than recalling the devices, Guidant merely stopped
shipping them. A patient died in Spain in 2004, after Guidant had already
heard of four prior short-circuit incidents. Only in March 2005 did Guidant
send a nondescript product update, one that did not mention the short-
circuit incidents or the patients death. When it later pleaded guilty, Guidant
admitted that only in June 2005 did it notify the Food and Drug Adminis-
tration about the problem, even though it was required to tell the FDA
within ten days.18 The plea agreement included a $254 million fine and $42
million in forfeiture of funds to the government.
At the sentencing hearing, the judge noted that a plea agreement pre-
sented as binding is normally either accepted or rejected as a whole.19 How-
ever, the judge could not decide what to do here, noting the unique contours
of the case. The parties had agreed on a settlement, but the judge also heard
from victims lawyers who argued that Boston Scientific, which had pur-
chased Guidant after these events, was not itself being punished or put on
probation. In response, the prosecutor explained, As far as the Government
knows, [Guidant] is no longer operating, making it absolutely meaningless
to impose probation on a subsidiary that no longer existed.20 In addition,
doctors who had treated a college student who died when a Guidant device
short-circuited wrote a letter asking the judge to reconsider the plea deal: At
issue in this case is the safety of future generations of patients who receive
medical devices.21
The judge decided that a company should not be allowed to avoid proba-
tion simply by changing its corporate form and doing so less than two
weeks before the government filed charges. The judge noted that the guide-
lines might call for a better compliance and ethics program, or community
service.22 Ultimately, given the publics interest in accountability, the judge
decided not to accept the agreement as currently drafted, saying the parties
were free to submit a new agreement with probation and compliance require-
ments.23 A year later, the judge accepted a revised plea agreement providing
for three years of supervised probation.24
The Organizational Sentencing Guidelines
In the past, corporations received minimal fines from federal judges, and it
made little sense to bother prosecuting companies if the fine might only be a
few thousand dollars.25 All of that changed with the birth of the sentencing
guidelines. These had many goalsto eliminate racial disparities in sentenc-
ing, to require judges to follow reliable factors when sentencing, and to raise
sentences for white-collar offenses. According to Justice Stephen Breyer, one
of the architects of the guidelines, Too many different judges were imposing
too many different sentences upon too many similar offenders who had com-
mitted similar crimes in similar ways.26 Organizational fines were very low,
averaging less than $50,000 before 1984, and they varied depending on the
judge.27 Congress increased maximum penalties in the 1980s, but there were
no rules for how to sentence corporations.28
The newly established U.S. Sentencing Commission studied fines paid by
corporations and found they were so low that they paled in comparison to
company profits or the losses caused by the crimes.29 The commission ulti-
mately decided on a separate set of Organizational Sentencing Guidelines,
which took effect in 1991, and the result was a rise in fines for corporations.30
Following the Supreme Courts 2005 ruling in United States v. Booker, those
guidelines are now advisory for judges rather than mandatory, but they form
the starting place judges use when sentencing companies. They also inform
negotiations between companies and prosecutors.31
When the corporate guidelines were being designed, some argued the
commission should aim for optimal deterrencea fine big enough to incen-
tivize the company to stop the behavior.32 The commission ultimately rejected
a pure deterrence approach, deciding that it was too hard in practice for a judge
to estimate what fine it would take to prevent a company from doing it again or
from hiding misconduct. Even the right fine might not have the right effect,
since the company might pass the costs to shareholders or customers. The
commission wanted to reward companies that genuinely tried to prevent and
detect wrongdoing. After all, without a strong compliance defense, as law pro-
fessors Jennifer Arlen and Reinier Kraakman have argued, a company will
have no incentive to uncover wrongdoing, report crime to the authorities, and
prevent crime.33 There must be a large carrot.
156 Too Big to Jail
The emphasis on compliance has spread to prosecutors, who now offer

deferred prosecution and non-prosecution agreements to corporations that
self-report, cooperate, and adopt compliance programs. Others followed
suit. In 1996, the Delaware Court of Chancery held that a corporate director
may be held liable for a failure to implement adequate compliance systems.34
The SEC announced it would tend to pursue civil charges when a company
lacks adequate compliance. In 2010, the SEC announced a cooperation ini-
tiative and now enters its own deferred prosecution agreements. Other fed-
eral agencies emphasize compliancefor example, the Office of Inspector
General at the U.S. Department of Health and Human Services has long
secured corporate integrity agreements with health care providers.
The Death Penalty
Behind this wave of deterrence, the so-called corporate death penalty lurks
in federal courthouses, but very few companies are actually sentenced to
death. A special provision in the guidelines allows a judge to set the fine
so high as to fine a company out of existence. The goal is to divest a com-
panythat operated primarily for a criminal purpose or primarily by crimi-
nal means of all of its net assets.35 Take Nexus Technologies, a small
Philadelphia-based export company. The firm pleaded guilty in 2010 to mul-
tiple violations of the FCPA, money laundering, and violations of the federal
Travel Act, and it agreed to cease all operations as part of its plea. Apparently
Nexus paid almost $700,000 in bribes over nearly a decade to secure contracts
to sell equipment to the Vietnamese government, including underwater
mapping equipment, bomb containment equipment, helicopter parts, chemi-
cal detectors, satellite communication parts and air tracking systems.36 The
government argued the corporate death penalty was appropriate because
Nexus did not slowly fall into bribery in order to competebribery was
Nexus business model and that Nexus not only paid bribes on every con-
tract it won, it offered a bribe on every contract on which it even submitted a
bid. This hurt the people of Vietnam, who paid for inflated contracts, and
Vietnamese officials had been working hard with the United States to clean
up corruption problems that had helped put the country in a severe eco-
nomic crisis.37 The amount paid in bribes represent[s] the yearly income of
more than 200 Vietnamese citizens.38 The judge agreed and ordered that
the company shall cease all operations permanently and turn over all net
assets to Clerk of Court as a fine.39
This remains rare. According to the Sentencing Commission, no firms at
all received the death penalty from 2000 to 2008although the commis-
sions data are not entirely complete, and I have found a few examples. In
2002, a Texas judge ordered Pillbox Medical Center and S&H Scripts, both
convicted of distributing controlled substances, to be dissolved and all of
their assets seized. Far more common is the situation in which small mom-
and-pop corporations are unable to pay the entire fine. A judge can make a
preliminary decision that the firm cannot pay the full amount of restitution
to victims or of a fine, and can order the firm to pay what it can.40 For ex-
ample, in 2008, 48 of 199 firms convicted were unable to pay the entire fine
imposed, and 63 received no fine (some fell into both categories).41 Some-
times judges even order companies to pay fines on an installment plan be-
cause they cannot afford the cost up front.
Fining the Corporation
Fines may or may not affect senior managers or those who actually commit-
ted the crime in question. In hearings regarding the Barclays deferred pros-
ecution agreement, entered in 2010 concerning violations of international
sanctions, a judge asked of a $298 million fine: Who pays that? Does that
come out of the shareholders? 42
That comes out of company profits which would ultimately be borne
bythe shareholders, yes, Your Honor, the lawyer for Barclays responded.
The judge responded, Theres no alternative source of income to pay
this?
No, Your Honor, the lawyer responded.
The shareholders pay for this. All right. So its just a risk of investment
then?
Yes, Your Honor, responded the Barclays lawyer.
The judge wondered, Why should the shareholders have to pay for the
Banks irresponsibility? I dont understand that. 43
While the judge cannot decide who pays, the judge can set the amount. The
judges priority is to ensure that victims are compensated, as discussed in the
last chapter.44 A fine is then set under the guidelines, though not all companies
158 Too Big to Jail
are punished under them. Environmental offenses, obstruction of justice, ex-

port violations, and other crimes are treated differently under separate stat-
utes, as they involve harms that are hard to translate into a dollar figure.
An organization can also be fined under an alternative fines provision, a
federal law that says a corporation may have to pay up to twice the amount of
either its gains from the crime or the losses it caused to others.45 Loss and
gain are notoriously hard to calculate, even just to provide a reasonable es-
timate. In antitrust price fixing cases, mathematical models are used to as-
sess how much customers paid due to the higher prices. In a securities fraud
case, it may be complicated to figure out how much the failure to disclose
material information affected stock prices. Judges have scathingly critiqued
calculations under a guideline that applies in many financial crimes, calling
them a black stain on common sense, an utter travesty of justice, and a
fetish with abstract arithmetic. 46 If the scheme was a sting operation by
federal agents, it might include a harm that never would have happened in
the absence of the sting.47
If the alternative loss or gain provision is not used, the guidelines calculate
a fine based on the same base offense level used to punish individual people.
The fine rises with the number of offense level points the organization gets,
from just $5,000 for six points or fewer to over $70 million for thirty-eight
or more points. Those complex calculations provide the starting place (the
base fine). If that is not enough to take away any gain the corporation got
from its offense, the court should add more to the fine (the disgorgement) to
keep the company from profiting even after being caught.48 The factors are
numerous, and it is more of an art than a science to calculate a corporate fine.
The Bigger Stick
Under the guidelines, the companies that get a bigger stick are the ones that
(1) were involved in or tolerated the criminal activity, (2) had a prior history
of violations, (3) violated an order, or (4) obstructed justice.49 Those four fac-
tors increase a culpability score, which can make the fine many times higher
due to a multiplier.50 The guidelines give more points if high-level personnel
participated in, condoned, or were willfully ignorant of the offense. The big-
gest sticks are reserved for the biggest corporations, with the most points
(five) for large companies with 5,000 or more employees and only one point
for those with ten or more employees where someone with substantial au-
thority was involved.51 The other factors increasing punishment are less
common, such as outright obstruction of justice, which can add three points.
A company that earns five culpability points can have its fines doubled, and
an organization with ten or more points can have them quadrupled.
The Compliance Carrot
Good corporate citizens can have points taken away, cutting fines in half or
more.52 Two factors can reduce the fine: (1) an effective compliance and eth-
ics program, and (2) self-reporting, cooperation, or acceptance of responsi-
bility. Few companies ever get that first carrot, so it is hard to say what counts
as an effective compliance program. From fiscal 2009 through 2012, the
Sentencing Commission reported no companies as having received that
credit, and only five companies out of over 3,000 sentenced have ever received
it.53 But this is not a sign of strict punishment, as small family businesses and
little companies may not have compliance programs, and big companies of-
ten get deferred prosecution or non-prosecution agreements and avoid a sen-
tence from a judge.
The Sentencing Commission cares more about compliance than it used
to; it moved the description of effective compliance from footnoted com-
mentary into the guidelines themselves. It also added details about what
should be in place, including training, monitoring, anonymous reporting of
misconduct, and evaluation.54 In 2010, the commission made clear that if the
company really was committed to compliance, then it could still get a re-
duced sentence even if a high-level employee committed a crime.55 It remains
to be seen whether this means that more companies will get their sentences
reduced for having good compliance. None have received such a credit yet,
nor have prosecutors cited that reason for reducing a fine when entering de-
ferred prosecution and non-prosecution agreements, although prosecutors
have often more generally recognized that corporations had created good
compliance programs. (Prosecutors also tend not to provide sentencing
guidelines calculations in such agreements.)56 Slightly more companies get
credit for self-reporting crime before the authorities began their investiga-
tion, but not many; for example, only four companies in 2008 received such
credit.57 The guidelines will not effectively encourage self-reporting of crimes
160 Too Big to Jail
or compliance if they do not give meaningful credit for good corporate con-
duct, and even after these changes, law professor Jennifer Arlen has called
the guidelines a failure.58
Accepting Responsibility and Cooperating
Companies can also get credit for accepting responsibility for their crimes
early on, or promptly reporting the offense and cooperating fully.59 Accord-
ing to the Sentencing Commission, 29 percent of companies did so in 2012,
receiving five points off their culpability score.60 They get less credit (two
points off ) if they fully cooperate and accept responsibility later on.61 Most
convicted companies cooperate (51 percent in 2012),62 but few companies
self-report their crimesonly 3 percent received sentencing credit for self-
reporting in 2012.63 A judge can also give credit for providing substantial
assistance in investigations of others.64
Cooperation can be grudging and delayed; the Panalpina corporation, a
Swiss logistics and contracting company, did not report bribe payments, and
when clients turned Panalpina in and the Department of Justice started to in-
vestigate, it still did not cooperate. According to prosecutors, Panalpina also
did not stop the illegal payment of bribes that was occurring on multiple con-
tinents.65 The next year, prosecutors demanded documents, and only then did
Panalpina decide to help. At that point, the company exhibited exemplary co-
operation and hired outside lawyers to do a global investigation, providing
voluminous and helpful information about others who knew about the bribes
and participated in the schemes. The company turned informant, and the rev-
elations sparked an industry-wide investigation by the DOJ, with three more
companies prosecuted.66 As a result, prosecutors recommended Panalpina get
a $70.56 million fine, which the judge imposed, although it was less than the
range of $72 million to $144 million the guidelines suggested.
This approach may give companies an incentive to cooperate once no
other options are available, but it certainly does not give much incentive to
self-report or cooperate quickly. In deferred prosecution and non-prosecution
agreements, prosecutors do not always mention the reasons for offering an
alternative to an indictment and conviction, doing so in 191 of 255 agreements.
When prosecutors did state their reasons, they mentioned cooperation most
of the time (70 percent, or 133 of 191 agreements) but rarely mentioned self-
reporting of the offense (17 percent, or 33 of 191 agreements), and often used
vague language such as timely and voluntary disclosure, failing to say whether
the company came clean before the government learned of the crimes. Pros-
ecutors should be far clearer in rewarding effective compliance, cooperation,
and self-reporting, and also more clearly punish poor compliance, lack of
cooperation, and failure to report.
Comparing to Individuals
The guidelines are more bark than bitenot just because judges have discre-
tion to depart from them, but also because of how prosecutors negotiate
with companies. Ultimately, in the midst of heated negotiations prosecutors
offer far too many carrots to companies that seemingly deserve a stick. Com-
pare this practice to the off-the-charts sentence Bernard Madoff received for
masterminding the largest Ponzi scheme of all time. The guidelines impose
sentences for fraud based on the size of the monetary loss to the victims.67 In
the Madoff case, victims lost a conservative estimate of $13 billion over two
decades, but it may have been many times more.68 Madoff pleaded guilty to
eleven counts of fraud, money laundering, perjury, and other crimes, and
prior to the sentencing, many victims wrote to the court or testified at the
hearing about losing their life savings and how Madoff abused their trust,
and they asked that he be given the maximum sentence.69 One recounted
how in Dantes Divine Comedy, the perpetrators of fraud were placed in the
lowest depths of hell, beneath violent criminals, and expressed hope that
in the afterlife Madoff would suffer a similar fate.70 Madoff s lawyers ad-
mitted that he was flawed, but added that he chose not to flee or hide
money. 71 They pointed out that he was seventy-one and had an estimated
life expectancy of thirteen years, and they asked for a twelve-year sentence.
I cannot offer you an excuse for my behavior, Madoff said on the stand.
He said he had not intended to do harm, but had made mistakes as a money
manager and concealed them by using assets from new investors. The more he
tried, the deeper I dug myself into a hole. He described living in a tor-
mented stateI will live with this pain, with this torment for the rest of my
life. Madoff apologized to victims: I will turn and face you. I am sorry. I
know that doesnt help you. 72 There is usually no such personal admission of
guilt and responsibility in the sentencing of a corporation. Still, Madoff was
162 Too Big to Jail
sentenced to 150 years in prison.73 The judge admitted that a sentence above
his life expectancy was largely, if not entirely, symbolic, but it was impor-
tant to send the message that these crimes constituted extraordinary evil
and not bloodless financial crime that takes place just on paper.74
Average sentences for fraud have doubled over the past decade, perhaps
due to harsher sentencing provisions or because prosecutors have brought
more serious cases.75 That said, one readily finds fraud cases imposing sen-
tences of just a few years when longer or even life sentences were available
under the guidelines. One of the highest-profile recent insider trading prose-
cutions, that of hedge fund manager Raj Rajaratnam, resulted in the longest-
ever sentence for insider trading: eleven years. The judge commented that the
crimes reflect a virus in our business culture that needs to be eradicated. Yet
eleven years was half of the guideline sentence prosecutors pushed for.76
When Corporations Plead Guilty
We generally know little about corporate convictions and guilty pleas. As

noted, deferred prosecution and non-prosecution agreements have received
scrutiny by Congress, the General Accounting Office, the Department of
Justice, judges, the bar, scholars, and corporations. But there are far more
corporate convictions, chiefly guilty pleas, than deferred prosecution or non-
prosecution agreements, and these plea agreements deserve careful atten-
tion. A few firms, such as Arthur Andersen, risk a trial each year. But just as
in prosecutions of individual persons, the vast majority of corporations, more
than 90 percent, plead guilty. According to the Sentencing Commission,
only 8 percent of firms go to trial.77
Unlike a deferred prosecution agreement, plea agreements must be ap-
proved by a judge. Typically, prosecutors and defendants negotiate a plea
agreement, and prosecutors may also recommend a sentence or include a
binding sentencing calculation.78 But even for so-called Type C agreements
(named after Federal Rule of Criminal Procedure 11(c)(1)(C)), which are
binding, judges have discretion to reject an agreement as unfair, contrary to
the interests of justice, or contrary to the purposes of the guidelines. In one
case a judge scuttled a plea agreement, reasoning that the firms employees
rather than the firm itself should be held responsible; the employees were
then prosecuted individually.79 A judge can also reject a plea agreement that
fails to consider victims interests. A judge threatened to reject a binding plea

agreement with Samsung, complaining, You are trying to run this through
like a railroad train and that he would not be stampeded. The judge wanted
to know what restitution would be paid to victims, and though the agreement
was later approved, the judge held hearings to examine that question.80
The DOJ offers only general guidance on how prosecutors should exercise
their discretion when entering a plea agreement with a corporation. The U.S.
Attorneys Manual emphasizes that a guilty plea should be sought in a serious
case, one that involves participation of higher-level corporate officials and in
which neither civil actions, prosecutions of individuals, nor a deferred prose-
cution agreement would be sufficient. Corporate pleas should impose sub-
stantial fines, mandatory restitution, and institution of appropriate compli-
ance measures, including, if necessary, continued judicial oversight or the use
of special masters or corporate monitors. Not only may the terms be more
punitive than in a deferred prosecution, but a criminal conviction may bring
reputational and collateral costs. The company must admit guilt, which may
provide ammunition to private parties or regulators suing the company.81
Corporate Probation and Court-Ordered Compliance
A convicted corporation not only pays a fine but, in a way, can do time. More
than two-thirds of convicted corporations are put on probation.82 Compa-
nies may be put on probation if they lack an effective compliance program,
and probation can be more active if special conditions are imposed to make
sure changes are made within the organization to reduce the likelihood of
future criminal conduct.83 Just like individuals, the company agrees not to
violate the law againany sentence of probation includes the condition that
the organization not commit another federal, state, or local crime during the
term of probation.84 Early on, however, the guidelines suggested that proba-
tion would do very little. The Sentencing Commission was concerned that
probation had been abused by judges who required firms to do community
service by donating to charities and the like.85 Only in extreme cases were
monitors appointed.
The Con Ed case started to change that. One summer evening in 1989, a
steam pipe exploded in the Gramercy neighborhood in Manhattan.86 Three
people were immediately killed, and a plume of debris settled over the
164 Too Big to Jail
crowded area. Consolidated Edison, the New York utility, known as Con
Ed, did not tell residents something important about that debris: it con-
tained asbestos. It was residents who performed their own tests and figured
it out themselves. Federal laws require immediate reporting when dangerous
substances are released, and federal prosecutors brought a case against Con
Ed, which went to trial.87 Days into the trial, Con Ed capitulated and pleaded
guilty. It opposed the appointment of a monitor, but the judge imposed one
anyway, explaining:
One of the things I found disturbing here was the sense that
there were people at Con Edison, who testified at the trial, who
clearly knew and who should have been jumping up and down
saying, there is asbestos here, we know it. It was obvious they
didnt say it because they were intimidated from saying it, be-
cause they didnt think that was the corporate culture; and that
was not the corporate culture that came across to me in this trial.
The judge added, I want to be sure that, on an ongoing basis, people will
know that this is real and that there is an avenue outside the company for
them to go to.
The guidelines have been amended to encourage probation to do more.
But these new powers are not commonly used. The court, while it may only
appoint a special master or trustee in serious cases, may employ appropriate
experts to review a compliance program.88 The company may receive unan-
nounced visits by probation officers to examine books or records or by an
expert appointed by the judge, including to conduct an interrogation of
employees.89 Nevertheless, probation is still typically unsupervised.
What has changed is that judges more frequently order a company to
adopt a compliance or ethics program. According to the Sentencing Com-
mission, 36 percent of organizations sentenced had a judge order compliance
in fiscal 2012, compared to only 6 percent in 2008.90 How closely judges can
supervise such an order without the help of a special master or supervised
probation is unclear.
There is one more penalty, one that any company can afford but which
judges impose rarelythe public apology. In a small example, the Midwest
Sheets Company was ordered to print an apology in a Tipton, Indiana, news-
paper and a trade journal for violating the Clean Water Act. Large compa-
nies do not normally have to do that, and judges and prosecutors should re-
quire an apology far more routinely.
Recidivist Corporations
There is a surprising amount of recidivism in white-collar offenses. The Sen-

tencing Commission found that recidivism rates for fraud and larceny were
low overall, but that over 50 percent of the most serious fraud and larceny
culprits were recidivistsabout the same as robbery and firearms offenders,
and far higher than drug traffickers, who have some of the lowest rates of
recidivism.91 And the rates for white-collar offenders may be conservative, as
such offenders are not easy to catch or convict.
Few companies convicted each year are officially recidivists. From zero to
just over 1 percent of organizations have a history of similar convictions in
the past ten years, but these commission data are missing information on re-
cidivists in the environmental area not sentenced under the guidelines and
companies entering deferred prosecution agreements.92 Several companies
have been convicted multiple times, and some violated probation by commit-
ting another crime.93 Others receive multiple deferred prosecution agree-
ments. Still others were under consent decrees with regulators, promising not
to violate the law againbut they did.
There is no three-strikes rule for corporations, but recidivists can be sen-
tenced more harshly under the guidelines. The guidelines call for a more se-
vere sentence for a company that committed a crime less than ten years after
a crime based on similar misconduct, or civil or administrative cases based
on two or more instances of similar misconduct, and still more severe penal-
ties if the prior similar crime was only five years in the past.94 However, what
counts as similar may be open to interpretation. Many deferred prosecu-
tion agreements also call for consequences if a company engages in additional
crimes during the term of the agreement, but often only if it is a similar
offense. Some companies have received multiple deferred prosecution and
non-prosecution agreements not many years apart, but for different crimes
presumably not deemed sufficiently similar. And companies are rarely
sentenced using guidelinesthey receive deferred prosecution and non-
prosecution settlements.
166 Too Big to Jail
It is not at all clear that prosecutors take corporate recidivism seriously.

Some settlements reflect prior crimes, but often they do not appear to do so.
Companies with several environmental convictions include BP, ExxonMobil
(with four convictions since 2001), McWane Inc., and a series of ocean ship-
ping companies. Outside the environmental area, in Big Pharma cases, take
the example of Pfizer. Its subsidiary, Pharmacia & Upjohn, had two convic-
tions and a deferred prosecution agreement, while the parent, Pfizer, received
a non-prosecution agreement, and another subsidiary had a deferred prose-
cution agreement for FCPA violations. ICN Pharmaceuticals had two con-
victions, and GlaxoSmithKline had a conviction and a non-prosecution agree-
ment. There has been much public discussion of cases involving major financial
institutions such as AIG, Barclays, HSBC, JPMorgan, UBS, and Wachovia,
which each received multiple deferred and non-prosecution agreements over
the past decade. These cases do not show clear signs that prosecutors treat
recidivists more harshly. If they truly mean to reward compliance and self-
policing by firms, then they must also punish recidivism more severely.
One judge questioned whether a big corporation can be a recidivist if dif-
ferent employees or subsidiaries are involved. In a case dealing with groups of
related corporations, in 2004, ABB Vetco Gray and a related U.K. firm
pleaded guilty to FCPA violations involving years of bribing officials in Nige-
ria. They paid over $10 million in fines and disgorgement, and were sen-
tenced to five years of probation.95 They were both part of the ABB Group, a
mass of more than 500 companies all controlled by ABB Ltd., a Swiss hold-
ing company, with a major division focusing on oil and gas exploration.96
Three years later, in 2007, three subsidiaries in the same group pleaded
guilty to FCPA violations involving bribes to Nigerian officials concerning
deepwater oil drilling, paying $26 million in fines. One of the subsidiaries,
Aibel Group, Ltd., also entered a deferred prosecution agreement.97 In 2008,
Aibel reported that it continued to violate the FCPA, breaching the deferred
prosecution agreement. Having breached, the firm negotiated a guilty plea.98
That, perhaps, was the punishment for recidivismthe firm did not get a
deferred prosecution.
There was a fourth time. In 2010, additional FCPA violations were re-
ported by another collection of ABB-related entities. The parent company,
ABB Ltd., negotiated a deferred prosecution agreement, as did its Jordanian
subsidiary. The U.S. subsidiary, ABB Inc., negotiated a guilty plea.99 Would
some part of the company ever receive a harsher sentence as a recidivist? In

September 2010, the judge held a hearing on the guilty plea.100 As part of the
plea, the government was offering ABB Inc. a fine at the bottom of the
range.101
But the judge changed the topic and asked, How many employees does
ABB have? Its lawyer answered, ABB Inc. has approximately 10,000 em-
ployees in the United States.
How many worldwide? the judge asked.
More than a hundred thousand, the lawyer answered.
In how many countries does it operate?
Over a hundred countries.
Isnt calling ABB Inc. itself a recidivist a little harsh given that justhow
many people work at the Justice Department?102
The prosecutor guessed about 9,000 (in actuality it is well over 100,000).103
The judge parried, Is it the case that occasionally people at the Justice De-
partment violate the law? The judge added, Would it not be remarkable
[with] 200,000 people, many of whom work in countries that have a level of
integrity, especially in the government, that are abysmal, that somebody
doesnt weaken in the name of the company . . . ?104
The judge would not let it go: You would not call ABB Inc. a murderer
because one of its employees in Australia murdered somebody, would you?
Actually, as noted, a company may not be prosecuted for murder, but for other
crimes, such as FCPA violations, a company really is liable for the acts of its
employees in the scope of their duties. The judge was questioning the entire
concept of corporate criminal liability as recognized by the Supreme Court.
The judge ignored the plea agreement and concluded the company should
not receive an enhanced punishment as a recidivist. The judge wanted a
much lower fine that did not include any enhancement based on recidivism
and would not sentence ABB Inc. to any probation. The prosecutor said, Im
sure Your Honor is aware that that is not the agreement of the parties, and
pointed out that the sentencing guidelines call a company a recidivist even if
it is a different part of the company that committed the new crime.105 The
guidelines refer to an organization or separately managed line of business.106
There is a good reason for thata company could just close down or rename
any subsidiary business that pleaded guilty to a crime and wipe its own record
clean.
168 Too Big to Jail
The judge countered that this company was earnestly trying to avoid this
kind of problem. The prosecutor responded that the conduct in Nigeria had
occurred from the 1990s through 2004, the very same time period covered by
the prior 2004 plea agreement.107 Still, the judge concluded that the guidelines
would not be applied, saying, Do I look like a rubber stamp?108 Instead of a
$28.5 million fine, the judge imposed a $17.1 million fine, removing the recidi-
vism enhancement. Under the judges approach, the larger the company, the
more protection it receives from multiple criminal violations. This is a very
troubling argument.
For Shame
One view of corporate prosecutions is that they serve to bring shame on the
companyto harm its reputation and place it in the equivalent of the stocks
for everyone in the community to see. Law professor Samuel Buell has ar-
gued that corporate criminal liability has an important blaming func-
tion.109 One study suggested that shame can work wonders to cause a cor-
poration to shape up after its wrongdoing.110 But a firms reputation may
not be hurt much at all; it depends on the firm and the crime.111
Arthur Andersen took a direct hit to its reputation, and the prosecution
led to its being debarred by the SEC. However, customers who buy Siemens
kitchen appliances may not have been particularly troubled by reports of
payment of bribes in third-world development projects. And companies can
manage the news of their prosecution. For example, the same week Deutsche
Telecom entered a settlement and had three executives charged by the SEC,
the company made two major announcements: that AT&T had ended its bid
to buy T-Mobile, a unit of Deutsche Telecom, and that the German firm
might bid for the rights to broadcast the countrys popular Bundesliga soccer
league via satellite. After the Upper Big Branch mine disaster case settled,
with civil and criminal penalties, newspapers reported that Massey Coals
stock was down 1.1 percent but that indicators for the stock are neutral.
One commentator suggested it would be a good company to bet on.112
Of course, even if the prosecution does not hurt the companys bottom
line, executives may feel shame and may be embarrassed (in addition to per-
sonally facing prosecution). As law professor Dan Kahan puts it, the average
corporate executive probably cares a lot about what his family, his col-
leagues, his firms customers, his neighbors, and even the members of his
health club think.113 There is also a sort of CEO walk of shame provision
in the guidelines. The judge can require a corporation that has accepted re-
sponsibility for its crime to send its CEO to appear in court and receive the
sentence, and perhaps personally accept that responsibility and explain why
the corporation will not violate the law again.114 CEOs do not relish a visit to
a courtroom, but in a few high-profile cases judges have insisted that the
CEO or executives come in person.115
Probation can also include an order that the company publicize the of-
fense, including the conviction and the punishment. It is apparently not
something courts do often, just as they rarely require apologies.116 Sometimes
prosecutors actually try to protect the reputation of the company. One corpo-
rate plea agreement included a stipulation that prosecutors would not ask for
a press conference or write a press release about the conviction.117 Almost two
dozen corporate deferred prosecution and non-prosecution agreements are
sealednot by a court order, but because prosecutors agreed not to disclose
them.
Corporate Parenting
Companies are slippery creatures. They cannot serve jail time, but they can
have immortal life and countless subsidiaries. They can merge with another
company, or split themselves into pieces. For small companies, judges may
hold owners in contempt for failing to ensure that a company pays its fine. In
one example, the owner of a trucking company was sentenced to six months
in prison for failing to pay a $25,000 fine and $9,000 to victims.118 But what
if the company is more complicated? Do you punish the subsidiary or the
parent company? Perhaps the parent corporation controlled its subsidiaries,
set the tone, and for all practical purposes will pay the fine.
The government has spared parent companies from some effects of a
criminal conviction. In the Pfizer case, subsidiary Pharmacia & Upjohn Co.
Inc., rather than Pfizer, was charged with illegal marketing of generic drugs.
Reporters examining the case concluded this subsidiary was nothing more
than a shell company whose only function is to plead guilty.119 Pfizer owns
Pharmacia Corp., which owns (b) Pharmacia & Upjohn LLC, which owns (c)
Pharmacia & Upjohn Co. LLC, which in turn owns (d) Pharmacia & Upjohn
170 Too Big to Jail
Co. Inc. The company that was convicted was the great-great-grandson of
the parent company. Why pin the blame on a great-great-grandchild? The
conduct was so serious that the company could be permanently excluded
from Medicare and Medicare; in such circumstances, according to an offi-
cial, the Department of Health and Human Services must ask whether by
excluding the company, are we harming our patients? Rather than using a
deferred prosecution or non-prosecution agreement, prosecutors can convict
the subsidiary but permit the parent to avoid the collateral consequences of a
conviction.
Mergers and Acquisitions
Since companies can share in the responsibilities for their subsidiaries, they
have to be very cautious about buying a subsidiary or merging with another
company, as a company that buys another company may assume its criminal
liabilities.120 The rise in corporate prosecutions has given companies incen-
tives to be far more diligent when investigating whether a company they are
purchasing has compliance issues. Indeed, wrongdoing has often come to
light when such a company was being considering for purchase, and some
planned mergers have been abandoned due to possible criminal violations.
For example, Lockheed had planned to buy the Titan Corporation before it
found out about possible FCPA problems.121
Only in the corporate world can a criminal divide itself into a blameless
half and a half to be punished. Abbott Laboratories was prosecuted and
faced massive fines for illegal off-label marketing of Depakote for treatment
of schizophrenia and other disorders and conditions. It paid about $560 mil-
lion in fines when it pleaded guilty in May 2012 and another $241 million to
state governments. Just weeks before its plea, it announced its plan to sepa-
rate into two public companiesa diversified medical products company
that may retain the Abbott name and a pharmaceutical company.122 The
pharmaceutical branch had been involved in the illegal marketing, and the
agreement released the other branch from prosecution.
Plea and deferred prosecution agreements typically say that despite a sale
of all or substantially all of a companys assets, the purchaser is still bound
by its terms.123 As the judge that sentenced BP after the Texas Refinery ex-
plosion put it:
BP Products may not dissolve, change its name, or change the

name under which it does business unless the judgment and the
criminal monetary penalties imposed by this Court are either
fully satisfied or equally enforceable against BP Products suc-
cessors or assignees.124
But my research has shown that there is rarely much in the way of conse-
quences to attach to any successors or assignees. Judges approve lenient cor-
porate fines that undermine the legitimacy of corporate criminal liability,
and they take a hands-off approach to probation conditions that might re-
form a company. Meanwhile, prosecutors do not seek to impose maximum
finesor in many cases even minimum finesas calculated under sentenc-
ing guidelines. The guidelines can also be bypassed entirely through the use
of deferred prosecution and non-prosecution agreements. It is not clear that
companies receive these lenient fines as a real reward for meaningful coop-
eration, self-reporting, and compliance. If prosecutors offer leniency or drop
a criminal case regardless of whether a company actually self-reported and
had effective compliance, then companies have truly perverse incentives.
Critics argue that no firm should be treated as too big to jail and allowed
to avoid conviction with deferred prosecution and non-prosecution agree-
ments. Convictions are usually the appropriate resolution where a crime was
committed, but as I have described in this chapter, just convicting a company
is not enough if the fine is too lenient, repeat violations are disregarded, and
serious violators are not sufficiently incentivized to adopt meaningful struc-
tural reforms. In the next chapter, I turn to a tool prosecutors use to try to
ensure that a company has the supervision to properly reform itselfthe
corporate monitor.
7
Enter the Monitors
The mythological Greek hero Theseus sailed from Athens to the island of
Crete to slay the fabled Minotaur, who was half bull and half man. As the
Greek historian Plutarch told the tale, after Theseus returned from his ad-
ventures, Athenians preserved his ship as a monument: they took away the
old planks as they decayed, putting in new and stronger timber in their
place. The classic philosophical puzzle about this ship asked: if every plank
and piece of it was gradually replaced over time, was it still the Ship of The-
seus? This question generated much debate among the thinkers for which
Athens was famous. This ship became a standing example among the
philosophers . . . one side holding that the ship remained the same, and the
other contending that it was not the same.1
Like a ship made out of many planks, a corporation is a collection of people.
A company can be as immortal and as mutable as the Ship of Theseus; it can
change leadership, employees, headquarters, business models, and product
lines. It can be bought out, change its name, acquire new subsidiaries, or go
through bankruptcy. Prosecutors do not seek to reform the entire structure,
however, and the question they must ask is more practical than philosophi-
cal: how much change is enough to make it a company that will not commit
more crimes? Prosecutors usually lack expertise in overseeing such struc-
tural reforms, but they can bring in a specialist to supervise the process: a
corporate monitor.
Enter the Monitors 173
Siemenss New Leaf
Siemens is a study in corporate metamorphosis on a grand scale. As you may

recall from Chapter 1, Siemens is ranked in the Fortune Global 500 and
operates in more than 190 countries. It also pleaded guilty in 2008 to paying
billions of dollars in bribes to government officials around the world. The
plea agreement called for a new compliance program, and at the time, prose-
cutors lauded Siemens for uncommonly sweeping remedial action in which
the company committed itself to becoming a worldwide leader in respon-
sible corporate practices.2 How would Siemens do that?
The company replaced most of its top leadership, including its CEO,
chairman of the board, general counsel, and chief compliance officer. The
new CEO described how, within two years of his arrival, half of the top 100
managers were replaced.3 Siemens also hired more than 500 full-time com-
pliance staff around the world and a new chief audit officer with a staff of
450. New policies, handbooks, and training were adopted.4 Auditors from
PricewaterhouseCoopers were hired to create an anti-corruption tool kit.
Siemens stopped entering any new business consulting agreements until re-
views were conducted.
The plea agreement required four years of monitoring, and prosecutors
asked Siemens to retain not one but two corporate monitors. The lead moni-
tor, Dr. Theo Waigel, could not have been more prominent. Dr. Waigel had
been German minister of finance and was the first non-American monitor
appointed in a federal prosecution. An independent U.S. counsel was ap-
pointed to collaborate with and assist him.5 Dr. Waigel and Siemens would
forge a strong relationship, but as another high-profi le case shows, not all
prominent people work smoothly with the companies they are selected to
monitor.
The Bristol Monitor
Bristol-Myers Squibb, often referred to as BMS, is one of the largest phar-

maceutical and health care companies in the world, with billions of dollars in
sales each year. In 2005, BMS admitted to channel stuffing, or encouraging
wholesalers to buy extra product to make sales and earnings appear $1.5 bil-
lion higher.6 BMS was prosecuted in New Jersey, where its Medicines Group
174 Too Big to Jail
was based, for conspiracy to commit securities fraud. The company admitted
wrongdoing and entered a deferred prosecution agreement.
Two years later, this corporate giant was pronounced cured, with the U.S.
attorney for New Jersey announcing, We promised that federal oversight
would help to make Bristol a better company. The objective facts prove that
goal has been achieved.7 The prosecution agreement had come to an end.
What ensured BMS had good compliance by the time the agreement was
concluded? Changing corporate culture means more than just checking off the
boxes (training, check; code of conduct, check). But prosecutors cannot be on-
site for years evaluating a company, and neither can judges. The BMS agree-
ment was instead supervised by a former judge: retired U.S. district judge
Frederick B. Lacey. As the monitor, Judge Lacey announced a successful end to
the project, as BMS had undergone a remarkable transformation and now is
governed by the highest standards of integrity, ethics and accountability.
Yet in the same report, Judge Lacey noted it cannot be ignored that BMS
had just pleaded guilty to another crime, this time making false statements
to the Federal Trade Commission. BMS was forced to pay a $1 million fine
over marketing of its drug Plavix. Such was the transformation. But whether
BMS was a recidivist or not, federal oversight of the company would still come
to an end.
What Is a Monitor?
I was surprised at how rarely prosecutors required companies to hire moni-

tors to oversee the implementation of prosecution agreements. After all,
prosecutors do not typically impose the maximum fines, as discussed in the
last chapter, instead focusing on compliance as a goal. If both prosecutors
and judges lack the resources to supervise compliance, then insisting that the
company retain a monitor would make sense. Yet only 25 percent of the de-
ferred prosecution and non-prosecution agreements entered into between
2001 and 2012 required a monitor (65 of 255 agreements). There is no trend
over time toward imposing monitors more often, and if anything, a surge in
use of monitors in the period 20042007 was followed by a slight decline in
recent years, as Figure 7.1 illustrates.
The Department of Justice says that its test for whether to hire a monitor
is whether the company lacks an effective internal compliance program, or
where it needs to establish necessary internal controls.8 Since almost all cor-
porate prosecution agreements require new compliance measures, presum-
ably because previous ones were lacking, one would think a monitor is often
appropriate. Instead, compliance is usually unsupervised, and companies
simply file reports with prosecutors or a separate regulatory agency.
What is a monitor, exactly? The agreements that do require their use in-
clude all sorts of different terms: independent monitor, independent examiner,
independent consultant, or possibly corporate compliance monitor, compliance
consultant, or special compliance officer. Perhaps it is called an outside consul-
tant.9 What they have in common is they are outsiders, not employees, and
they are hired to investigate, make recommendations, and report back to the
company and to prosecutors.
The monitor is a third party and an independent actor.10 Although the
monitor may be a lawyer, the corporation is not hiring someone to give it
legal advice or representation. Although paid by the company, the monitor
does not work for it or for the prosecutors. The monitors job is to make sure
the corporation has a solid compliance program in place and that crimes are
no longer committed. In its brief guidelines on using corporate monitors, the
Department of Justice says that this person must assess and monitor a corpo-
rations compliance.11 A company that already has a very good compliance
50
45
40
35
30
25
20
15
10
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of Cases with Number of Deferred and Non-Prosecution

Corporate Monitors Agreements
Figure 7.1 Corporate Monitors and Deferred Prosecution or

Non-Prosecution Agreements, 20012012
176 Too Big to Jail
program does not need the expertise of a monitor, nor does a company that
has closed down its operations. But when prosecutors conclude a company
needs to improve its compliance and cannot do it alone, they should demand
that the company hire a monitor. As of now, we have very little information
about how this important task should be handled, as monitors do not make
their work public or report to judges. What is clear is that monitors are
highly paid, have ill-defined roles, and are chosen by prosecutors with little
oversight.
Structural Reform Litigation
The idea of having an independent monitor is not new. One of the first de-
ferred prosecution agreements, with Prudential Securities in 1994, required
a monitor. In other types of cases, prosecutors may ask that the court ap-
point a special master or trustee to supervise a consent decree. As law profes-
sor James Jacobs has described, prosecutors in the 1980s began using the
RICO anti-racketeering statute to reform unions infiltrated by organized
crime. They settled the cases in consent decrees overseen by judges, who often
appointed trustees to temporarily take over entire unions.12 In the biggest
union consent decree of them all, a federal court described how three special
masters oversaw reforms at the International Brotherhood of Teamsters over
many years, though they faced incessant attacks against their authority.13
Prosecutors and other government agencies may also impose monitors when
they bring civil actions to reform government institutions.
Structural reform litigation is the term lawyers use to describe cases, usually
civil rights cases, in which the goal is to reform organizations with systemic
problems.14 There is a long history of this type of litigation, including the real
need for structural reform in the wake of the Supreme Courts decision in
Brown v. Board of Education as federal courts struggled to oversee the racial
desegregation of schools. Desegregation cases became a prototype for the
judiciarys new supervisory role, and in the 1970s, parties brought litigation
to reform hospitals, police departments, prisons, public housing, and special
education facilities.
In a famous article, law professor Abram Chayes described the role of the
judge as fundamentally different in a structural reform case than in a tradi-
tional civil case in which private parties settle disputes. Such a judge super-
vises litigation in which masters, experts, and oversight personnel monitor

a complex, on-going regime of performance.15 Structural reform litigation
can involve lengthy judicial supervision. After all, it can take time to create
safe conditions at a prison, desegregate an entire school system, or eradicate
the influence of organized crime at a labor union. In the classic model, judges
serve the public interest by acting as an impartial power broker in an ongoing
bargaining process between citizens and government. Judges appoint experts
(typically called special masters) to supervise these complicated cases, and
they may ask for detailed reports and updates over many years.
Structural reform litigation can be quite controversial. There are major
public disputes about the costs and the wisdom of reducing prison overcrowd-
ing, using busing to integrate schools, or ordering police to change their prac-
tices. The Supreme Court developed a body of law to regulate when judges
may change the terms of an agreement as a result of changed conditions or
unforeseen difficulties.16 Some view those decisions as far too restrictive of
civil rights, but structural reform litigation is still common.
In a range of areas, best practices have emerged over time that help judges
to use a defined set of effective remedies.17 Yet in corporate prosecutions,
prosecutors have ignored these hard lessons. Corporate monitors typically
do not report to any judge, only to prosecutors. Their work occurs out of the
public eye; few monitor reports have ever been made public.18 There is no ef-
fort to test and evaluate best practices over time. Complicated methods for
selecting and overseeing corporate monitors could be made simplea judge
should decide if a monitor is needed, approve the monitors selection, and
supervise with input from all of the parties. Federal prosecutors have been
allergic to involving judges in supervising corporate prosecutions, but corpo-
rate prosecutions are too important to proceed without their oversight.
When Monitors Are Appointed
As noted, there were monitors in one-quarter of the deferred prosecution

and non-prosecution agreements examined, most commonly in cases involv-
ing securities fraud or violations of the Foreign Corrupt Practices Act
(twenty-three monitors each). FCPA and securities fraud cases were often
handled in conjunction with the Securities and Exchange Commission,
which itself began to impose monitors in its civil cases. Prosecutors appoint
178 Too Big to Jail
monitors quite unevenly, with results varying by the type of prosecution and
the prosecutors office. In some years few monitors are appointed, while in
some years there are double-digit numbers. These erratic numbers may be
due to variations in how many securities fraud and FCPA cases are resolved
in a given year, but this does not explain why agreements in so many other
types of cases lack any kind of monitor.
In contrast, judges in large corporate convictions commonly appoint mon-
itors or special masters, particularly in environmental and foreign bribery
cases.19 The prosecutors at the Environment and Natural Resources Divi-
sion have made it a standard requirement. The available plea agreements
and press releases show that of more than 2,000 corporate convictions from
2001 to 2012, at least 110 had a monitor or special master reporting to the
judge, and as I will describe, judicial oversight can strengthen the monitor
system.
Who Picks the Monitor?
Corporate monitors can exercise vast powers, including extensive supervi-

sory and monitoring responsibilities over a large company such as Bristol-
Myers Squibb. These are plum positions and can pay very well, making the
selection process important. Unfortunately, there is no standard process.
Most common are joint processes that allow the company, some say, but give
prosecutors final discretion in making the appointment; some version of this
was used in forty cases. In other agreements, practices varied; the company
chose five monitors, prosecutors chose fourteen, regulators chose one, pros-
ecutors and regulators together chose four, and judges chose only one (and
were involved in choosing a total of three.)20 Regulators were involved in
some manner in eight selections. The DOJ says there is no one method to
select monitors, and the data reflect this.
This makes no sense, and as I will describe, prosecutors have faced charges
of nepotism or cronyism regarding their role in picking monitors. The names
of eleven monitors have not even been made public, and some companies
have declined to disclose their identity. With prosecutors picking so many
monitors, perhaps it is no surprise that over half of those we know of were
former prosecutors (at least thirty-eight). Maybe they were the best for the
job, but there is the concern that these lucrative positions are being given to
members of a club of former prosecutors.21 As in traditional structural re-

form cases, judges should help select and supervise the monitors.
Where Were the Lawyers?
Federal judge Stanley Sporkin famously asked in a savings and loan scandal
case, Where were these professionals. . . . Where were the . . . attorneys
when these transactions were effectuated?22 Perhaps if lawyers had inter-
vened at the time, prosecutors and corporate monitors would not have had to
intervene later. Was Judge Sporkin suggesting that lawyers should have
turned in their clients? Lawyers have long thought of their role as that of
advocates who must vigorously defend their clients to the hilt and keep their
work and discussions privileged and confidential. However, they increasingly
have a new role as gatekeepersraising new questions about what they are
supposed to do when misconduct comes to light.
Companies have increased incentives to hire outside lawyers to conduct
internal investigations, even before there is a prosecution. This involves not
defending the company but rather investigating wrongdoing.23 The Enron
scandal changed the role of corporate lawyers, as not only did the Enron ac-
countants fail to detect wrongdoing but so did the legal department. As Sen.
Jon Corzine put it at the time, When executives and accountants have been
engaged in wrongdoing, there have been some other folks at the scene of the
crimeand generally they are lawyers.24 Of course, one reason corpora-
tions and executives may argue they should not be prosecuted is that they
asked lawyers all along whether they were doing anything wrong and were
told their behavior was legal. Advice from lawyers may be used as a defense
in corporate prosecutions. Perhaps the lawyers in these cases were trying to
cultivate and please their clients. Maybe the law was vague. Both may have
been true.
In the wake of the Enron scandal, the American Bar Association con-
vened a task force that recommended changes to the traditional approach
where lawyers must keep a clients information in confidence, namely, by
changing the concept of who the client is. Is senior management the client, or
is there a broader duty to the shareholders to prevent harm to the company?
The association included a new recommendation that lawyers report confi-
dences to prevent corporate fraud from happening, and if it does happen,
180 Too Big to Jail
requiring lawyers to report misconduct up the ladder to senior manage-

ment.25 Congress included that change in the Sarbanes-Oxley Act and also
asked the SEC to develop new rules requiring lawyers who learn of miscon-
duct to report it to the CEO or chief legal counsel. If neither of these indi-
viduals responds appropriately, lawyers must then go to a separate audit
committee, some other committee of independent directors, or the board of
directors.26 The audit committee and independent directors themselves take
on a new role to respond to misconduct, and the lawyers serve as gatekeepers
who have an obligation to protect the company.27
As a result, firms commonly conduct internal investigations on their own,
even before criminal prosecutions occur. It is simply good management to
find out whether there is a problem and solve it before it becomes more seri-
ous, although an investigation may be mishandled, as the Andersen engage-
ment team did. In addition, an audit committee may hire outside lawyers to
conduct an independent investigation. Often a lawyer leads the investiga-
tion, allowing protection of confidentiality via attorney-client privilege and
work product rules. Since the firms legal rights and liabilities may be at is-
sue, a lawyer can provide legal advice. That said, other types of specialists
with more expertise and a broader focus can be important to investigations.
Outside lawyers may also be brought in, although people inside the firm may
not readily trust them.
Meanwhile, the internal investigator has to figure out the goal of the proj-
ect. The first question to ask is whom one is investigating for. Is it a manage-
ment team? Is it the board of directors, or the CEO, or the general counsel?
Investigators will try to assemble documents and interview employees to get
to the bottom of what happened, knowing all the while that the record they
create may be eagerly sought after by regulators, prosecutors, and others.28
An internal investigation may cost millions, more than entire public de-
fender systems or government enforcement budgets. In 2011, Avon Products
spent $93.3 million to investigate potential FCPA violations, which was ac-
tually less than the $95 million it spent the year before.29 Siemens paid $1.6
billion in fines, as described, but also spent over $950 million to conduct its
global investigationan amount that was almost triple the $324 million
annual budget of the SECs enforcement division when the case was resolved
in December 2008.30 In another FCPA case, Daimler apparently paid at
least $500 million for a five-year internal investigation.31 Some companies
retain independent lawyers to oversee compliance efforts and may avoid the
imposition of a corporate monitor by doing so.
Lawyers may also be held accountable if they became part of the criminal
scheme rather than merely giving advice to the corporation on what the law
required. Recall that in the tax shelter prosecutions, lawyers had given opin-
ions that the different tax shelters were legal. The law firm of Jenkins &
Gilchrist was prosecuted, signed a non-prosecution agreement, paid a $76
million fine to the IRS, and eventually closed its doors as a result.32
After an investigation, a company may improve compliance on its own to
make sure problems do not recur. Quite a few deferred prosecution and
non-prosecution agreements recognize that the company has already brought
in outsiders to conduct audits and supervise improved compliance. Some
agreements required the company to retain compliance officers or profes-
sionals (27 of 255 agreements) or create new positions internally (88 of 255
agreements), though these lack the independence or oversight of an inde-
pendent monitor.
Structural Change
Returning to the Bristol-Myers Squibb case, major changes had already been
made before prosecutors entered the picture. BMS had replaced both its
chief financial officer and the president of its Worldwide Medicines Group,
as well as creating a new chief compliance officer and hiring a new lawyer spe-
cializing in securities law. The company changed its budget process, created a
new management group to focus on risk and disclosure, and adopted new
training and internal controls. It created a confidential hotline and email so
that BMS employees could tell higher-ups of any concerns about channel
stuffing or anything having to do with integrity of the financial disclosures
or books and records.33
As monitor at BMS, Judge Lacey would be independent and not the at-
torney for the corporation, though the corporation would pay him. He would
send quarterly reports to prosecutors and keep the SEC informed. The
agreement called for BMS to adopt detailed changes to its practices, and the
monitor would make sure that each was carefully implemented. The moni-
tor would have the power to require BMS to take any steps he believes are
necessary to comply with the agreement, though BMS could object to a
182 Too Big to Jail
recommendation by the monitor, and if prosecutors agreed, the company

need not follow it.34
Judge Lacey had quite a task ahead of him. Prosecutors described how
BMS promoted a corporate culture in which meeting or exceeding company
budget targets and the consensus estimates was considered mandatory. For
example, BMS had announced a Mega-Double goal, a plan to double year-
end 2000 sales and earnings by the end of 2005.35 While the company was
required to file quarterly reports with the SEC containing information about
sales and earnings, when it was asked about these earnings, executives at Bris-
tol said nothing was wrong. At an April 2001 conference call, a market ana-
lyst asked about wholesaler inventory levels, which we now know were artifi-
cially inflated. An executive responded, There are no unusual items that we
see. Similarly, in 2000, an executive told an analyst, I dont think there was
any significant wholesaler inventory activity.36 Meanwhile, executives were
sending emails saying things like We need to make our May target!
In 2001, BMS came clean and restated its earnings. It later agreed to pay
an additional $300 million in restitution to victims of the fraud scheme,
along with a $100 million civil penalty, $50 million for a fund to sharehold-
ers, and a $300 million settlement of class actions by shareholders.37 BMS
was to have a meeting for senior executives where prosecutors would describe
the goals of the agreement. A new director would be appointedwith the
agreement of the U.S. Attorneys Officewhose job it would be to foster a
culture of openness, accountability and compliance throughout the Com-
pany.38 Most surprising was that BMS agreed to endow a chair at Seton Hall
University Law School for teaching business ethics.
The monitor attended board meetings, wrote quarterly progress reports,
and oversaw implementation of a new compliance program. We do not know
how effective that work was, since, as is typical, none of it was made public. But
we do know that new wrongdoing came to light, this time related to Plavix, a
top-selling medication. In 2006, BMS apparently tried to keep a competing
generic version off the market, and the DOJ opened an antitrust investigation.
This issue had nothing to do with the accounting troubles that had prompted
the deferred prosecution agreement, so was it a violation of that agreement?
Should the monitor have been able to prevent this conduct? The agreement
said BMS was obligated to notify prosecutors of any credible evidence of
criminal conduct. Furthermore, the agreement said BMS would cooperate
by not engaging in or attempting to engage in any such crimes. A breach

could result in the companys prosecution.39
The monitor apparently told the board to fire the CEO, and it did, along
with the general counsel. The press reported that the stock price went up
when this was announced.40 The monitor did not speak publicly about any of
this, and while his reports were kept private, the executive summary of his
final report was released when the agreement ended in 2007. This summary
was short and self-congratulatory, citing improvements in the budget process,
an environment that embraces openness and transparency, and an out-
standing global compliance program among other things. As for the new
crime, the monitor called it unfortunate but said that the response to it, in-
cluding a prompt internal investigation and cooperation, show how BMS
has changed for the better. In its quarterly report to the SEC, BMS said the
monitor did not think anything more needed to be done and that the new
problem was fully remediated. 41
Perhaps, like the Ship of Theseus, one could argue this was a new company.
But we do not know the details of what the monitor did or what changes were
actually made. This was not like a structural reform project supervised by a
sitting judge, and it was not like the Ship of Theseus, rebuilt in public by the
citizenry. Whatever changes were made to this company occurred privately.
Siemenss Monitor
Dr. Theo Waigel, the former German finance minister appointed to monitor
Siemens, told me in an interview that his first question when approached
about the position was whether the job would require a great deal of time.
There had not been monitors appointed in Germany before; corporate crim-
inal liability does not exist in Germany, so this was not a role that anyone in
the country was accustomed to. Dr. Waigel had the impression that the posi-
tion would involve some travel but that he might continue his law practice
and other work. He was mistaken.42
The Siemens monitor had to supervise compliance efforts on a grander
scale than perhaps any of his counterparts before or since. The agreement
called for the appointment of a corporate monitor for four years and a sepa-
rate American lawyer to help monitor FCPA compliance.43 Dr. Waigel re-
called that the work required about two-thirds of his time over those four
184 Too Big to Jail
years. It was not enough to simply review documents, although there were
tens of thousands to review. He had to visit twenty countries around the
world, some of them multiple times, and travel to nearly every continent.
There would be multiple visits each year to the United States to speak with
prosecutors, and meetings with more than 1,500 people in total.
Despite the enormous size of the job, Dr. Waigel fondly recalled the work
as an exciting experience and a highlight of my life. Upon accepting the
position, the first thing that he wanted to make clear was the importance of
his independence. He had had no business contact with Siemens before ac-
cepting the position, and he told both Siemens and the federal prosecutors
that he would be absolutely independent. If he felt that he could not satis-
factorily do the work, then he would quit at once.
Upon beginning his work, a new team had to be assembled. There was a
project team with employees from Siemens, all experienced in its operations;
the lawyers at the U.S. firm serving as the independent consultant; and those
Dr. Waigel brought from his law firm. The monitor had to spend several
weeks familiarizing himself with the scope and structure of Siemenss global
operations. It was necessary to have complete access to all of the documents
concerning compliance, financial controls, and internal audits to understand
how the system worked and how it could be improved. Tellingly, as monitor,
Dr. Waigel did not do all of his work off-site. He recalled he had the best
office at Siemens, one not in the background but just past the main en-
trance to the headquarters. This made it clear at the outset that the monitor
literally had an important place at the company.
The Work of the Monitor
Dr. Waigel recalled the best single sentence he heard anyone utter in his four
years as monitor: the new CEO told employees, Only clean business is Sie-
mens business. Tone from the top can be very important in changing an
organization. However, that tone must also translate to real change further
down the chain of command. Far more important than a new code of conduct
was making sure rules were effectively implemented across Siemenss sprawl-
ing global operations. The company speaks of continuous improvement since
then and how compliance has been built into all of its operations, reflecting
a zero tolerance policy toward corruption.44 Detailed guidelines were ad-
opted for business conduct and the conduct of business partners. Siemens
created new due diligence programs for gifts and hospitality and began a
new program of risk analysis to detect compliance problems.45 Systems were
put into place to catch corruption, including new requirements that transac-
tions be documented and approved.
Dr. Waigel recalls that his first report as monitor included more than a
hundred recommendations and that Siemens accepted all of them. In the
second year, he made a little more than thirty recommendations. In the third
year there were just nine or ten. Each time, all of the recommendations
were accepted. Dr. Waigels counterpart in the United States, Joseph Warin,
described a seismic change at Siemens during those years.46
To reach employees around the world, Siemens held trainings and sur-
veyed tens of thousands about their understanding of compliance at the com-
pany. Siemens used risk-based internal audits to assess possible trouble
areas. Roundtable discussions with midlevel managers were held, without
supervisors present, to discuss the rules and practices. Help lines to report
misconduct were tested by placing mock complaints and assessing the re-
sponse. And the monitor team would sit in on planning meetings, human
resources meetings, and other management meetings to be sure that mid-
level managers really understood the rules. In its annual report to investors
in 2011, it included a report from the monitor and examined how well the
new compliance program might work in the long term. The monitor certified
that the compliance program was reasonably designed but also suggested
improvements.47
To test whether compliance is working, especially with the danger of mis-
conduct such as bribery in far-flung global operations, several techniques are
used. Warin described those used to audit compliance across Siemenss com-
plex operations. Random sampling involves carefully analyzing ten or twelve
transactions from each area of business for any improper payments. If the
transaction involved business development expenses, one can go on-site and
question the chief salesperson, examine expense reports, and review records
line by line. Risk-based analysis can be used to select particular countries or
areas to focus the random spot-checking.
More than 600 Siemens employees all over the world currently do com-
pliance work; the number was once fewer than fifty. Particularly important,
Dr. Waigel recalled, was that compliance work is not seen as the end of a
186 Too Big to Jail
career but a useful part of it. Indeed, one head of compliance was chosen to
run all of Siemenss operations in Indonesia. A new disciplinary committee
was created and new employees were added at levels ranging from the man-
aging board to local disciplinary committees. Different offices would also
think of their own practices to improve compliance for their employees. For
example, employees in Turkey would be given a daily quiz with a compliance-
related question before they could log on to their computers.
A particularly important challenge came during the Arab Spring unrest
in the Middle East, where Dr. Waigel had an opportunity to see a compli-
cated ethical situation firsthand. Siemens could use only one bank in Egypt
at that time, but the firm had to continue its work. He wondered, How is it
possible in such situations to have compliance, to have no secret accounts, to
work with cash? Dr. Waigel recalled how compliance personnel followed
the events carefully, made sure the work was transparent, and ensured care-
ful compliance during a difficult situation.
Reflecting on this work, Dr. Waigel commented that he was very proud
of what had been accomplished. The work was not only extensive but as in-
teresting as being finance minister. Most important, he concluded, I can
give a certification that Siemens is working well, that Siemens has an excellent
compliance system and an impressive tone from the top. He noted that in
such a large company, with 400,000 employees, uncovering occasional new
violations would be inevitable, but what was impressive was that Siemens
reacted at once to any problems and did so effectively. Dr. Waigel added, I
can say at the end of my work, there is no systemic risk. Similarly, the CEO
similarly commented in a speech, Last year, incidents in Brazil and in Kuwait
required rigorous enforcement. And we acted accordingly. 48
Corporate Czars?
With few monitors publicly describing their work, critics have had to specu-
late about whether corporate monitors have too much power or use it un-
wisely. Some have called monitors corporate czars, while others describe an
independent outsider as essential if a corporation is to build a culture of eth-
ics.49 Others question whether monitors serve long enough to effect signifi-
cant change, or whether they might bill excessive fees to a corporation that
has no choice but to pay. Some of the more recent corporate prosecution
agreements include more specifics for how the process will work, instructing
monitors to come up with a work plan, describing the steps reasonably
necessary to conduct a review, and asking the company and prosecutors to
comment on the plan before it is carried out.50 Such frameworks are sensible
if they do not unduly narrow the scope of the monitors work. But apart from
statements in the agreements themselves, we know little about the work of
monitors unless a dispute spills into public sight.
We do know that corporate monitors are expensive. The Government Ac-
countability Office has described how some monitors charge rates from $290
to $895 per hour, which is typical for senior lawyers, but also have a total cost
per month ranging from $8,000 to $2.1 million, as it is not just the monitor
being hired but an entire team of lawyers and investigators.51 Some corpora-
tions have included monitor costs in their SEC filings. The Willbros company
reported that its monitor cost more than $8 million over two years.52 Faro
Corporation reported paying its monitor $1 million in one quarter, about the
same amount as its fine for FCPA violations.53 The AIG monitor was report-
edly paid over $20 million from 2005 to 2009, after the company was prose-
cuted for securities fraud. (Of course, AIG approached bankruptcy during
that time and received a federal bailout in 2008 after making risky bets in
subprime mortgage securities, an area unrelated to the monitors specific as-
signment.)54 One judge said at a hearing regarding a corporate guilty plea
that its an outrage, that people get $50 million to be a monitor . . . Its a
boondoggle.55 Such costs may be relatively small given the leniency compa-
nies receive in exchange for adopting compliance reforms, but there is too
little information to judge if the money is being spent wisely.
Cronyism?
Corporate monitors became national news in 2008, but not because of their
work or the nature of a particular corporate crime. A prosecutor in the U.S.
Attorneys Office in New Jersey received an email from a lawyer at Zimmer,
a company that would soon be under supervision, about a potential issue with
[our] monitor. The email, which would later become politically explosive, did
not mince words: I have to tell you that I was shocked by the proposed fee
agreement. The agreement would require Zimmer to pay a monthly flat fee of
$270,000 for the monitor and two additional executives, plus further costs
188 Too Big to Jail
in hourly pay for others on their staff. Even at hourly rates of $1,000, this
would mean working 750 hours per month for 18 months. I seriously doubt
that such a level of effort will ever be required in this matter. With a flat fee,
Zimmer would be expected to pay the bill with no questions asked. Zim-
mers lawyer added, It also strikes me as highly ironic that the Monitor
would be trying to avoid the type of transparency that it will be insisting on
in Zimmers relationships with other consultants.56
The monitor was to review payments to consultants in the artificial hip
and knee joint replacement industry. Zimmer was one of five companies that
collectively held over 94 percent of this market, and all five entered deferred
prosecution agreements with the U.S. attorney of New Jersey in 2007. An
indictment or conviction might have led to disbarment from participating in
Medicare, which funds most hip and knee replacement procedures, meaning
the companies likely would have gone out of business.
The U.S. attorney would later say that negotiating these agreements was
akin to landing five airplanes on the same runway at the same time.57 We
rarely hear anything about how deferred prosecution agreements are negoti-
ated, but these particular negotiations would be described in hearings before
a U.S. House of Representatives subcommittee. The U.S. attorney later re-
called that the negotiations went on for four and a half months:
We went through nearly a dozen drafts of that agreement which

meant 60 copies of it because each was times five, with different
negotiation requests. These were incredibly contentious negoti-
ations that literally, sir, were not resolved until 9 a.m. on the
morning that we announced these agreements at 11 a.m., is
when the last issues were resolved.58
After all, this was an $80 billion industry, and each of these five companies
was a competitor to the others. The U.S. attorney recalled always being
asked, Is everybody agreeing to exactly the same thing . . . because if they
are not, I am not signing.59
The negotiations over the fees charged by the monitor would not last so
long. The total charges might be $1.5 to $2.9 million per month. In his email,
the lawyer for the company concluded: At bottom, what we have here is a
demand by the Monitor that Zimmer automatically transfer to it $13.5 mil-
lion dollars . . . no matter how much or how little work they actually do. 60
The monitors team responded that they had substantial responsibilities
and had already been doing a great deal of work without an agreement for
twenty-five days. They were uncertain as to the issues that will be uncov-
ered, so a flat fee was needed.61 Ultimately, the U.S. attorney declined to
intervene in the billing dispute, telling the sides to take another stab at re-
solving the matter.62
Who might command this kind of payment? The U.S. attorney had rec-
ommended a monitor for each firm, and each company accepted the proposed
name.63 Zimmer apparently wanted someone with Midwestern sensibilities,
and they received John Ashcroft, former U.S. senator from Missouri and for-
mer U.S. attorney general.64
The U.S. attorney in New Jersey who had proposed that Ashcroft take the
job was Chris Christie, who had previously worked for Ashcroft at the De-
partment of Justice. Ashcroft was called to testify before Congress, and in
his brief testimony, he was asked whether there was anything wrong with an
employee hiring their former boss. He responded by saying, There is not a
conflict. There is not an appearance of a conflict. 65 The morning of those
hearings, the DOJ announced new guidelines for the selection of corporate
monitors, perhaps to head off further congressional scrutiny. (I testified at
that hearing, but I was not in the hot seat.)
At the hearing, representatives repeatedly pressed Ashcroft about the
money he charged as monitor. Records showed billings of more than $7.5
million for the first five months of the monitorship, with a fixed monthly bill
of $750,000 and hourly billing for additional team members.66 Ashcroft ex-
plained that the case involved an unusually complex job for the monitors, as
this investigation involves an entire industry, meaning that each of the
monitors has an additional responsibility of not only investigating their own
companies, but also assisting in the investigations of the other orthopedic
manufacturers and providers. 67
When it was pointed out that other monitors provided itemized billing
for their work, rather than demanding a fixed fee, Ashcroft responded: We
believe that the quality of the services is the important point and that we have
agreed and provided information about our fees in advance. 68 Some legisla-
tors called Ashcrofts deal a no-bid contract. They asked him to supply doc-
umentation of his billing, which he agreed to provide.69 One congressman
190 Too Big to Jail
commented: In the Zimmer case, it is my understanding that Mr. Ashcrofts

firm was paid $52 million. To me, that is outrageous. I dont care what you
did. It is not worth $52 million. Even if you took steroids and hit 70 home
runs, it is not worth $52 million.70
In response to the outcry, the Justice Department changed the rules to
require central review of the hiring of corporate monitors. New guidelines
required any monitor to be approved by both a separate standing committee
in each U.S. Attorneys Office and the Office of the Deputy Attorney Gen-
eral at the Justice Department. Conflict-of-interest rules were to be carefully
followed to avoid not just actual conflicts but also the appearance of them, as
well as to ensure that each monitor was highly qualified and respected. 71
The new rules added that three candidates should be selected, giving the
company the ability to choose between them.72 Some thought the result was
that fewer monitors would be appointed, but monitors continue to be used as
before, particularly in environmental, FCPA, and fraud cases. But even after
the rule change, there remains no requirement for independent judicial re-
view over the decision to require a monitor, the monitors selection, the mon-
itors fees, or the work the monitor does.
Missing Monitors
Why do so many cases lack monitors? I am far less concerned with how
much monitors are paid when actually used, given that the fees can be small
compared to criminal fines. This is true even when those fines are substan-
tially reduced in exchange for implementing compliance reforms. In the case
of Sirchie Acquisitions, the company was even allowed to directly deduct
costs of monitoring from its fine. The primary concern is whether monitors
actually enact the meaningful reforms they are paid to oversee, and if so, why
they are appointed so rarely.
In some cases, it is understandable there was no monitor, as the company
hired someone else to supervise compliance. In over one-third of agreements
(86 of 255), companies were required to create new positions to supervise the
compliance program. However, those are employees of the company, not
someone independent. In thirteen other cases, prosecutors required outside
auditors or experts, but ones without the sweeping power of a monitor. They
audited a specific area and did not report directly to prosecutors.
Often, prosecutors seemed satisfied that a company was adopting com-

pliance on its own. A large number of cases cited compliance already per-
formed by the corporation before prosecutors entered the agreement. The
vast majority of companies hired auditors, accountants, and outside law
firms, or they created new compliance officer positions. Of the more than
2,000 companies convicted since 2001, docket sheets and plea agreements
indicate that more than 110 involved monitors. Those monitors report to a
judge, not just to prosecutors. If a monitor reporting to a judge uncovers non-
compliance or new violations, then the judge can sanction the company.
It is not only prosecutors who appoint monitors. Some regulators also use
monitors to supervise corporations in civil enforcement proceedings. The
Securities and Exchange Commission began doing this more often over the
past decade, perhaps taking a cue from the Justice Department. The Envi-
ronmental Protection Agency often requires corporations to retain monitors
in environmental cases. And the Office of Inspector General at the Depart-
ment of Health and Human Services requires monitors to supervise health
care fraud cases, usually civil ones. Maybe regulators feel particularly comfort-
able supervising monitors since the regulators frequently oversee compliance.
To be sure, some cases involved misconduct a monitor might not be able
to help fix. But it is very hard to see what is so different about the sixty-five
deferred prosecution agreements or the more than 110 convictions that in-
cluded monitors. Even where the company voluntarily creates new positions,
those people could report to prosecutors and to the court. The lax approach
toward monitoring suggests a need to require more judicial involvement in
supervising prosecution agreements.
Improving Monitor Effectiveness
Our new corporate prosecution system works only if the tandem of carrot
and stickless punishment for more reformresults in changes that actu-
ally prevent future crimes. We do not know how successful these compliance
programs really are or how well the monitors supervise them. Corporations
may be getting off the hook based on adopting paper reforms, or cosmetic
compliance, that is not tested or implemented carefully. Monitors do every-
thing from hands-off reviewing of paperwork to hands-on supervision of
structural reforms. Unlike in criminal convictions or civil consent decrees,
192 Too Big to Jail
no judge reviews what the monitor is doing or whether the corporation actu-
ally complies.
The Government Accountability Office found that monitors were rarely
required to provide a work plan detailing the steps they would take, some-
thing a judge could insist on.73 Monitors are typically supposed to provide
periodic written reports both to the company and to prosecutors, detailing
what the monitor has been doing, company efforts to improve compliance,
and whether additional measures are needed.74 If judges supervise monitors,
these reports could also be made public, at least in part.
Judges could step in when there is a breakdown. The DOJ guidelines sug-
gest that monitors should tell the government if the company is not adopt-
ing recommendations within a reasonable time. They should also report
any new misconduct uncovered if the allegations are credible. Furthermore,
the DOJ recommends extending agreements if the monitor cannot com-
plete the job in time.75 A judge might play a far more independent role in
resolving disputes over monitor pay, the scope of the monitors work, new
crimes uncovered, or any other area of contention. A judge could make the
final decision about whether the monitors work is done and the agreement
can end.
Within DOJ, the environmental crimes group has long asked for judges
to approve court-appointed monitors to supervise environmental compli-
ance; most of the convicted companies that had monitors were in environ-
mental cases.76 Many such plea agreements require monitors to make reports
both to the judge and to the probation office.77 Sometimes the monitor may
recommend that the judge order an early end to the supervision if the com-
pany completed its work. In the Kassian Navigation case, the court-appointed
monitor and the independent compliance consultant both recommended to
the judge that probation be ended early, and the judge agreed, resulting in
the first ruling of its kind in a prosecution for ocean dumping from a com-
mercial ship.78
It is hard to understand why the Justice Department has avoided follow-
ing a similar judge-supervised process in some of its highest-profile cases.
The DOJ told Congress that it is looking into performance measures, but it
is not at all clear how well monitors are performing or how compliance is
supervised where they are not required.
Cured?
Even after it arguably breached its deferred prosecution agreement, Bristol-

Myers Squibb was declared cured. Do all recidivists receive such lenient con-
sequences? Wright Medical Group was accused of breaching a deferred
prosecution agreement with the U.S. attorney in New Jersey, which included
a $7.9 million fine and a year of corporate monitoring. Despite this, the com-
pany reported that its general counsel and other executives left without
good reason and that its board received a tip leading to an investigation that
uncovered credible evidence of serious wrongdoing.79 The prosecutors con-
cluded the company had knowingly and willfully breached the deferred
prosecution agreement. What was the punishment? The prosecutors said
they were pleased with the firms new interim management, and they sim-
ply extended the deferred prosecution another year to allow for more over-
sight by the federal monitor. Alls well that ends well.
This situation highlights the need to change corporate monitoring by re-
quiring a judge to supervise its implementation. We do not know if monitors
can effectively reform an entire company in just a few years, and the public
should learn more about what the monitor actually does. Having a judge
more involved is by no means a cure-all; we have seen some judges reluctant
to supervise any deferred prosecutions, though others have been more active
and demanded more information from both companies and the government
alike. However, a judge is ideally impartial and independentlike a moni-
tor. The complexity of structural reform and the importance of these cases to
the public mean that judges must be involved in some manner. Even without
new legislation, judges can insist that a deferred prosecution agreement on their
docket means that they will supervise compliance. Judges should demand to
approve monitors, supervise compliance, and decide whether an agreement was
successfully concluded. This will ultimately benefit prosecutors and strengthen
structural reforms by placing the authority of the judge behind them.
Compliance as Good Business
One company alone isnt able to make a better world, Dr. Waigel notes. If
judges make public more of what monitors do, then other companies can
learn from success stories. Siemens decided to try to use the force of its own
194 Too Big to Jail
example by entering a new kind of agreement with competitorsnot the

sort that would raise antitrust issues, but a different type aimed at promot-
ing ethical business practices. Siemens has entered into quite a few such in-
tegrity pacts with other companies, including in China and Russia, follow-
ing an idea developed by Transparency International.80
Some companies may have been skeptical that Siemens, having just been
caught and punished in a massive criminal case, was in a position to promote
ethics. Yet Siemens has been persistent, acting like a religious proselytizer in
pursuing agreements between companies with a common government cus-
tomer to abide by ethical standards and practices. Siemens says that if em-
ployees violate the rules, the company will put a stop to it, and if Siemens
hears about a competitors employees violating the rules, it will let the com-
petitor know right away. It plans to intensify interaction with outside stake-
holders to combat corruption and promote responsible business practices; in-
cluded in such collective actions are agreements among competitors to
follow the rules. Siemens promotes industry-wide codes of conduct and
reaches out to government integrity offices around the world to support anti-
corruption efforts. U.S. monitor Joseph Warin recalled speaking to govern-
ment regulators about these agreements, including officials in Egypt, India,
and Russia, and finding them all to be very enthusiastic.
Siemens lauds the FCPA and similar anti-corruption laws, saying the
concept of a level playing field began with the FCPA, and since clean busi-
ness is necessary for free enterprise, anti-corruption laws will help every-
one. Siemenss new CEO noted, Clearly, we have learned a lesson regarding
business integrity. He described how compliance must be inherent in a
companys values and asserted that today Siemens is a role model.81
Siemens is also a role model in another way. Some ask whether complying
with anti-bribery laws means losing business to less ethical competitors. The
German business community had been skeptical that it was possible to work
in the developing world without bribes, and some in the United States have
expressed similar skepticism. Siemens answered this in the only way a busi-
ness can: its earnings have risen since it adopted rigorous compliance mea-
sures. At his 2012 annual speech to shareholders, the CEO highlighted an
excellent year and noted how value-based culture is especially important to
us in times when markets are volatile and trust in government institutions
and authorities is diminished. The CEO cited a top score in the Dow Jones
compliance category, specifically hailing the monitor: Dr. Waigel, you de-
serve much of the credit for the fact that Siemens today is a role model of
integrity. We extend our sincere gratitude to you.82
Making real compliance a valued part of Siemens culture has apparently
been good for its business. Making compliance more valued, through the rig-
orous use of monitors and judicial supervision, would be good for corporate
prosecutions.
8
The Constitutional Rights of Corporations
Liquid mercury might seem as though it would be interesting to play with,

since it looks like silver but accumulates into pools and scatters into little
balls. This characteristic has given it another popular name, quicksilver. But
liquid mercury, which evaporates rapidly and has no detectable odor, is very
poisonous. Ingesting it, inhaling it, or absorbing it through the skin can re-
sult in hypertension, kidney disease, and a potentially fatal condition known
as pink disease. It also causes brain damage; in the past, milliners, who
were exposed to mercury compounds during the production of felt for their
products, were often victims of mercury-related dementia (giving rise to the
phrase mad as a hatter). This chapter begins with a case in which a corpo-
ration was held responsible for environmental violations involving mercury
in Rhode Island. But in a sense, quicksilver is a rather appropriate metaphor
for corporate crime more generallyshape-shifting, hard to detect, and very
dangerous.
A subsidiary of Southern Union Co., a natural gas company, stored old
gas regulators in a dilapidated building in Pawtucket, Rhode Island. Mer-
cury from those regulators was haphazardly kept in kiddie pools, plastic
containers, and even a milk jug.1 There were no warning signs posted about
hazardous substances. The building had broken fences, windows, and doors,
resulting in break-ins and homeless people living inside, but Southern Union
decided to stop paying a security guard to monitor the premises. In 2004,
three neighborhood kids who had played with the liquid mercury in the
building took some back to the apartment complex where they lived. Other
The Constitutional Rights of Corporations 197
residents tracked it around. When Southern Union employees discovered

what happened, they did not notify the fire department or the authorities.
Only when the incident was discovered by residents weeks later was there a
cleanup and community testing for mercury poisoning.2
The company went on trial in Rhode Island, and the jury returned its
verdict on a written form:
As to Count I of the indictment, on or about September 19, 2002

to October 19, 2004, knowingly storing a hazardous waste, liquid
mercury, without a permit, we the jury find the Defendant,
Southern Union Company guilty.3
Once Southern Union was found guilty, it had to be sentenced. The judge
commented: It is important to send a message to all companies who may be
illegally storing hazardous waste that a serious price will be paid if you get
caught. Thats what deterrence is all about. 4 Recall from Chapter 6 that not
all federal crimes involve sentences under the U.S. Sentencing Guidelines.
The environmental statute that applied in this case, the Resource Conserva-
tion and Recovery Act of 1976, prescribed that that fines for knowingly stor-
ing hazardous waste without a permit should be calculated at a rate of $50,000
a day.5
While the jury was not specifically asked how many days the violations
lasted, it concluded that there had been about 762 days of illegal storage of
the mercury. Based on that figure, the judge could have imposed a maximum
fine of $38,100,000. He instead ordered a $6 million fine, emphasizing that
the company had already paid $6 million to clean up the site. The judge also
ordered the company to pay $12 million in community service to the Rhode
Island Red Cross, to other charities, and to fund grants for childrens educa-
tion and health. Finally, the judge ordered probation, requiring the company
to submit evidence of an existing and ongoing corporate-wide environmen-
tal compliance program.
Southern Union argued that these fines violated its Sixth Amendment
right to a jury trial, since the jurors had not been asked to find beyond a
reasonable doubt the specific number of days it had violated the environ-
mental statutes. Could the company assert a constitutional right to have the
jury determine the fine rather than the judge? As the previous chapters have
198 Too Big to Jail
explained, prosecutors target corporations largely in the shadow of the law,

based on informal guidelines and practices. Judges and the sentencing guide-
lines play a role, as do outsiders such as monitors. The rights of victims and
individual employees may also come into play, especially if prosecutors target
the latter. One subject I have not yet discussed is whether the constitutional
rights of corporations themselves affect their prosecution.
The trial judge rejected Southern Unions constitutional argument, citing
clear and essentially irrefutable evidence that the mercury had been stored
for over two years, and judges on appeal agreed. However, the Supreme Court
reversed the lower courts in a 63 decision written by Justice Sonia Soto-
mayor.6 The Court relied on its 2000 decision in Apprendi v. New Jersey,
which held that the prosecution must prove beyond a reasonable doubt to the
jury any facts that could result in the imposition of a sentence higher than the
maximum penalty that would otherwise apply.7 Cases such as Apprendi in-
volved jail time rather than criminal fines, and the government argued that
the role of the jury is crucial only where there is a physical deprivation of
liberty. Companies can be fined, but they cannot be jailed. The Court was
unmoved by this argument, however.
As we have seen, corporations and other types of organizations are in
many respects treated as legal persons, and they have somebut not allof
the same constitutional rights. The structure, rights, and obligations of cor-
porations are largely defined by state law, but in criminal cases, their rights
are also defined by the U.S. Constitution and its wide range of protections
governing everything from initial police searches through a trial and the ap-
peal process. The decision in Southern Union largely avoided the topic of cor-
porate constitutional rights, mentioning that corporations have a right to a
jury trial under prior rulings, at least if the company is facing fines that are
not petty.
Corporations today can face massive fines, particularly under provisions
that calculate the fine at up to twice the loss the crime caused others or the
gain the company obtained. In Southern Union, the Supreme Court noted
the record $448.5 million fine paid by Siemens and the then-record fine paid
by Pfizer and Pharmacia & Upjohn of $1.195 billion as examples of the im-
portance of fines. The Southern Union ruling would be particularly impor-
tant since, as Justice Sotomayor noted, fines are frequently imposed today,
especially upon organizational defendants who cannot be imprisoned. In
fiscal 2011, a fine was imposed on 9.0% of individual defendants and on

70.6% of organizational defendants in the federal system.8 There are also
huge fines imposed in individual white-collar cases, and this decision means
that more may be needed to prove their basis. Very few companies are pros-
ecuted and even fewer are convicted, but the Southern Union ruling could
require prosecutors to provide stronger evidence even when negotiating with
companies. Justice Stephen Breyer, joined by two others, dissented and ar-
gued that modern federal sentencing statutes enhanced fines because there
had been a history of judges imposing fines that were uneven and too low. He
feared the majority opinion would undercut those reforms.
Some prosecutors had already treated the Sixth Amendment as applying
to corporations. The biggest antitrust fine ever imposed was on Taiwan-
based AU Optronics Corporation and its U.S. subsidiary after a jury trial in
2012. The case involved allegations of a worldwide conspiracy to fix prices for
liquid crystal display panels, affecting what people paid for computers, lap-
tops and flat screen televisions. The conspirators apparently fi xed prices
during monthly meetings with their competitors secretly held in hotel con-
ference rooms, karaoke bars, and tearooms around Taiwan.9 The judge in-
structed the jury that it needed to specifically determine the size of the harm
or loss that the price fixing conspiracy caused. Since AU Optronics took the
case to trial, it did not get leniency, as other companies did. By this time, too,
prosecutors had more information about the scope of the conspiracy and its
effect on prices. As the jury concluded the companies involved had gained
$500 million from the price fixing, the total fine could have been as much as
$1 billion. The judge was reluctant to impose quite that much, however, and
opted for $500 million.10
While this suggests serious consequences may still await a company at a
trial, Southern Union may narrow the bargaining range, as Justice Breyer
pointed out in his dissent. Major corporations can hire teams of lawyers to
challenge fines all the way up to the Supreme Court. And while the issue of
paying restitution to victims or community service did not come up in this
case, civil payments such as the $12 million in community service the judge
had ordered Southern Union to paytwice the criminal finemight some-
day also be covered by the Supreme Courts new rule, since they are not petty
amounts. Still other questions include whether criminal forfeiture, such as
the $1.7 billion JPMorgan forfeited for violations related to Bernie Madoff s
200 Too Big to Jail
Ponzi scheme, could be covered by the reasoning of Southern Union. The

Southern Union case may not be the last time the Court has to rule on how the
Sixth Amendment affects the money corporate criminals are ordered to pay.
After the Supreme Courts ruling, the trial judge felt constrained to re-
duce Southern Unions penalty from the $18 million previously imposed to
only $500,000 in community service and two years of probation. The judge
called this result manifestly unsatisfactory and even unjust.11
The Corporation and the Constitution
Southern Union dealt with the jury trial rights of corporations, and the Su-
preme Court avoided mentioning any general theory of when corporations
have constitutional rights. However, the case naturally raises the question of
what other constitutional rights corporations have and how they impact
criminal prosecutions.
The word corporation does not appear in the Constitution; in the days of
the Early Republic, corporations were not common, most of those that did
exist were government entities, which played a minor role in the economy.12
However, the Supreme Court soon had to grapple with the constitutional
status of corporations and other organizations. Chief Justice John Marshall,
writing for the Court in a 1809 case about the Bank of the United States,
called corporations a mere creature of the law, invisible, intangible, and
incorporeal, but also said that they were citizens for purposes of federal
jurisdiction, noting that corporations have been included within terms of
description appropriated to real persons.13 That kind of pragmatic approach
characterizes a fair amount of the Courts decisions on this subjectthe
justices focus on the reality of how organizations operate. The justices treat
organizations as separate from their owners, officers, or employees, and as a
result, companies can exercise some, but not all, constitutional rights.
Citizens United
When we think of corporations and constitutional rights, the first right that
may come to mind is free speech. This is due to the high-profile nature of the
Supreme Courts recent decision in Citizens United, which held that Con-
gress could not pass laws barring corporations from certain types of spend-
ing during elections. The strategically named Citizens United, a nonprofit

corporation, sought to release a documentary entitled Hillary: The Movie
during the 2008 Democratic presidential primaries, which pitted Hillary
Clinton against Barack Obama and other contenders. Federal campaign fi-
nance laws, notably the Bipartisan Campaign Reform Act of 2002, prohib-
ited corporate expenditures of that sort. The 2002 act said that only political
action committees (PACs) could spend in that way, since individuals could
decide whether they wanted to donate to a PAC, whereas the shareholders of
a corporation may not have a say in whether corporate money is spent on po-
litical speech.
The Supreme Court, in a lengthy opinion by Justice Anthony Kennedy,
rejected the argument that political speech of corporations or other associa-
tions should be treated differently under the First Amendment simply be-
cause such associations are not natural persons. He recognized corporations
might speak in ways shareholders disapprove of but held that the procedures
of corporate democracy could allow shareholders to exercise their voice or in-
stead buy shares in a different company. At the oral arguments, Justice Sonia
Sotomayor criticized the notion of imbuing a creature of State law, the corpo-
ration, with human characteristics.14 In earlier First Amendment free speech
rulings, the Court suggested that the Constitutions purely personal guar-
antees were unavailable to corporations because the historic function of the
particular guarantee has been limited to the protection of individuals.
However, the Citizens United ruling did not adopt any particular test for
deciding whether a corporation has a constitutional right.
The ruling is less surprising given the long history of recognizing constitu-
tional rights of corporations. The Court had assumed for decades that cor-
porations have at least some First Amendment rights. In some of its earliest
nineteenth-century rulings, the Court recognized that corporations have
constitutional rights under the contracts clause,15 and it later recognized cor-
porate rights under other provisions of the Constitution as well.16 Of course,
the Court has not extended all of the constitutional rights that individuals may
exercise to corporations or organizations. Corporations lack rights such as the
Fifth Amendment right against self-incrimination17 and the liberty right re-
sulting from the due process clause.18 Dissenting in Citizens United, Justice
John Paul Stevens verged on sarcasm when discussing the idea of which rights
should remain unavailable: Under the majoritys view, I suppose it may be a
202 Too Big to Jail
First Amendment problem that corporations are not permitted to vote, given
that voting is, among other things, a form of speech.19 (Corporations cannot
vote because the Court has ruled they are not citizens under the Fourteenth
Amendment.)20 The set of rights that protect criminal defendants are par-
ticularly helpful in understanding when corporations have constitutional
rights and why they sometimes do not.
When Do Corporations Have Constitutional

Criminal Procedure Rights?
There are many Bill of Rights provisions that apply to criminal prosecutions,
and they have been interpreted to offer a wide range of protections. Corpora-
tions do not have a right against self-incrimination, as they have no will to be
overborne by a psychologically or physically coercive inquisitor. But corpora-
tions are entitled to a jury trial under the reasonable doubt standard, even
if few corporate defendants risk a trial as Arthur Andersen did. During
criminal investigations, corporations have Fourth Amendment rights to be
free from unreasonable searches and seizures, but government officials may
broadly use subpoenas to obtain records from companies, and a more intru-
sive search might be reasonable for a corporation.
Is there any rhyme or reason to these varying protections? Focusing chiefly
on First Amendment cases such as Citizens United, scholars have called
the Courts approach ad hoc, right-by-right, arbitrary, and inconsistent.21
Criminal prosecutions may best show consistencies in the Courts approach, as
there are so many different criminal procedure rights, and criminal cases most
clearly raise the interest of the government in holding corporations and indi-
viduals accountable. Generally, the Supreme Court focuses on what the partic-
ular constitutional right is, examining the nature, history and purpose of the
particular constitutional provision.22 Unless the organization is an associa-
tion that represents the interests of its members and can sue on their behalf, an
organization or corporation is considered legally separate from individuals.
Whether it can assert a constitutional right is a separate question.23 The Court
has also long tried to ensure that individual wrongdoers cannot hide behind a
corporation or use it to avoid responsibility for crimes. More generally, the
Court also tries to keep organizations from using the corporate form to shield
their business activities from government regulators or prosecutors.
Due Process Rights
A host of key constitutional rights in criminal cases flow from the due pro-
cess clause, which protects against government actions that might arbitrarily
deprive a person of life, liberty, or property. In a 1906 decision, the Supreme
Court held that the due process clause does not protect liberty interests of
corporations. The liberty protected is the liberty of natural, not artificial per-
sons.24 The clause does protect the property interests of corporations, and
corporations have long brought challenges to legislation that might affect
their economic rights.25 In criminal cases, the due process clause ensures that
fair criminal procedures are used during investigations and trials, and a cor-
poration can claim that unfair procedures would deprive it of property in the
form of a criminal fine. One remarkable case illustrates the role of these due
process rights in corporate prosecutions.
A husband and wife, directors of the Grupo Internacional de Asesores
S.A., decided to purchase a Ferrari for $297,500 and a $1.8 million yacht
named the Dream Seeker. These were not for their enjoyment but for that of
officials in the Mexican state-owned utility company, the Comisin Federal
de Electricidad (CFE). According to prosecutors, the two Grupo directors
also paid more than $170,000 worth of American Express bills for a CFE
official and sent $600,000 to relatives of another. Prosecutors had been fol-
lowing the money trail in another bribery case, one involving the Mexican
utility and ABB Inc., the U.S. subsidiary of a Swiss and Swedish multinational
company.26 In that case, the government said ABB used a Mexican middle-
man to pay bribes, and after his 2009 arrest, he became a cooperator in the
ABB case.
Federal prosecutors said the payments and luxury gifts were bribes to win
contracts for an American company, Lindsey Manufacturing. Lindsey makes,
among other things, towers for electric power lines and emergency systems to
bring power back on after an outage. It is based in California and has about
100 employees. It received contracts from the Mexican utility, CFE, to supply
both towers and emergency restoration systems. The Grupo directors had of-
fered to represent companies seeking business with CFE, and in May 2002,
Lindsey hired Grupo to be its sales representative in Mexico, subsequently
entering into about ten contracts worth about $9 million.27 Grupo would re-
ceive a percentage of Lindseys sales in Mexicoa 30 percent commissionso
204 Too Big to Jail
this did not come cheap; Lindsey had to raise prices.28 Prosecutors said these
commissions were laundered and used to pay for the lavish bribes and gifts
to CFE officials.29 Mexican law makes it illegal for public servants to receive
such gifts, and American law also prohibits such bribes to government offi-
cials. Lindsey Manufacturing, its president, and its vice president were all
soon charged with violating the Foreign Corrupt Practices Act.
The defense lawyers said their clients had not been aware that any bribes
were paid in connection with the contracts, and the company was willing to
take the case to trial. Weve become a nation of cooperators, one of its law-
yers said disapprovingly. We approached this case from the beginning with
the attitude that we were going to fight.30 This was the first trial of a corpo-
ration for FCPA violations, and it was a closely watched event. Few corpora-
tions risk a trial, and while a host of criminal procedure rights have been in-
terpreted to apply to criminal investigations and trials, they can usually only
be tested if the defendant does not plead guilty. Due process entitles a crimi-
nal defendant to a fundamentally fair trial, one where its guilt needs to be
proven beyond a reasonable doubt, where police and prosecutors turn over
important exculpatory evidence, and where prosecutors are restricted from
making overly inflammatory arguments.
After a five-week trial in 2011, the corporation and employees were all
convicted. The company faced large fines, and the president and vice presi-
dent also faced a maximum of five years in prison. One of the Mexican sales
agents was also convicted and sentenced to time already served. Assistant
Attorney General Lanny Breuer announced: Lindsey Manufacturing is the
first company to be tried and convicted on FCPA violations, but it will not be
the last. Foreign corruption undermines the rule of law, stifling competition
and the health of international markets and American businesses. Breuer
touted how the Department of Justice remains fiercely committed to bring-
ing to justice all the players in these bribery schemes . . . Bribery has real
consequences.31
But that was not the end of the story. The defense made motions to over-
turn the verdict, arguing the government had not produced key evidence
until the trial. They were relying on a due process right. The Supreme Court
held in Brady v. Maryland that the government may not hide from the de-
fense important evidence showing innocence or undercutting its case. If it
violates the Brady rule, the verdict may be reversed.
The focus of the complaint was on the grand jury proceedings. An FBI
special agent told the grand jury that one of the defendants, when asked
about the bribery, responded that he didnt want to know. Yet the interview
contained no such statement, and the agent had not even been present when
the interview took place. The court later described the agents testimony as
inept, evasive, self-serving and incomplete.32 Grand jurors were understand-
ably interested in whether Grupo paid bribes from the money it received from
Lindsey, and the FBI agent told them there were essentially no other funds
in Grupos account or that Lindsey had supplied 90, 95 percent of the funds.
Earlier sworn statements instead made clear that Lindseys money accounted
for only 70 percent of the funds. Indeed, there had been a major $433,000
deposit right around the time of the Ferrari purchasea deposit that was not
from Lindsey. The FBI agent was kept off the prosecutors witness list, and
the defense did not know if the agent would be called at trial. The defense also
complained that the agents grand jury testimony was only disclosed mid-trial
when the judge ordered the defense be given a copy.33
That grand jury testimony had other inconsistencies. The agent had said
Lindsey was no longer the lowest bidder on contracts yet still somehow got
them. Lindsey countered that the government knew it had no competitors in
Mexico at the time, since the only other company that made similar electric
towers had stopped doing so.34 In November 2008, two of Lindseys buildings
were apparently searched without a warrant. The affidavit supporting the war-
rant described large payments by Lindsey to a Panamanian corporation, an al-
legation that the prosecution later admitted to be false.35 An inconsistency
emerged in an affidavit by another FBI agent, but the prosecutors said this was
because a prosecutor reviewing it was new to the case and had made a mistake.
The judge angrily concluded: The government has acknowledged making
many mistakes, as it characterizes them. Many indeed. So many, in fact,
and so varied, and occurring over so lengthy a period (between 2008 and
2011) that they add up to an unusual and extreme picture of a prosecution
gone badly awry.36 The judge announced a tentative decision and then gave
the sides a chance to weigh in on whether the conviction should be thrown
out. After conducting hearings, the judge explained:
In this Courts experience, almost all of the prosecutors in the

Office of the United States Attorney for this district consistently
206 Too Big to Jail
display admirable professionalism, integrity and fairness. So it

is with deep regret that this Court is compelled to find that the
Government team allowed a key FBI agent to testify untruth-
fully before the grand jury, inserted material falsehoods into
affidavits . . . improperly reviewed e-mail communications be-
tween one Defendant and her lawyer, recklessly failed to comply
with its discovery obligations, posed questions to certain wit-
nesses in violation of the Courts rulings, engaged in question-
able behavior during closing argument and even made misrepre-
sentations to the Court.
The judge assumed the company had the due process right, under Brady v.
Maryland, to have exculpatory evidence turned over to it by the prosecution.
The Supreme Court has never addressed this question, but it would certainly
be disturbing if the government could hide evidence of innocence in corpo-
rate trials. The judge finally concluded the misconduct was so flagrant and
the need to deter prosecutorial misconduct so great that he had to take the
drastic step of ordering the entire case dismissed with no retrial.37
Another high-profile corporate prosecution unraveled in 2009. W. R. Grace
faced fines of up to $1 billion for environmental crimes regarding asbestos
contamination of a small Montana town. At trial, the judge learned that pros-
ecutors had failed to provide the defense with information about the govern-
ments relationship with its star witness. The judge instructed the jury that
the Department of Justice and the United States Attorneys Office have vio-
lated their constitutional obligations to the defendants, they have violated the
Federal Rules of Criminal Procedure, and they have violated orders of the
Court. Calling this an inexcusable dereliction of duty, the judge struck part
of the witnesses testimony, and told the jury to view it with great skepticism.38
The jury ultimately acquitted W. R. Grace.39
The Department of Justice has had other scandals concerning failure to
turn over exculpatory information, including in high-profile prosecutions such
as that of the late U.S. senator Ted Stevens. Journalists uncovered how prose-
cutors had known for years that hundreds of cases were tainted by flawed fo-
rensic testimony of analysts working for the FBI. Several of those cases later
came to light because DNA tests showed innocent people had spent decades in
prison for crimes they did not commit. Prosecutors knew of the problem be-
ginning in the mid-1990s, but they kept their investigation of the cases from
the public and defense lawyers. In 2012, the FBI agreed to do an audit of
hundreds and maybe thousands of affected cases.40 The Justice Department
has responded that such problems can be prevented by training and supervi-
sion within prosecutors offices.41 It is extremely important when well-
resourced defendants bring prosecutorial misconduct to light, as there may
be more such errors in everyday cases than we suppose. This is another rea-
son it would be troubling if corporations could not protest if given an unfair
trial. Both corporations and individuals alike may be harmed by arbitrary
government action violating due process rights.
Fourth Amendment Rights
Corporations can protest against unreasonable searches and seizuresthey

have some privacy rights under the Fourth Amendmentbut key Supreme
Court rulings give the government extremely broad authority to search cor-
porations. The Fourth Amendment protects the right of the people to be se-
cure in their persons, houses, papers, and effects, against unreasonable
searches and seizures and also requires that warrants be properly supported,
including by probable cause. Yet Fourth Amendment law is notoriously de-
tailed, and the Court interprets it by balancing individual privacy interests
against the interest of law enforcement in solving crimes. As a result, the same
rules that apply when police seek to arrest a person or search a car do not apply
to business records.
The Fourth Amendment law that applies to corporations, in a way, is in-
credibly simple. One key rule matters: the government can use official re-
quests for documents, called subpoenas, very broadly. Government investi-
gations of corporate conduct often involve searches designed to examine
business premises and obtain business records. In white-collar prosecutions,
as law professor William Stuntz put it, the damning documents may be
everythingthere is no equivalent to crime scene evidence, and witnesses are
typically involved in the crime.42 For regulators, information is the fuel with-
out which the administrative engine could not operate. 43 A government in-
vestigation usually begins with sending subpoenas to request records; recall
that when the Securities and Exchange Commission sent its subpoena to
Arthur Andersen, the document shredding suddenly ground to a halt. Later,
208 Too Big to Jail
prosecutors themselves sent out subpoenas seeking additional information

about who had done what at Andersen. The firm objected, arguing that the
subpoenas were too broad, and that once the grand jury had indicted the
company, prosecutors could not keep using the grand jury to send out more
subpoenas. The trial judge disagreed, stating that the subpoena power is
broad, and as anyone following the news is fully aware, the collapse of Enron
has spawned a complex and seemingly ever expanding investigation involving
a wide range of parties. 44
Such subpoenas seeking business records do not bring up the same pri-
vacy concerns as the search of a person on the street or a seizure from inside
someones home. A subpoena asks that the person or company do the search
itself and provide officials with the documents requested. The Supreme Court
has ruled on corporate challenges to regulatory subpoenas for over a century,
when some of the first large federal regulatory agencies became active. In a
very early decision in 1886, the Court ruled in Boyd v. United States that a
subpoena for customs invoices need not be responded to at all since it sought
a mans private papers.45 Yet those were not particularly personal or private
papers; they were business invoices relevant to whether a company was ille-
gally importing goods. With the rise of modern federal agencies designed to
regulate commerce, the Court abandoned that rule in 1906, ruling in Hale v.
Henkel that a corporation must comply with reasonable subpoena requests.46
Perhaps best known is the Morton Salt decision in 1950, in which the
Federal Trade Commission was investigating salt producers, some of which
challenged subpoena requests. The Court held that corporations can claim
no equality with individuals in the enjoyment of a right to privacy.47 It has
consistently said that a company must comply with a subpoena that is not
too indefinite and seeks reasonably relevant information within the author-
ity of the regulatory agency. This is true even if the subpoena was based on
nothing more than official curiosity. After all, companies have a collective
impact on society and should not have an unqualified right to conduct their
affairs in secret. 48
Agencies have very broad subpoena powers. The Administrative Proce-
dure Act, which provides rules for all federal agencies, provides that any sub-
poena can be issued by an agency so long as it shows general relevance and
a reasonable scope of the evidence sought. 49 Individual agencies have a broad
mandate to investigate. For example, the SEC has the power to investigate as
it deems necessary to determine whether any person has violated, is violat-

ing, or is about to violate the securities laws or regulations.50 Just sending
out a subpoena can have a major impact. It signals the launch of an official
inquiry, and failure to comply may be obstruction of justice. A subpoena can
also affect the reputation of an individual or business. As one journalist com-
mented, In the minds of the reading public, a subpoena with your name on
it means that youre guilty.51
When government officials want to do a physical search, they must usu-
ally get a warrant from a judge first.52 The context matters, including whether
the company is already regulated and watched over by bureaucrats. If inspec-
tors are already monitoring aspects of what the company does, then no war-
rant may be required to conduct a search; the Supreme Court has said it is
the pervasiveness and regularity of the federal regulation that ultimately de-
termines whether a warrant is necessary to render an inspection program
reasonable under the Fourth Amendment.53 For example, mines or licensed
liquor or gun dealers can be inspected without a warrant, but Occupational
Safety and Health Administration inspectors need a warrant due to the huge
number of workplaces the agency can inspect.54
The Dow Chemical Company brought a Fourth Amendment challenge to
a search of a chemical manufacturing plant in Midland, Michigan, that
sprawled over 2,000 acres.55 Dow was concerned with secrecy at the plant and
maintained elaborate security at the perimeter; it would even investigate any
low aircraft flights above the factory. While Dow ensured the buildings were
all covered, some of the manufacturing equipment between the buildings was
not covered due to cost and safetyin the event of a malfunction or explo-
sion, a cover would trap chemicals and harm employees. The Environmental
Protection Agency was concerned with whether two power plants on the site
complied with environmental rules. They asked to do an on-site inspection,
and Dow agreed. However, Dow did not consent to a second inspection. In-
stead of seeking a warrant, the EPA hired an aerial photographer to fly over
the site with a precision aerial mapping camera (these were the days before
Google Earth).
When Dow learned that the EPA had ordered these flights, it sued in
federal court, claiming that its Fourth Amendment rights had been violated.
It argued that according to the common law as well as the Supreme Courts
modern rulings, the curtilage, or the land right around a house, is protected
210 Too Big to Jail
in its privacy. This means police cannot hide in the bushes right outside a
window and say they are no longer in a private area. Dow argued that the
machinery around its factory buildings deserved similar protection. The dis-
trict court ruled for Dow, but the appeals court rejected Dows arguments,
noting the peculiarly strong concepts of intimacy, personal autonomy and
privacy associated with the home, whereas Dows facility was a massive in-
dustrial complex.56
The Supreme Court also decided against Dow. It emphasized that cor-
porations do have some Fourth Amendment privacy rights, saying, Dow
plainly has a reasonable, legitimate, and objective expectation of privacy
within the interior of its covered buildings. But the photographs here are
not so revealing of intimate details as to raise constitutional concerns. Other
situations may raise business privacy concerns, such as an electronic device
to penetrate walls or windows so as to hear and record confidential discus-
sions of chemical formulae or other trade secrets. By contrast, Dows out-
side facilities were more like an open field that could be seen by all, or at
least from open airspace. The Courts decision appeared to offer less protec-
tion to a business, even one that was strenuous in trying to protect its facility
from prying eyes.
Even the physical search protections mentioned in the Dow ruling do not
help corporations much if officials can obtain a warrant. After immigration
officials raided the Agriprocessors meat packing plant in Postville, Iowa, as
discussed in Chapter 4, the company disputed the validity of the warrant
that allowed authorities to search the plant and arrest hundreds of undoc-
umented immigrant employees. The warrant said Immigrations and Cus-
toms Enforcement officials had permission to enter the buildings and areas
on the premises and then to make such search as is necessary to locate
aliens present in the United States without legal authority and who are em-
ployed at present within Agriprocessors, Postville, Iowa. The judge rejected
all of the companys Fourth Amendment arguments, pointing out that the
Court has made clear over the past 100 years that corporations do not en-
joy the same right against unreasonable searches and seizures under the
Fourth Amendment as natural persons enjoy. The company also argued
that the warrant was not specific enough, but the judge said it was plenty
specific.57
Fifth Amendment Rights
There is at least one constitutional right that corporations unquestionably

do not have. One of the oldest lines of Supreme Court cases denies any type
of company or organization constitutional rights under the Fifth Amend-
ments protection against a person being compelled in any criminal case to
be a witness against himself.58 The Supreme Court first grappled with this
issue in Hale v. Henkel, the same case that forced corporations to comply
with subpoena requests. The government issued a subpoena to the MacAn-
drews & Forbes Company, a New Jersey corporation, as part of an antitrust
investigation (the Sherman Antitrust Act had been passed in 1890). The re-
quest was broad: all documents or correspondence between the company
and six other companies, and all letters it had received from a dozen other
companies in seven states since it was incorporated.
The person serving as secretary and treasurer of the company refused to
comply with this request. At the grand jury, he stated his name, residence,
and job title, but he declined to answer all other questions in regard to the
business of the company, its officers, the location of its office, or its agree-
ment or arrangements with other companies. He cited the corporations
Fourth Amendment and Fifth Amendment rights and said that the an-
swers to the request would tend to incriminate him. The judge held him in
contempt.
The Supreme Court ruled that the company had no Fifth Amendment
right against self-incrimination and the corporate officer could not refuse to
provide documents on Fifth Amendment grounds. The Court emphasized
that if corporations had these rights, they would be able to hide crimes of
employees, as corporations can never themselves be forced to testify in a
courtroom. Were the cloak of the privilege to be thrown around these im-
personal records and documents, effective enforcement of many federal and
state laws would be impossible, the Court noted. After all, the corporation
is a creature of the state. This allows the government to readily compel cor-
porations to produce their records.
Companies cannot refuse to comply with document requests from offi-
cials or prosecutors, even if those documents might end up incriminating the
individuals who must respond, with only narrow exceptions.59 The Supreme
212 Too Big to Jail
Court has emphasized its simple rule: corporate records are not private.
Any other approach would have a detrimental effect on the Governments
efforts to prosecute white-collar crime, one of the most serious problems
confronting law enforcement authorities. 60 The Supreme Court denies self-
incrimination rights not just to corporations but also to any other type of
collective entity or organization, even small firms such as a three-person
partnership. So long as it is not a mere loose, informal association of indi-
viduals, it lacks Fifth Amendment rights.61
The real reason for the lack of Fifth Amendment rights may be that the
Fifth Amendment is about preventing individual people from being com-
pelled to incriminate themselves, not to keep individuals or corporations
from incriminating others. In the more recent case of U.S. v. Hubbell, the
Court said the act of production defense does not apply to a corporate of-
ficer being asked to produce records. This defense allows individuals to avoid
providing documents when doing so would incriminate them personally, but
a corporation cannot hide documents by asserting the rights of employees.
For similar reasons, the Supreme Court in 2011 ruled that AT&T could
not object to a Freedom of Information Act request for documents it had
provided to the Federal Communications Commission Enforcement Bureau,
since the statutes referred to personal privacy, and corporations do not have
privacy.62 Chief Justice John Roberts explained, We do not usually speak of
personal characteristics, personal effects, personal correspondence, personal
influence, or personal tragedy as referring to corporations or other artificial
entities. He added, This is not to say that corporations do not have corre-
spondence, influence, or tragedies of their own, only that we do not use the
word personal to describe them. After all, the choice of the phrase personal
privacy instead suggests a type of privacy evocative of human concernsnot
the sort usually associated with an entity like, say, AT&T. 63
Sixth Amendment Rights
A corporation has the right to have a lawyer represent it; obviously a com-
pany or organization cannot appear except through a representative. But
what if the entity lacks the funds for a lawyer? Must the court appoint one?
The Sixth Amendment right to have a defense lawyer appointed in a felony
case is one of our most fundamental protections and dates back the land-
mark 1963 ruling in Gideon v. Wainwright. However, Congress has not pro-
vided funds to appoint lawyers to defend corporations,64 and judges have
ruled that corporations lack a Sixth Amendment right to appointed counsel.
For example, one federal court of appeals ruled that a corporation cannot liti-
gate in a federal court unless it is represented by a lawyer. 65 The court con-
cluded: Pro se litigation is a burden on the judiciary, and the burden is not to
be borne when the litigant has chosen to do business in entity form. He must
take the burdens with the benefits. In a few cases, judges have said that a
company with one owner (a sole proprietorship) may have a court-appointed
lawyer.66 One court also indicated that pretrial seizure of assets can violate a
corporations Sixth Amendment right to obtain counsel with its own money.67
Can a corporation claim that its lawyer provided ineffective assistance?
That is the most common claim by individuals in habeas proceedings, that
the trial lawyer made blunders in the courtroom or failed to sufficiently inves-
tigate the case. In one case, a corporation claimed its lawyer never disclosed a
conflict of interestbut the judge concluded that the government has no re-
sponsibility to ensure that a corporation is represented by competent coun-
sel. 68 The judge concluded that the two officers jointly decided to plead the
corporation guilty, and both fully understood the consequences. No one was
in a better position to understand the unlawful ways in which they had uti-
lized the corporation than they were. The judge said another lawyer would
not have insisted on going to trial rather than pleading guilty. 69
The Sixth Amendment also provides a right to confront witnesses against
the criminal defendant. Courts have suggested that corporations have this
right as well, but the situation is complicated where the witness is an em-
ployee who may have committed the crime for which the company is being
prosecuted. The Sixth Amendment confrontation right does not do much to
help corporations in that context.70 The employee may assert Fifth Amend-
ment privilege against self-incrimination, but prosecutors can introduce prior
statements by this employee, as they can for any admissions by employees of
the corporation.
Eighth Amendment Rights
The Eighth Amendment states that excessive bail shall not be required, nor
excessive fines imposed, nor cruel and unusual punishments inflicted. 71
214 Too Big to Jail
Companies cannot be put in heinous prison conditions involving unneces-

sary and wanton infliction of pain, nor can they be sentenced to be drawn
and quartered, tortured, or executed,72 and while the Supreme Court has
increasingly regulated punitive damages awards against corporations, it has
rejected any cruel and unusual punishment basis for those decisions, rely-
ing instead on the due process clause. The excessive fines clause of the Eighth
Amendment has been of equally little value to corporations looking to chal-
lenge fines.73 The Southern Union case now regulates the calculation of fines
in criminal trials, so perhaps the Court will have no reason to address whether
very large criminal fines could violate due process or be cruel and unusual
or excessive and violate the Eighth Amendment.
Double Jeopardy and Acquitted Corporations
When a jury acquits, it is a major blow to prosecutors, especially given the

small number of criminal trials. When the jury acquitted Richard Scrushy,
the CEO of HealthSouth, this was perceived as a major defeat. Corporations
can also be acquitted, and like individual defendants, having been tried once,
they cannot be criminally tried again for the same offense (at least not by fed-
eral prosecutors). The Supreme Court has suggested in passing that corpora-
tions benefit from double jeopardy, and judges have accepted this ever since.74
Double jeopardy, however, does not bar the government from pursuing sepa-
rate civil charges, and this explains why parallel proceedings are common.75
Nor does double jeopardy prevent state and federal prosecutors from sepa-
rately pursuing charges, or prevent both the parent company and a subsid-
iary from facing charges if they are separate companies.76
As a result, double jeopardy provides little protection to most corpora-
tions. Since there are only a handful of corporate trials annually, corporate
acquittals are rare. Each year, though, a jury may acquit a corporation or two,
and more corporate cases are dropped by prosecutors or dismissed by judges.
The Sentencing Commission keeps no data on this, but I have found more
than a dozen examples of corporate acquittals, including that of Stora Enso
North America.
The Stora Enso trial was short, in some ways simple, and remarkable for
happening at all. The case involved companies that made glossy coated paper
for magazines and high-volume catalogues.77 It is a multibillion-dollar in-

dustry. Stora Enso Oyj is a Finnish company and Stora Enso North America
is its U.S. subsidiary. Along with its competitors, it raised prices beginning
in August 2002. After being indicted in 2006 under antitrust law, it argued
there was no evidence that the company and its competitors made any com-
mitments or promises to one another. The case went to trial in 2007 in Hart-
ford, Connecticut, and the company faced a $10 million fine if convicted.78
The Sherman Antitrust Act forbids competitors from entering agree-
ments to set their prices. It may be hard to find out if companies fix their
prices, but in the Stora Enso case, the Antitrust Division had given leniency
to a competing Finnish company, which reported the scheme and cooperated
with prosecutors.79 The president of Stora Enso was old friends with the
president of the company that turned in Stora Enso in exchange for amnesty.80
But Stora Enso would not admit guilt and decided to risk a trial.
The prosecutors began the trial by saying their evidence would come from
two presidents: the president of the competing companys magazine division
and a former president of Stora Enso North America.81 Both had the final
authority to set prices and both were receiving leniency in exchange for their
cooperation and admissions of guilt. The prosecutors explained that two pres-
idents of two huge billion dollar corporations would admit they had been
talking to each other at least six times within seven months after not having
talked to each other about pricing for over 20 years.82 This occurred just a
few months before Stora Enso raised its prices.
The first witness was the president of the Finnish competitor, who de-
scribed multiple conversations with the president of Stora Enso. They
talked about how bad prices were for glossy paper. The best-selling type of
paper, called coated #5, was used in magazines such as Time and in ads for
retailers such as Kmart and Target. Prices for this paper had fallen 20 per-
cent that year and were still falling. The dot-com industry had collapsed and
the economy was doing badly, so less advertising was being printed in maga-
zines.83 An American company named International Paper had the largest
share in the market, and the two competitors talked about how Interna-
tional Paper had announced a price increase of $60 per ton and whether
they should match the increase.84 They had a kind of a common under-
standing that they would follow International Papers lead.85 However, the
216 Too Big to Jail
competitors president also said his company had decided on its own to fol-
low the price increase even before calling the president at Stora Enso. On
the other hand, he admitted he hoped that his friend at Stora Enso would
raise prices too. 86
The next day saw the second president testify, the former head of Stora
Enso North America. He described social get-togethers with his counter-
part and complaining together about low prices. He also described a final
telephone call where he said Stora Enso had decided to announce the price
increase. He recalled it was comforting to know a big competitor was in-
creasing prices as well. He also admitted knowing it was poor judgment to
talk about prices with a competitor, and that it violated company policya
Taboo Chart of things not to do, which said, Dont set prices or verify the
activities of our competitors by calling competitors.87
The trial was not long, and on the fourth day, the sides gave their closing
arguments. The defense lawyer argued this whole case put a cloud over
an innocent company.88 There had been just a brief phone callless than
15 words longin which Stora Enso said it already matched the others
prices. The defense emphasized that theres a reason big companies and
smart companies do the same thing. Because it makes sense. After all,
prices were the lowest in twenty years, and the prosecution theory was
like saying two thirsty men in the desert would have to conspire to drink
water. The theme of the defense was Price following is not price
fi xing.89
The judge instructed the jury that a corporation is entitled to the same
presumption of innocence as a private individual. A corporation can be
found guilty only if the evidence establishes its guilt beyond a reasonable
doubt. The judge explained that competitors must have been acting to-
gether and not just engaged in similar conduct.90 The jury knew the com-
petitor had received amnestyneither it nor its employees would be prose-
cuted if they cooperated.91 The judge also instructed the jury that witnesses
who receive amnesty may have a motive to testify falsely.92
The jury acquitted. Perhaps the jurors agreed there was not enough evi-
dence of a mutual agreement to raise prices. This was not a case like Arthur
Andersen, in which the case was close because the evidence was so complex;
this was a case where the jury, with close evidence, decided there was not
enough to convict.
A Theory of Constitutional Rights of Corporations
Some argue that it is nonsensical for corporations to have constitutional

rights, at least under amendments designed to protect individual liberty. The
Supreme Court has recognized a wide range of constitutional rights that ap-
ply to organizations even as it has declined to recognize others. There is some
reason to these rulings, and a look at the rights related to criminal procedure
illustrates this well. In the past, the justices on the Court have been sensibly
concerned with the purpose of each constitutional right and making sure that
those rights do not, when exercised separately by corporations, allow them to
undermine the rights of individuals or hide conduct from the government.
That explains the Courts Fourth and Fifth Amendment rulings, as each en-
sures government officials have broad access to corporate records. The rul-
ings jibe with the central purpose of corporate criminal liability: to make
sure individual people are accountable and that corporations as a whole are
accountable for the crimes of their employees. With corporate rights come re-
sponsibilities. However, the Southern Union decision suggests that the Court
could be moving away from a view that constitutional rights ensure corporate
accountability. The ruling helps corporations when calculating fines in both
negotiations with prosecutors and in the rare cases that go to trial. We may see
much more constitutional litigation by corporations in the years to come.
9
Foreign Corporate Criminals
British Airways Flight 195 landed at George Bush Intercontinental Airport

in Houston, Texas, for a brief layover on its way to the United Kingdom. The
feds were waiting.
On the plane were the CEO and directors of BAE Systems plc, the third-
largest defense contractor in the world and the largest military contractor in
Europe. When they disembarked, armed federal officers took the CEO to an
interrogation room. For twenty minutes, he and the others were searched,
their documents copied, and their laptops and cell phones downloaded. They
got served with subpoenas to appear before federal grand juries.1
These searches stemmed from a sale of seventy-two Eurofighter jets in a
massive $80 billion arms deal with Saudi Arabia, a deal known as Al Yama-
mah (the dove in Arabic).2 The Saudis had signed this deal with BAE in the
1980s, and there were allegations that it was secured through bribes and lavish
entertaining of visiting royalty in London. The allegations and criminal inves-
tigation would precipitate a diplomatic firestorm and would eventually lead the
United Kingdom to adopt one of the toughest bribery laws in the world.
For years it had seemed like the authorities would quietly bury the Al
Yamamah investigation. The United Kingdom made no arrests. British au-
thorities at the Serious Fraud Office (SFO) long had had a hesitant approach
toward corporate bribery; the SFO had investigated several matters but was
not bringing prosecutions.3 High-level officials had counseled against pursu-
ing this particularly sensitive case, but U.S. prosecutors were now threaten-
ing to blow it wide open.
Foreign Corporate Criminals 219
A Foreign Corporation
In the past, domestic prosecutions of foreign corporations were not notewor-

thy. Foreign nations did not complain that the United States inappropriately
prosecuted their firms or questioned their criminal law or its enforcement.
Foreign companies did not complain about being held accountable for crimes
far outside their home county. All of this has changed. Federal prosecutors
now advertise how they target foreign companies, with the Department of
Justice publicizing its goal to root out global corruption.4 The U.S. attorney
for the Southern District of New York, Preet Bharara, explained that crime
has gone global and national security threats are global.5 In response, corpo-
rate prosecutions have gone global as well.
U.S. prosecutors target foreign corporations more than ever before, and
the average fines levied against foreign corporations are far larger than for do-
mestic ones. These prosecutions have had an outsized impact and are reshap-
ing industries around the world. Foreign firms and their employees are
increasingly convicted of a range of crimes including antitrust violations, viola-
tions of the Bank Secrecy Act, environmental crimes, violations of the Foreign
Corrupt Practices Act, tax fraud, and wire fraud. Thirteen percent of the
2,262 corporate prosecutions between 2001 and 2012 that I studied were
foreign corporations (13 percent, or 283 of 2,262 companies). Most of these
foreign firms were convicted of just a few major crimes, which are the focus
of this chapter: antitrust (78 companies), ocean pollution (73 companies),
and FCPA violations (48 companies).
How do U.S. prosecutors even go about targeting foreign corporations?
There are several ways for them to get jurisdiction over foreign companies
whose foreign employees committed crimes in foreign countries. These in-
clude jurisdiction based on the company listing stock publicly in the United
States, owning U.S. subsidiaries, or committing criminal acts in the territo-
rial United States. But having jurisdiction does not make it easy to investigate
foreign corporate crime. Take the BAE case: the key evidence was likely
abroad, such as in BAEs London offices. Prosecutors also face serious diplo-
matic issues. I will describe how, despite the challenges, U.S. prosecutors have
taken on significant prosecutions of foreign firms and even entire industries.
Foreign corporations often do not receive deferred prosecution or non-
prosecution agreements. Only about one-fifth of the deferred prosecution
220 Too Big to Jail
and non-prosecution agreements involved foreign companies (21 percent, or 54

of 255 agreements). And of the foreign companies prosecuted between 2001
and 2012, less than one-fifth received deferred prosecution or non-prosecution
agreements (19 percent, or 54 of 283 foreign companies). The rest of those
foreign companies were convicted. Foreign corporations also were subject to
much larger fines than domestic firms. A big part of the story of this book
the rise in the size of corporate fines over the past decadeis the rise in big
prosecutions of foreign corporations. Figure 9.1 shows this rise, with a remark-
able increase to over $3 billion in fines against foreign companies in 2012.
What explains the size of these foreign corporate fines? That is a puzzle. I
did not expect to see such a big difference between domestic and foreign cor-
porations, since very large companies in the United States are also prosecuted.
But when I examined more than 2,250 corporate prosecutions over the past
decade, I found foreign firms received an average fine of $35 million and made
an average total payment of almost $66 million. The comparison with domes-
tic firms is stark, as they received an average fine of $4.7 million and made an
average total payment of $12 million.
I wondered whether the differences could have to do with other charac-
teristics of the cases. I used regressions to control for the type of crime and
whether the company was public or not, but even taking those factors into
account, foreign corporations still paid larger fines on average. For otherwise
comparable firms, foreign firms received fines that were on average over seven
times larger and made total payments over nine times larger than was the
case for domestic firms. The results of these regressions are detailed in the
3,500,000,000
3,000,000,000
2,500,000,000
2,000,000,000
1,500,000,000
1,000,000,000
500,000,000
0
2001 2006 2011
Foreign Corporate Fines
Figure 9.1 Foreign Corporate Fines, 20012012

Appendix. This raises the question of whether prosecutors single foreign

companies out. Or could foreign firms be the worst violators? If so, why were
they prosecuted so infrequently in the past? Perhaps something else accounts
for why so many of the biggest corporate prosecutions now involve foreign
companies. I will look at several possible explanations, but there are no defini-
tive answers to this puzzle.
As with so many of the problems explored in this book, there is no single
coordinated approach used by prosecutors when targeting foreign corporations.
How prosecutors actually exercise their discretion is something of a black box,
since we have so little information about why they make their decisions. The
outsized role played by prosecutions of foreign corporations suggests we need to
know far more about how prosecutors pick and choose their corporate cases.
The success stories in these foreign prosecutions, which involve so many practi-
cal challenges, suggest something else: that domestic corporate prosecutions
could be handled far more aggressively than they so often are.
To back up further: what is a foreign corporation? In my analysis of corpo-
rate prosecutions from 2001 to 2012, I focus on the 283 companies that were
incorporated abroad. That does oversimplify matters. How about a multina-
tional company listed on multiple stock exchanges around the worldwhere is
its home? For example, seventy-three of these foreign companies had stock
listed in the United States. What if such a firm has a wholly owned U.S. subsid-
iary? What if most of the shareholders or owners of a company are foreign? A
law that was proposed but never passed, the DISCLOSE Act, would have de-
fined a foreign corporation as one that was incorporated overseas or 20 percent
owned or de facto controlled by foreign citizens.6 I focus here on companies
such as BAE that are incorporated abroad, but also include information about
domestic companies owned by a foreign subsidiary. BAE is named for a merger
of British Aerospace and Marconi Electronic Systems, both British companies.
BAEs headquarters are in London, and it is listed on the London Stock Ex-
change, but it is a multinational firm, with stock traded in the United States
using American Depositary Receipts (ADRs). It owns Lockheed Martin Aero-
space Electronic Systems and Armor Holdings, both U.S. companies, and it
does a fair amount of business in the United States, including defense contract-
ing, for which, as a foreign corporation, it needs special security clearances.
Holding foreign corporations accountable for violating U.S. criminal laws
can be difficult. It may be hard for prosecutors to get jurisdiction in the
222 Too Big to Jail
United States over employees and documents, and sending agents to search
foreign offices may be out of the question. Prosecutors increasingly convince
foreign companies to turn themselves in or incentivize whistle-blower em-
ployees to do so.
The Travel Agent
The Travel Agent was no ordinary tour planner. He provided holidays that were
way beyond the life style of most film stars for special BAE clients, including
months-long vacations for Saudi royalty involved in the Al Yamamah arms
deals.7 The vacations were worth millions, but arms deals were worth billions.
The Travel Agent also chartered an entire Boeing 747 cargo plan for a shopping
spree of a Saudi princes wife. Ever thoughtful, he sent another princes wife a
Rolls-Royce on her birthday. Saudi pilots visiting London were treated to nights
on the town, while Saudi embassy employees received gold cutlery.
Uncovering corporate crimes committed by foreign companies in foreign
countries is not easy. BAE was not paying lavish bribes out in the open. BAE
apparently created a front corporation with a high-security vault in Switzer-
land, where it stored financial information. The front was registered in the
British Virgin Islands, where there would be no need to show BAE owned it.
BAE systems paid The Travel Agent and other such agents through Swiss
bank accounts and offshore companies.8 BAE used travel agents to distribute
about $225 million in bribes, calling it accommodation and support ser-
vices. The bribes may have been paid elsewhere around the world, including
the Czech Republic, Hungary, Tanzania, and others.9
In 2004, The Travel Agent leaked evidence of his dealings to a British
newspaper, which passed it on to the SFO. In response, BAE called the alle-
gations ill-informed and wrong.10 The documents from this whistle-blower,
however, led the SFO to multiple slush funds and offshore businesses. They
discovered how hundreds of millions of dollars had been diverted to Saudi
Arabias Prince Bandar, including through an account jointly used by BAE
and the British Ministry of Defense, and revealed lurid allegations about
how those funds were used to entertain Saudi royals visiting the United
Kingdom.11 Now the SFO wanted to see the Swiss banking records.
The British and Saudis each had a stake in any investigation of the matter.
In 2005, BAE wrote a letter to the British attorney general suggesting that
investigating further would jeopardize the Al Yamamah contract, which was

still being negotiated. When the investigation continued, BAE wrote another
memo, which was presented to the prime minister, foreign secretary, and de-
fense secretary, emphasizing the need not to upset Saudi Arabia, a key partner
in the fight against Islamic terrorism. SFO investigators continued looking
into Swiss bank accounts to follow the money trail, apparently prompting a
more explicit threat of Saudi withdrawal from counterterrorism cooperation
agreements and an end to Al Yamamah. In December 2006, the SFO ceased
its investigation into Al Yamamah, explaining it was necessary to balance the
need to maintain the rule of law against the wider public interest.12
American Exceptionalism
In 1990, Justice William J. Brennan, Jr. deplored the extraterritorial expan-

sion of federal criminal law, stating that the enormous expansion of federal
criminal jurisdiction outside our Nations boundaries has led one commen-
tator to suggest that our countrys three largest exports are now rock music,
blue jeans, and United States law.13 Few foreign countries have anything
like the broad standard for corporate criminal liability that the United States
has long had in federal courts. Common law countries such as Australia,
Canada, New Zealand, and the United Kingdom have some form of corpo-
rate criminal liability, but in England, for example, the concept remains quite
narrow.14 Most civil law countries in Europe, Latin America, and elsewhere
had no corporate criminal liability for many years; they viewed holding an ar-
tificial entity criminally liable as odd and morally problematic. In the past few
decades, more European countries have created corporate crimes, partially in
response to calls from the European Union and Council of Europe for some
form of corporate criminal accountability. Countries in Asia (including
China, India, Japan, and Korea), the Middle East (including Israel, Qatar,
and the United Arab Emirates), and Africa (including South Africa) have
adopted some form of corporate criminal liability.
Although more countries have adopted corporate crimes, they are very
limited compared to the strict federal standard in the United States. Coun-
tries usually limit criminal liability to conduct involving specific crimes or
leading persons such as high-level officers.15 Many other countries remain
steadfastly opposed to any criminal liability for corporations; for example,
224 Too Big to Jail
Brazil and Germany lack criminal liability, although they do have adminis-
trative penalties that can be imposed on corporations in cases involving
criminal conduct.
Foreign companies may resent or simply misunderstand the U.S. approach
due to unfamiliarity with strict corporate criminal liability and having never
encountered before the broad power of federal prosecutors. When foreign
companies have tried to push back, the consequences have not been good for
them. Corporations have some incentive to cooperate with local regulators,
but cooperating with U.S. prosecutors is imperative. Not only is there broad
liability for corporations in the United States for the criminal acts of em-
ployees, but federal criminal law is also broader and far more punitive than
that in other countries. Moreover, U.S. prosecutors are simply more power-
ful than most prosecutors elsewhere in the world. They possess extraordi-
narily wide discretion, and the adversarial system in the United States creates
an unusually prosecution-friendly dynamic by placing great discretion in the
hands of prosecutorswhich also gives corporations more to gain by cooper-
ating. In civil law countries, prosecutors lack the same leverage, as judges mar-
shal the evidence, review charges, facts, and sentences, and exercise great dis-
cretion at each stage. Now that U.S. prosecutors have targeted more foreign
corporations than ever before, foreign companies and governments must
reckon with the new U.S. approach toward prosecuting corporations. The
result can be a culture clash.
The British Drop It
The British did not want to pursue the salacious bribery allegations involving
their biggest defense contractor. Another inquiry began in the Serious Fraud
Office, but after two years, that investigation was dropped also, with Prime
Minister Tony Blair explaining in 2007 that the investigation would have
been devastating for our relationship with an important country with whom
we cooperate closely on terrorism, on security, [and] on the Middle East Peace
process.16 A legal challenge brought in the United Kingdom argued that the
SFO ignored the public interest when dropping the case. The judge agreed,
finding the SFO had effectively caved in to political pressure from the Saudis
and that the rule of law had been damaged by abject surrender to a blatant
threat from the Saudis. The head of the SFO admitted that dropping the
investigation went against my every instinct as a prosecutor. The case went

to the House of Lords, which in its role as a final court of appeals upheld the
authority of prosecutors to decide whether or not to bring a case, particularly
where national security could be at risk.17
The U.S. State Department spoke out against the British failure to inves-
tigate BAE, and by then the Department of Justice had begun to investigate.
British officials rebuffed a DOJ request for assistance.18 Lacking any coop-
eration from BAE or the British government, the DOJ obtained testimony
from a former BAE executive, who described hundreds of millions of dollars in
bribe payments. This led to the episode in the Houston airport where BAEs
CEO and directors were detained, searched, and issued subpoenas.
Hoping to ward off a U.S. prosecution, the SFO revived the case and
planned a settlement. But the status of any such settlement was thrown into
doubt by a ruling from a U.K. judge in another case that prosecutors had no
authority to enter a plea bargain, as only a court could impose a sentence.19 A
conviction in the United Kingdom could have had dire consequences, be-
cause under European Union law, BAE could be debarred from government
contracting. The impasse continued between U.S. and U.K. prosecutors.20
Which country would budge?
The Babe Ruth of Whistle-blowers
The largest individual whistle-blower payment ever made by the U.S. govern-
ment went to a man who had just spent two years in prison. Bradley Birken-
feld helped wealthy clients avoid U.S. taxes by using Swiss bank accounts, but
by becoming a whistle-blower, he collected a $104 million whistle-blower
award.21 He told reporters: Im the most famous whistle-blower in the his-
tory of the world. Its a question of doing the right thing, and thats what I
did. His lawyer called him the Babe Ruth of whistle-blowers.22
Whistle-blowers are not usually welcomed with open arms by their bosses.
Usually, whistle blowers get fired. Sometimes, they may be reinstated. Al-
most always, their experiences are traumatic, and their careers and lives are
profoundly affected.23 The law can try to protect whistle-blowers or reward
insiders who bring misconduct to light. Under long-standing statutes, per-
sons known as qui tam plaintiffs can file actions reporting fraud against the
federal government.24 The Securities and Exchange Commission now has a
226 Too Big to Jail
dedicated Office of the Whistleblower because the Dodd-Frank legislation,

passed in the wake of the last financial crisis, provides for a reward to anyone
who brings to the SECs attention original information leading to a penalty
of more than $1 million, and the whistle-blower can file a lawsuit and recover
1030 percent of the money.25 The SEC can share whistle-blower information
with prosecutors, and companies cannot retaliate against the employees who
provided that information. Other agencies also have whistle-blower provisions;
the Internal Revenue Service has long had them, and in 2006 the IRS rules
were strengthened to provide enhanced cash rewards to whistle-blowers.26
The stereotypical image of bankers may be one of conservative number
crunchers wearing green eyeshades, but Birkenfeld, living in Switzerland
since the late 1990s, worked with a group of bankers more reminiscent of
James Bond. Their version of special operations facilitated tax fraud. Birken-
feld was one of dozens of bankers of UBS AG, the largest bank in Switzer-
land, who traveled across the United States seeking out wealthy clients and
advising them on how to hide their money from the IRS to avoid paying taxes.
The bankers would travel anonymously, claiming on customs forms that they
were traveling for pleasure. UBS agreed in 2001 to disclose to the IRS infor-
mation about its clients moving income from the United States into offshore
bank accounts. However, Birkenfeld was told to continue his work. UBS was
managing over $20 billion of assets belonging to clients in the United States,
euphemistically calling it United States undeclared business.27
The bankers would host extravagant parties to lure rich potential clients.
UBS sponsored events at the Art Basel festival in Miami, Florida, or at ten-
nis tournaments. The bank later admitted to the widespread use of sham
accounts to conceal assets of U.S. citizens seeking to evade taxes. It actively
marketed the Swiss Solution, assisting rich clients to hide assets in offshore
dummy corporations set up in Panama, the British Virgin Islands, Hong
Kong, Liechtenstein, and of course Switzerland. They would explain to their
clients that they should store art, jewelry, and other valuables in safe deposit
boxes in Switzerland, destroy all records of their offshore accounts, and use
Swiss credit cards that the U.S. government would not track down.28
Birkenfeld personally took checks from clients to Switzerland. Most no-
toriously, he smuggled diamonds for a client by hiding them in a tube of
toothpaste.29 However, before resigning in 2005, he wrote memos to higher-
ups telling them that they were violating U.S. tax laws. As he later put it:
When I put my concerns in writing to the UBS legal and com-

pliance departments in Switzerland, they refused to address any
of my concerns. So I proceeded to invoke my UBS rights to pro-
tect against retaliation and send my same written concerns to
the general counsel of UBS.30
When no changes were made, he concluded there was a cover-up, and he

was determined to contact the U.S. authorities to expose this scandal.31
While his now former employer was sending him letters threatening him
with prosecution if he divulged information, he decided to tell U.S. prosecu-
tors what UBS was doingin part because the new whistle-blower statute
for tax fraud removed the $10 million cap on whistle-blower rewards, and
provided for a maximum reward of 30 percent of the back taxes recovered.32
This left him in a bind. In Switzerland, where he lived, it was against the law
to violate bank secrecyif I divulged any names without a subpoena I would
go to jail. In 2008, he traveled to the United States to meet with the SEC and
the U.S. Senateand to go to a high school reunion. He was arrested when he
exited his plane in Boston.33 After his arrest, though, he agreed to continue
cooperating with the government, and he met with prosecutors to describe in
detail the tax fraud schemes, the amounts of money involved, and the activi-
ties of the bankers. He also provided names, internal procedures, emails, and
other documents.
What he did not tell them was that he had also engaged in tax fraud, in-
cluding with a wealthy Florida real estate developer who for a time was his
biggest client of all. The bankers had helped the client set up offshore ac-
counts, transfer ownership of his yacht to Gibraltar, and ultimately conceal
$200 million in assets.34 They helped him get UBS credit cards. After that
real estate developer pleaded guilty (and paid over $50 million in back taxes),
Birkenfeld was prosecuted for conspiracy to defraud the United States, and
in particular the IRS, and he pleaded guilty.
Prosecutors asked for his sentence to be reduced, citing the substantial
assistance he had given them: Without Mr. Birkenfeld walking into the
door of the Department of Justice in the summer of 2007, I doubt as of today
that this massive fraud scheme would have been discovered. They would not
have prosecuted him at all had he told them about his own criminal conduct.35
While $104 million was a huge whistle-blower award, the U.S. government
228 Too Big to Jail
could use his information to collect billions in unpaid taxes from UBSor
at least it could try.
Would UBS Settle?
Swiss banks are known for their commitment to customer privacy. As

Birkenfeld knew, it is a crime in Switzerland to violate client confidentiality,
though it is not a crime to fail to disclose assets or income. Only what Swiss
law terms tax fraud, which is defined as willful conduct, is illegal. UBS
would either have to violate Swiss banking privacy laws or face prosecution
in the United States. U.S. prosecutors said UBS had violated U.S. lawbut
to make it right, the company was being asked to violate Swiss law. UBS was
now in the same bind as its banker. Which countrys law would win out?
United States and Swiss law directly conflicted, but no court reviewed the
case, as UBS settled on the eve of U.S. Senate hearings. The United States
obtained only 150 names of U.S. citizens who were UBS clients, and those
individuals promptly sued UBS in Switzerland for violating Swiss bank se-
crecy laws. In 2009, UBS signed a deferred prosecution agreement with fed-
eral prosecutors in the Southern District of Florida. The company paid pros-
ecutors $780 million in fines and agreed to cooperate by divulging the names
and accounts of the U.S. customers it assisted in avoiding taxes in the United
States.
The IRS, meanwhile, continued to pursue a civil action seeking information
on 52,000 account holders. UBS angrily responded that this request simply
ignores the existence of Swiss law and sovereignty. It added, To the extent
that the IRS is not satisfied with treaties that the U.S. government has negoti-
ated, that concern should be remedied through diplomacy, not an enforcement
action. A DOJ official responded that it was not going head to head with the
Swiss government. Yet the Swiss government was an integral part of negotia-
tions with the IRS, the DOJ, and UBS. And they did go head to head.
In August 2010, the IRS finally received an agreement to obtain the names
of 4,550 account holders from among the tens of thousands with such ac-
counts. The Swiss government stated that it would only disclose accounts
larger than 1 million Swiss francs or with certain types of false documents or
account activity. The Swiss government would also allow taxpayers an oppor-
tunity to file administrative appeals of the decision to disclose their account

information. Indeed, a special task force was set up to expedite appeals, and
new judges were hired to help handle such appeals.
The IRS responded with another technique, declaring an amnesty program
that allowed account holders who voluntarily disclosed offshore accounts and
agreed to pay back taxes to avoid prosecution and higher penalties. More than
14,000 people came forward during the amnesty. Other Swiss banks asked
clients to waive confidentiality requirements, fearing that they too might be
prosecuted. The settlement did not provide all that either side desired. Most
remarkable, though, was the degree to which it involved a diplomatic resolu-
tion. Such sensitive issues can be handled in a variety of ways when they come
up. The DOJ has an Office of International Affairs that coordinates interna-
tional agreements, among other foreign-policy-related efforts. In some areas,
formal treaties or mutual assistance agreements provide for cooperation at the
enforcement level, or more informally, prosecutors collaborate with interna-
tional organizations or foreign law enforcement. Even in the area of corporate
prosecutions, prosecutors are an eclectic bunch. Different types of prosecu-
tions are handled by different groups of prosecutors within the DOJ working
with different regulators and using different rules. One size does not fit all.
Magic Pipes
The M/T Kriton is a large oil tanker vessel, 600 feet long and weighing
42,000 deadweight tons. In March 2007, it was docked in New Haven, Con-
necticut, during a trip delivering fuel and diesel up and down the East Coast.
The ship was flagged from the Bahamas and managed by a Greek company,
Ionia Management, S.A., which operates a fleet of ocean vessels. There were
twenty-three crewmembers on board.
On March 20, 2007, a Coast Guard officer received a phone call from The
Electrician on the Kriton, reporting that the ship was dumping oily water
illegally at sea. The Electrician was from the Philippines but spoke English;
although the chief engineer and master of the ship were Greek, as were the
owners, much of the crew were Filipino, and they all spoke English. The Coast
Guard officer later explained that English is the language of the sea, for the
most part now.36
230 Too Big to Jail
The Electrician had sent videos from his cell phone, but they did not
clearly show the sought-after magic pipe, or hose. A team of Coast Guard
officers boarded the ship to inspect the records and conduct a search.
Theydid not find a magic pipe, but they interviewed those on board the
vessel.
What is a magic pipe? It is an improper way for ships to dispose of waste.
Large ships create sludge when fuel oil is purified by oil filters, and this sludge
is supposed to be stored in onboard tanks and deposited in large tanks at
shore when the ship docks. Ships also create oily bilge water, which, as the
prosecutor later explained at trial, is created when water at the bottom of
the vessel . . . is mixed in with oil that is leaked from the extensive piping
throughout the ship and the machinery that is on board such a large oil tanker
vessel like the Kriton.37 Ships discharge bilge water from their engines and
other piping, and that water may include oil, lubricants, cleaning fluids, and
other waste. Ships are required to monitor, store, and process these oily wastes
under an international treaty concerning oil pollution at sea. In the United
States, the Act to Prevent Pollution from Ships (APPS), ratified in 1980,
implements the treaty.38 The law prohibits ships in international waters, an
area more than twelve nautical miles from the coast, from discharging more
than fifteen parts per million of oil in wastewater. However, if the ships
equipment is not working properly, or if the crew wants to hide the extent of
leaks in their engine room, or if they simply do not care about environmental
rules, the crew may use a magic pipe or hose to dump the oily wastes over-
board rather than properly store them.
Upon docking at a U.S. port, ships are required to show the Coast Guard
an Oil Record Book signed by the ships chief engineer and make their docu-
mentation, as well as the ship itself, available to the Coast Guard for inspec-
tion.39 If foreign vessels provide the Coast Guard with false records concern-
ing oil discharges, they may be prosecutednot for the polluting conduct
itself, which occurs on the high seas, but for making false statements to fed-
eral officials. As a result, courts have rejected jurisdictional challenges to
such prosecutions, since jurisdiction is premised on false reporting while at a
U.S. port.40 Few firms contest jurisdiction, with the overwhelming majority
pleading guilty, but Ionia Management took the case to trial. They were
charged with conspiracy, violations of the APPS, falsifying records in a fed-
eral investigation, and obstruction of justice.
Prosecutors argued at trial that the chief engineer and the second engi-
neer specifically directed the engine room crew to bypass these [pollution
prevention] devices by the use of a bypass hose, or what became known as a
magic hose. They would remove some of the ships piping and the flanges
that connected these pipes together, and then connect this magic hose,
which you will hear was a black rubber hose, about four to five meters long,
which is about 12 to 15 feet. They would then pump out the waste oil tank
directly overboard into the sea . . . bypassing the storage tanks and the pollu-
tion prevention equipment that was on board the vessel.41 When they reached
port, the prosecutors said, they would disconnect and hide the magic pipe,
replace the stripped piping and clean and repaint it, and not tell the Coast
Guard. Because it occurs in international waters, this sort of dumping can be
impossible to catch.
Why did The Electrician call the Coast Guard, then? He could potentially
receive an enormous bounty under the whistle-blower provisions in the
APPS, which reward seamen who report oily discharges to the United States.
A crewmember may receive as much as half of a criminal fine that may amount
to the millions of dollars.42 Indeed, The Electrician said one reason he re-
ported this to the Coast Guard was that he had read a magazine article about
how crewmembers could get rewards for reporting ocean dumping.43
The engine room on a ship like the Kriton is a big place. It has multiple
decks, and several people work in it. When Coast Guard officers boarded,
they did not find a hose, but they did find worn-out bolts on the piping, which
was unusual, since they are generally not removed (unless one is improperly
masking a magic pipe). When they spoke to the crew, one was extremely ner-
vous, and admitted that the discharge hose would be hooked up after the
ship left port and that it had been disconnected a couple of days before the
ship arrived in New Haven. 44
The trial took place in federal court in Connecticut in fall 2007. The de-
fense lawyer emphasized in the opening arguments that the employees who
had reported the discharge were looking to cash in and get a reward and
should not be trusted. For The Electrician in particular, one of the first things
he told the Coast Guard when he called was that he was ready to accept his
reward for calling, that he hopes to become an instant millionaire.45 Others,
like the second engineer, may have cooperated when they were charged and
pressured, argued the defense.46
232 Too Big to Jail
Four crewmembers from the Kriton testified they participated in the

ocean dumping. A wiper, a low-level crewmember, and a cadet engineer de-
scribed how they were the ones who actually connected the magic pipe after
leaving each port. They claimed they hooked up the pipe below the engine
room floor, on the orders of the higher-up second engineer. They would recon-
nect the pipes and repaint everything before arriving at a port. An oiler, also a
low-ranking crewmember, testified that he was asked to help with pump outs
to the sea through the pipe. The chief engineer told him that if the Coast
Guard asks any questions that [he] should say only oily water separator, and
that the separator is the only thing that is used for pumping the bilges. The
second engineer also testified and said that the chief engineer specifically
told him they should keep using the magic pipe. The government had more
evidence as well: the Dutch Coast Guard had flown a surveillance aircraft
that on January 30, 2007, used radar to take an image of the Kriton with an
11.7-kilometer stream of discharge trailing behind it.
The defense lawyer asked whether this magic pipe might just be imagi-
nary: The magic hose, where is it? In the closing arguments, he emphasized
that it is for you, the jury, to decide if there ever really was a magic hose. 47
After all, the Coast Guard searched the ship high and low and didnt find the
hose. He argued the hose the crew had described couldnt reach all the way to
the bilge pump: It just doesnt make sense, does it?48 The Coast Guard found
no oil dripping down the outside of the ship nor traces of oil inside the
ship. The only evidence of a hose were photos The Electrician had taken that
showed the hose lying on top of the engine room floor. 49
The defense argued, Ionia shore-side management is not accused of any-
thing wrong itself or even having any knowledge anything was wrong. The
jury was told that they are a first-rate, environmentally-friendly ship manage-
ment company. Ionias crew were well trained and well aware of Ionias
pollution prevention measures.50
The prosecutors responded that the company did have something to gain.
ConocoPhilips, Shell, and Chevron were paying customers of Ionia, and if
the ship does not pass the inspections, then they dont sail and dont get
paid. This is all about money, money and convenience at the expense of the
environment. Prosecutors also responded that it was nothing special that Io-
nia had training and practices on disposing of oily bilge water. After all, the
fact that these environmental policies were in place to begin with is because its
required by United States law. Regardless, the policy the company had was
not worth the paper its written on because they werent following it.51 More-
over, Ionia had been prosecuted for similar conduct several years before and
was under an EPA consent decree from 20042007, with a Coast Guard audi-
tor. Employees testified that supervisors had told them to use the magic pipe
and make false entries in their records book. This violated Ionias probation.
The jury found Ionia guilty on all counts.52 The company paid a $4.9 mil-
lion fine and was required to have a special master report to the court every
six months regarding the companys compliance. From that fine, The Electri-
cian received an award of $550,000, and the oiler and engineer who also co-
operated each received $350,000. The lawyer for the engineer said this would
be a life changing experience for his client, since the cost of living is low in
the Philippines, his home country.
In 1993, the Department of Justices Environment and Natural Resources
Division, the U.S. Coast Guard, and the Environmental Protection Agencys
Criminal Investigation Division began a Vessel Pollution Initiative to detect,
investigate, and prosecute illegal vessel discharges of oily wastes, plastics, and
other wastes that are in violation of U.S. environmental laws.53 The prosecu-
tions grew from a perception that illegal dumping was rampant and so per-
vasive within the maritime community. Prosecutors warned the initiative
would continue until the number of referrals dwindle[s] to zero.54
Over the years, prosecutions accelerated and foreign firms operating ves-
sels increasingly faced large fines. These ocean dumping cases typically have
been brought against foreign ship owners. Only 8 percent (6 out of the 79)
APPS convictions I was able to locate involved domestic firms; the 73 others,
or 92 percent, were foreign. Maybe this should be no surprise. Few commercial
shipping companies flag or register their vessels in the United States. Many of
the ship management companies are based in Greece and Hong Kong.
The Department of Justice averages approximately two to four new vessel
pollution cases per month.55 Many DOJ vessel pollution prosecutions involve
falsified oil record books in addition to magic pipe allegations.56 Often
whistle-blowers on the ship send photos and videos to the Coast Guard from
their smartphones. In contrast to the whistle-blowers, senior crew who fail to
report as required have been prosecuted and convicted. Practitioners also at-
tribute the acceleration of prosecutions to improvements in technology used
by the Coast Guard, greater media coverage of ocean dumping, and the DOJs
234 Too Big to Jail
increased skill in litigating such cases. Like the Ionia case, these cases are
resolved by convictions, not deferred prosecution agreements. Most such as
cases are brought or led by the DOJs Environmental Crimes Section or led
by them, and those prosecutors do not tend to use deferred prosecution
agreementsthey pursue convictions.
Antitrust Prosecutions
The lysine cartel changed the world of antitrust prosecutions. Lysine is an

amino acid, an important building block for protein in our bodies. Farmers
give animals feed with extra lysine added to it, and several major agricultural
companies manufacture it in large quantities, along with other food addi-
tives such as citric acid. Five companies dominated the market for lysine in
the late 1990s: Archer Daniels Midland (ADM) in the United States, two
Japanese companies, and two Korean companies. They all eventually pleaded
guilty to participating in a price fixing cartel.
The Supreme Court has called such price-fixing cartels the supreme evil
of antitrust.57 The five companies would meet around the world to discuss
the prices they would charge. This kept any one company from undercutting
its rivals, allowing all of the competitors to raise prices together and reap
greater profits without fear of competition.
How could prosecutors know that these secret high-level conversations
were occurring? Like in the ocean dumping cases and the UBS tax fraud case,
a whistle-blower came forward, in this case an ADM employee. His involve-
ment was dramatized in a book and the movie The Informant.58 He wore a
wire and provided prosecutors with taped conversations of international ex-
ecutives fixing prices. This was the very first prosecution of an international
price-fixing conspiracy, and when the case settled, ADM paid what was then
the largest-ever antitrust fine at the time, over $100 million. Today this would
merely be a pretty big case. But after the record fines levied in this case, there
were much greater incentives for whistle-blowers and companies to report
new violations. This created momentum that brought new antitrust cases to
prosecutors attention.
Antitrust cases stand out for the vast size of the fines. British Airways
paid $300 million in fines in 2007, and Air France/KLM paid $350 million
in 2008. Yazaki Corporation paid $450 million in 2012, taking second place
behind F. Hoffmann-La Roche, which paid $500 million in 2007, and AU

Optronics Corporation, which paid $500 million in 2012.59 All of these
companies pleaded guilty except AU Optronics, which was convicted after a
trial. There are not many antitrust prosecutions; the largest number in a year
that I found was twenty-five cases in 2012, and the average was fifteen cases
per year, most of which were guilty pleas. Yet the size of the fines make the
cases stand out, as the average antitrust fine is over $34 million. Figure 9.2
displays these fines over the past decade.
The biggest recent antitrust case broke open a cartel to fix prices for the
liquid crystal display (LCD) panels used in laptops, desktops, and television
screensthe big bump in fines in 2012 comes in large part from LCD cartel
prosecutions. For years, executives at the biggest manufacturers of LCD pan-
els conspired to keep prices up, holding crystal meetings monthly in hotel
rooms to plan their operations. When they later worried authorities had
caught wind, they sent lower-level employees to meet in public places such as
karaoke bars, restaurants, and cafes.60
This time U.S. prosecutors found out about such secretive conduct not
from an individual whistle-blower but from one of the companies involved in
the conspiracy. That first company was the ultimate corporate snitch. It
turned in the other members of the LCD cartel, and in exchange it received a
complete passoutright amnesty from U.S. prosecutors. That company and
its employees were not prosecuted, but seven of the other companies were,
and most pleaded guilty, agreeing to pay over $890 million in fines.
One of the cartel members steadfastly refused to admit guilt. In 2012, AU
Optronics Corporation, the largest LCD manufacturer in Taiwan, took its
1,200,000,000
1,000,000,000
800,000,000
600,000,000
400,000,000
200,000,000
0
2001 2006 2011
Antitrust Fines
Figure 9.2 Total Fines in Antitrust Prosecutions, 20012012

236 Too Big to Jail
case to a criminal trial, the first criminal trial in an antitrust case in a decade.
AU Optronics lost. Three of its executives were sentenced to three years in
prison, and the government asked for a $1 billion fine, which would have been
the largest criminal fine ever in an antitrust case, to underscore the serious-
ness of the matter. 61
The judge noted that the defendants made an extremely useful product
which really has changed the world, but that this was a serious and a far-
reaching conspiracy. Further, it had enormous consequences for U.S. con-
sumers. And while other companies and executives cooperated, admitted
their conduct and got out early, AU and its employees did not.62 Yet the
judge ultimately decided to reduce the fine to $500 million.
Prosecutors objected, arguing that these defendants played pivotal roles
in a global conspiracy that had an unprecedented impact on the pocketbooks
of countless American consumers. 63 There were high-level executives who
also had taken their cases to trial. They had not apologized. The company
continued to say that what it did was not wrong or illegal; it argued that it was
just exchanging market and pricing information with other companies. Pros-
ecutors pointed out that the closest antitrust case to this one in seriousness
was the ADM case that had started it all, the lysine and citric acid cartel case.
But ADM had pleaded guilty and admitted responsibilityand had still
been sentenced to ten times the then statutory max. The prosecutors argued
that $500 million is not enough to deter cartels like this from forming.64
They noted another company in the LCD cartel received a 50 percent reduc-
tion in its fine because it provided such substantial assistance to prosecutors
something that AU had refused to do. The defense lawyers countered that
their client should not be punished for deciding to take its case to trial. They
said that it was not fair that the first company to report was like Clint East-
woods empty chair in this case, receiving a complete pass.65
The judge concluded that a $1 billion fine, although dramatic, was sim-
ply substantially excessive. It just seemed like too much. The judge could
have also fined AU Optronics America, the U.S. subsidiary, but that would
be piling on, as there were also civil lawsuits pending, which could result in
hundreds of millions in additional fines.66 On top of that, the judge sen-
tenced the executives to relatively light sentences, noting that while they had
made poor choices, at the time they had felt they were doing the right thing
for their company. These executives were not trying to take money so that
they could keep it and spend it. 67 Finally, the judge ordered AU Optronics
to implement a compliance program and admit wrongdoing in major trade
publications in the United States and in Taiwan.68
Price fixing cartels can be tough nuts to crack. As in the lysine and LCD
cartels, high-level executives can operate in secret. There are very few de-
ferred prosecutions in antitrust cases, as prosecutors do not reward compli-
ance or best practices. Instead, they use leniency as a weapon. The way to
penetrate those smoke filled rooms is to use the ultimate snitches: the cartel
members themselves. The idea is simple, giving members of a price fixing
cartel more incentive to defect and stop charging artificially high prices. The
Antitrust Division at DOJ exclusively brings antitrust prosecutions, together
with field offices specializing in antitrust. To harness those incentives be-
tween competitors, the Antitrust Division adopted a remarkable approach
known as the Corporate Leniency Program. 69 The first company to report
on the others in the cartel can receive leniency in the form of complete am-
nesty for turning the others in. The Corporate Leniency Program was first
created in 1978, and significantly revised in 1993 to make participating more
attractive,70 giving automatic and complete amnesty to the first reporting
firm, if it cooperates. Having been turned in by one of their own, the other
cartel members have every incentive to plead guilty and cooperate rather
than face a trial. One may never publicly hear which that first reporting com-
pany wasit is the empty chair in the casebut the competitors are typi-
cally convicted of crimes and pay large fines. Indeed, to further encourage
self-reporting antitrust crime, the DOJ now provides credit, though not full
amnesty, to a second-in or subsequently reporting cartel member that co-
operates fully after the first obtains amnesty.71
This is the clearest approach to corporate prosecutions that any group of
prosecutors has devised. The goal is to break up cartels, not a vague desire to
improve corporate compliance. Antitrust Division prosecutors do not im-
pose corporate monitors. They do not normally impose detailed compliance
requirements. They use a hammer to smash cartels. Unless self-reporting
first, violators receive harsh penalties. Even if other crimes do not have the
same incentive structure as a cartel, prosecutors could adopt a similarly clear
policy of promoting self-reporting and effective compliance, while making the
238 Too Big to Jail
consequences of hiding violations severe. One lesson from these antitrust

cases is that treating the cases as criminal and insisting on convictions has
not discouraged self-reporting. Quite the contrary.
Over the past decade, enforcement against foreign firms has accelerated
as the DOJ focused on prosecuting larger and international cartels. Of the
antitrust prosecutions in my data, 45 percent were foreign companies (78 of
175 companies). International cartel cases account for more than 90 percent
of fines imposed.72 An Antitrust Division diagram displaying prosecutions
with fines over $10 million, includes firms with household names: British
Airways, DeBeers, and Samsung Electronics. Only 16 of the 112 firms fined
over $10 million were domestic.73 The result has been record fines at a level
so threatening (or so desirable) that more foreign countries are trying to pass
antitrust laws that mirror those in the United States. As the laws of other
countries converge with those of the United States, there has been more
cooperation among prosecutors globally, and corporations have more incen-
tives to self-report both at home and to U.S. authorities.
Prosecutors have actively tried to spread their gospel. The Antitrust Divi-
sion made a major priority of promoting international cooperation and
convergence, including by working with the International Competition Net-
work and the OECD. Such efforts have accompanied a convergence in
leniency programs, in which at least forty-eight other countries adopted such
programs. This made it easier and more attractive for companies to simulta-
neously seek and obtain amnesty in the United States, Europe, Canada and
other jurisdictions.74 Such programs allow a company to avoid the danger of
others self-reporting and the firm then facing civil and criminal enforcement
in multiple jurisdictions. The convergence of law enforcement has included
cooperation agreements, coordinated and parallel investigations, and prose-
cutions. The United States informally cooperates and shares information
with other jurisdictions so that a firm can make simultaneous amnesty ap-
plications to multiple authorities.
The leniency program also provides strong incentives for individual
employees to defect and report. A company obtaining leniency also ob-
tains it for employees, officers, and directors. In addition, a 1994 DOJ
policy gave leniency to individuals who report cartel behavior.75 Success
builds on success, and each conviction reinforces the strength of these
leniency policies. As other countries cooperate and adopt parallel ap-
proaches, convergence may encourage still additional self-reporting by

foreign and domestic firms.
FCPA and Other Criminal Statutes
Federal prosecutors pursue charges of foreign bribery under the Foreign

Corrupt Practices Act. These cases have been few in number but stand out
for the size of their fines. Fewer than 100 companies have been prosecuted
under the FCPA since 2001, but these cases have an average fine of $27 mil-
lion. Recall the case that I began this book with, in which Siemens paid a
$450 million criminal fine in the largest FCPA case of all time. Siemens is by
no means the only major company to settle foreign bribery charges, as a
mounting number of the biggest prosecutions of public companies are FCPA
cases. I found that of the FCPA cases brought from 2001 to 2012, about half
were foreign companies (49 percent, or 48 of 97 companies).
The FCPA makes it a crime to corruptly pay certain types of bribes to
foreign officials. Its civil accounting provisions also oblige companies that is-
sue stock in the United States to keep accurate books and records and main-
tain a system of internal accounting controls.76 The SEC also has authority to
enforce the FCPA civilly, a power shared with the DOJ, but only the DOJ
can prosecute criminal FCPA violations.
Why prosecute bribery that occurs in other countries? Prosecutors argue
that corruption is bad for business and undermines democracy and the rule
of law. There is evidence that bribery and corruption are rampant in some
parts of the world, although it is obviously difficult to measure such behavior.
A 2011 survey by Dow Jones, for example, found that 40 percent of surveyed
companies reported losing business to competitors that used corruption.77 A
study of reported bribery cases by public companies found that the median
bribe was $2.5 million and that firms gained $11 for every dollar they spend
in bribes.78
The FCPA is not a new law. It was passed in 1977, in the wake of the Water-
gate scandal and revelations that corporations regularly bribed government of-
ficials.79 Yet only 25 corporations were prosecuted for violating the FCPA be-
fore 1998, when an international treaty on corruption was signed: the OECD
Convention, now ratified by thirty-eight countries.80 Parties are required to
institute effective, proportionate, and dissuasive criminal penalties for the
240 Too Big to Jail
bribery of foreign officials.81 In 1998, the FCPA was amended in part to

comply with the OECD Convention.82 The amendments made the FCPA
much broader, expanding the coverage of the statute and providing for wider
alternative jurisdiction over extraterritorial acts by domestic firms. The
amendments require that a foreign company with stock listed in the United
States make use of the mails or any means or instrumentality of interstate
commerce in furtherance of the bribery acts, but that a foreign company
that does not have stock listed in the United States must do so while in the
territory of the United States.83
With other major countries agreeing to enforce anti-corruption and anti-
bribery laws, it became more palatable for the United States to get more ag-
gressive. Siemens had been paying bribes around the world for decades, but
once doing so was against the law in Germany, U.S. prosecutors eventually
intervened. Not only are FCPA prosecutions a major DOJ priority, but the
FBI and SEC created units dedicated to FCPA investigations.84 There has
also been a rise in prosecutions of individual employees for FCPA violations.
As Figure 9.3 shows, the numbers of FCPA corporate prosecutions have in-
creased from a handful each year to more than twenty.
More and more cases fall into the laps of U.S. prosecutors. Companies
now frequently self-report to avoid the harsh consequences of a prosecu-
tion.85 As DOJ deputy chief Mark Mendelsohn put it, If we call them be-
fore they call us, its not where they want to be.86 The FCPA also has an
unusual structural provision, pursuant to a 1988 amendment, that adds a dif-
ferent sort of deference to corporate actors. Unlike in typical criminal cases,
potential violators can seek written opinions from the DOJ as to whether a
25
20
15
10
0
2000 2005 2010
Convictions Total Prosecutions
Figure 9.3 Numbers of FCPA Corporate Prosecutions, 20012012

transaction violates the FCPA.87 The DOJ has thirty days to issue an opin-
ion, and if the DOJ says the transaction is allowable, it is a binding decision
that creates a presumption that the transaction complies with the FCPA.
This notice procedure had been little used in the past, but opinions have
been solicited more often in recent years. The DOJ and SEC have also of-
fered guidelines on the FCPA to give more notice to companies. They empha-
size that companies should adopt risk based compliance programs by dedi-
cating more resources to compliance in high-risk countries.88 As with antitrust
and ocean dumping cases, success generates further success for prosecutors.
More companies have incentives to self-report if they fear the consequences of
employees (like The Banker at Siemens) or competitors reporting them first.
However, FCPA prosecutions are far more muddled affairs than antitrust
or environmental prosecutions. The prosecutions sometimes resulted in a
conviction (in 34 cases), but an increasing number resulted in a deferred pros-
ecution or non-prosecution agreement (63 cases). There is no clear reason that
explains whether a company receives a deferred prosecution agreement filed
with a court, or a non-prosecution agreement not filed with a court, or a plea
agreement resulting in a conviction. And many FCPA cases are just handled
by the SEC as civil cases. From 20012012, the SEC brought 92 cases against
companies, though in 61 of those cases, there was also a prosecution. Only a
third of the SECs FCPA cases (31 of the 92 cases) were unaccompanied by a
criminal prosecution.
While the SEC can impose a fine, civil fines averaged less than half of the
criminal penalty. For example, Baker Hughes was fined $11 million by prosecu-
tors, but the SEC imposed no penalty. Syncor paid $2 million to prosecutors
and only $500,000 to the SEC. The civil penalties were almost entirely dis-
gorgement of profits and interest; the SEC is hamstrung by legislation that per-
mits only fairly small penalties in most civil cases beyond disgorgement of prof-
its.89 That helps to explain why it may have so often been necessary to bring a
criminal prosecution alongside the SEC case, as the SEC may feel it simply
cannot impose adequate fines on its own. In criminal enforcement of the FCPA,
with the far larger fines, 36 percent of the firms involved (35 of 97 firms) were
foreign. In SEC civil enforcement, 28 percent (26 of 92 firms) were foreign.
Although the DOJ and SEC provided long-awaited guidance on the
FCPA, they have not established clear guidelines on what kind of corporate
prosecution agreements are appropriate and or on what types of compliance
242 Too Big to Jail
can best prevent foreign bribery. While deferred prosecution and non-
prosecution agreements often talk about the need to audit compliance or as-
sess the risk of corrupt practices in a given country, there is no detail normally
provided about how to do that. There is not research or performance evalua-
tion of how well these anti-corruption practices work. Yet prosecutors give
substantial leniency when they impose fines in FCPA cases, often giving
credit for work to implement new compliance remedies. The result is a lack
of an adequately principled and clear approach to corporate FCPA prosecu-
tions. Self-reporting and cooperation should be strongly rewarded, as in an-
titrust cases, but otherwise, egregious failures of compliance should result in
serious structural reforms and fines.
Prosecutors enforce a range of other criminal statutes against foreign com-
panies. Even in cases involving the FCPA or antitrust violations, more typical
federal crimes (conspiracy, wire and mail fraud, or RICO charges) may ac-
company the primary charges. Another related family of statutes has to do
with international commerce: crimes related to import and export violations,
which may directly implicate foreign firms moving goods internationally. It is
also a crime to violate international sanctions. Other statutes aim to prevent
the use of financial institutions to transfer illegal funds, including transfers
abroad, related to banking fraud, money laundering, and material support of
terrorism, as well as illegal imports and exports. Adopting a still different
approach in support of terrorism cases, the State Department designates or-
ganizations for which material support is forbidden, but only after a process
that includes notice and consultation with the Attorney General, Department
of the Treasury and Congress.90
Jurisdiction
Prosecutors have been able to get jurisdiction over foreign companies, even for
conduct by foreign employees that primarily occurred in foreign countries.
Corporations are often present in many countries, as the Supreme Court
has noted, yet the Court does not typically presume that a U.S. law reaches
corporations that are active outside the United States or conduct that oc-
curred abroad, nor does it presume even that mere corporate presence in the
United States suffices.91 However, the reach of U.S. criminal law is broad.
Some criminal laws, such as the FCPA, explicitly apply to foreign companies
and conduct. Foreign firms that list securities in the United States are con-
sidered present in the United States, and they agree to be subject to SEC
disclosure requirements that can prompt self-reporting and then prosecu-
tions. As the Court noted in a case involving securities listed in the United
States, harm to stockholders in the United States may be direct regardless
whether the company is domestic or foreign.92 Jurisdiction is also straight-
forward if foreign companies commit crimes in U.S. territory. Cases in-
volving reports of oil discharge made to U.S. authorities, cartels that fi x
prices for goods bought by U.S. consumers, or failure to report bribes in
reports to the SEC all directly implicate U.S. jurisdiction. Absent direct
harm felt in the United States, jurisdiction may also be premised on a pro-
tective principle if there is a potential harm to U.S. interests or national
security.93
Nor is there any such thing as international double jeopardy. Federal pros-
ecutors can proceed even if foreign prosecutors already prosecuted the com-
pany. Federal prosecutions may choose to abstain in this situation, but they
are not required to do so. As the Supreme Court has often emphasized, the
very nature of executive decisions as to foreign policy is political, not judi-
cial.94 In civil antitrust prosecutions, for example, the Court ruled in Hart-
ford Fire Insurance Co. v. California that a foreign firm may be prosecuted de-
spite the fact that its home nation has different antitrust rules, unless the firm
would be held to completely incompatible norms of conduct.95 Prosecutors
may take foreign prosecutions into account in other ways. A settlement in
the Akzo Nobel N.V. case imposed a fine, but just on the condition its sub-
sidiary did not pay fines to the Dutch Public Prosecutor. Ultimately, the
DOJ imposed no additional penalty after the firm settled with Dutch au-
thorities.96 The Statoil case, however, saw a prosecution go forward against a
company majority-owned by the government of Norway that had already
been prosecuted and fined $3 million in Norway. A U.S. prosecutor empha-
sized that the Department will not hesitate to enforce the FCPA against
foreign-owned companies.97
Prosecutions are a quintessential exercise of U.S. sovereign power. Some
commentators have argued that extraterritorial jurisdiction in the United
States can benefit countries that lack effective, fair judicial systems for resolv-
ing commercial disputes. Others decry the rising globalization of litigation
involving foreign plaintiffs and defendants in U.S. courts.98 Criminal cases
244 Too Big to Jail
are not like cases brought by private litigants, whose choice of a U.S. court
might undermine foreign policy; it is prosecutors within the executive
branch who choose to bring a criminal case. And given that most compa-
nies settle their criminal cases, a judge may not have an opportunity to
answer questions of jurisdiction. Most important are the practical obsta-
cles to investigating foreign corporate crimes, and the diplomatic issues a
prosecution may raise.
Cooperation
Cooperating with foreign prosecutors can make actions against foreign cor-
porations far more likely to go forward. The largest example of such coopera-
tion is the investigation into oil companies that participated in the U.N. Iraq
Oil for Food program. Conceivably the largest international anti-corruption
investigation ever, this inquiry, led by former Federal Reserve chairman
Paul Volcker, implicated 2253 companies worldwide and $1.8 billion in al-
leged kickbacks to the Iraqi regime of Saddam Hussein, and involved the
DOJ, the SEC, two U.S. Attorneys Offices, four congressional committees,
the Manhattan District Attorneys Office, the Department of Treasurys Of-
fice of Foreign Asset Control, the United Nations, and at least six foreign
governments, to date.99
The Independent Inquiry Committee that initially led the investigation
was convened by the United Nations with an international membership. Its
findings led to investigations in a number of countries; DOJ investigations
resulted in FCPA prosecutions and deferred prosecution agreements with
firms that participated in the Iraq Oil for Food program. Additional non-
FCPA prosecutions were brought by the Manhattan District Attorneys Of-
fice. Not all prosecutions of foreign firms are federal, but because of the dip-
lomatic issues involved, foreign prosecutions by state or local prosecutors
have typically been conducted in conjunction with federal counterparts.
Diplomacy and the Swiss Banks
The negotiations that finally resulted in a settlement with UBS, the largest
bank in Switzerland, did not completely resolve matters. A Swiss federal ad-
ministrative court ruled that UBS could not disclose the name of a U.S. tax-
payer, reasoning that Swiss law does not prohibit tax evasion. The deferred
prosecution agreement and IRS settlement suddenly appeared at risk. Pros-
ecutors said they would renew their suits should UBS not comply. Negotia-
tions continued. The result was an agreement between Switzerland and the
United States, approved by the Swiss Parliament in June 2010, amending an
earlier treaty to allow more exchange of information on potential tax evad-
ers.100 The prosecution was ultimately resolved not just through standard
law enforcement but with a treaty.101
UBS still faced the wrath of wealthy former clients in the United States,
some of whom sued UBS, arguing that they suffered because of the services
UBS provided to help them avoid taxes. The appellate court threw out their
lawsuit in 2012, calling it a travesty and saying, It is very odd, to say the
least, for tax cheats to seek to recover their penalties . . . from the source, in
this case UBS, of the income concealed from the IRS.
Meanwhile, prosecutors are still using information from UBS clients to
pursue other foreign banks. Deutsche Bank entered a non-prosecution
agreement with the DOJ with a penalty of over $550 million, and Wegelin &
Company, Switzerlands oldest private bank, pleaded guilty to tax fraud and
paid $74 million.102 Wegelin had even tried to lure some of UBSs clients after
UBS was prosecuted; Wegelins website had proclaimed, Neither the Swiss
government nor any other government can obtain information about your
bank account. There had been few tax prosecutions of foreign firms in the
past, but that is changing, and Credit Suisse and other Swiss banks or banks
with branches in Switzerland are under investigation. In 2013, Liechtenstein-
ische Landesbank AG, a bank based in Liechtenstein, entered a non-
prosecution agreement and paid more than $23.8 million.103 Tax prosecutors
announced a settlement program that provided leniency in the form of non-
prosecution agreements for banks that came forward before 2014, noting
that any banks that did not disclose their role in helping individuals avoid
U.S. taxes would be treated more harshly.104 All of these prosecutions have
placed pressure on the Swiss government to allow Swiss banks to give more
information about their clients to U.S. authorities. A new tax treaty is in the
works, and total fines paid by the Swiss government for tolerating tax eva-
sion could total $10 billion.105
246 Too Big to Jail
Global Fallout: Siemens and BAE
What about Siemens, the case that I began this book with? Did the company
enjoy global peace once it settled with U.S. prosecutors, as I described in the
introduction to the book? It seems Pax Americana may not be enough for a
multinational firm: Siemens now faces prosecutions in other countries, and it
has already settled an action in Greece.106 Apparently the United States and
German governments, after the Siemens bribery case came to light, sent in-
formation uncovered in their investigation to officials in China. Chinese au-
thorities then prosecuted two executives at state-owned telecommunications
firms, with one sentenced to death.107 Authorities in Brazil settled a potential
prosecution after Siemens self-reported evidence concerning bribery in that
country.108 Siemenss compliance program also uncovered and reported a new
bribery case in its Kuwaiti unit.109 Perhaps this is no surprise. The legacy of
years of global bribery does not disappear with one U.S. prosecution agree-
ment, even a massive one.
As for BAE, after years of stalled investigations its case came to a swift
conclusion in February 2010. BAE Systems PLC, the U.S. subsidiary of
BAE, entered a guilty plea with the DOJ and admitted to violating the
Arms Export Control Act and making false statements to the government
concerning FCPA compliance. BAE Systems agreed to pay $400 million
in fines, create a compliance program to detect FCPA violations, hire a
corporate monitor, and enter three years of corporate probation. With
theU.S.subsidiary pleading guilty, however, the parent avoided a convic-
tion entirely. As in the Siemens agreement, the BAE agreement provides
that the monitor be a U.K. citizen, approved by the United Kingdom
and with appropriate security clearance as required by Her Majestys
Government.110
The United States is the leading exporter of corporate criminal law.
Countries influence each others criminal law by example, cooperation, and
diplomatic pressure. The United States applies soft forms of pressure by shar-
ing resources and training with foreign prosecutors as well as wielding the
hard threat of a U.S. prosecution. U.S. prosecutors also sometimes face diplo-
matic pressure from other countries in high-profile cases, and we may see
more pressure from other countries as the criminal law policy and practice of
nations becomes increasingly connected. After all, the United States depends
on cooperation of other nations in a host of enforcement efforts. Prosecutors

increasingly collaborate on international work, assisted by treaties cement-
ing norms against corruption and fraud. There may then be more prosecu-
tions by foreign prosecutors, including of U.S. companies. For example,
Nigeria brought criminal charges against the U.S.-based Halliburton for
bribery, which ended with a $35 million settlement.111
We may see more foreign corporate monitors as well. In addition to the
Siemens case, the Alcatel-Lucent case also involved a foreign monitor, this
one appointed in France. France has a blocking statute that prohibits shar-
ing confidential economic information outside the country, so a monitor re-
porting to the DOJ and the SEC in the United States might have violated
French law. High-level meetings with French Ministry of Justice officials and
judges were needed to work out how the monitor would be able to function
effectively.112
I began this chapter by noting that foreign companies received larger fines
than comparable domestic firms. There is not one single explanation for this.
A central problem with data in cases that prosecutors decided to bring is
that we do not know what types of cases prosecutors declined to bring. I do
not want to suggest that foreign firms are somehow being singled out un-
fairly, as they could be selected for good reasons, including because they are
the worst violators. Perhaps many thought they could avoid U.S. criminal
law in the past, and U.S. prosecutors have now sent a message that this has
changed. Prosecutors may simply not bother to go after a foreign firm ex-
cept in a very serious case, due to the practical obstacles in targeting for-
eign corporations. As noted, one obstacle can be jurisdiction, but since it
may be premised on the foreign firm having stock listed in the United
States, as a result, prosecutors may more easily target the largest public
foreign companies. U.S. prosecutors may also view foreign civil penalties
as an inadequate punishment in the most serious cases, resulting in larger
average fines. Domestic companies may better understand how to garner le-
niency by cooperating with U.S. prosecutors than their foreign competi-
tors. This may be changing, and perhaps criminal fines against foreign
companies will no longer be so prominent in the future. After all, interna-
tional cooperation was a big part of the story I have told, in which treaties
and cooperation helped pave the way for prosecutors to take on more foreign
companies.
248 Too Big to Jail
If you cant beat them, join themthat may be the thinking of prosecu-
tors in other countries. The United Kingdom changed much about its ap-
proach in response to the BAE case, and in late 2012, it decided to permit
deferred prosecution agreements. Perhaps had that tool been available earlier,
it could have prosecuted BAE without seeking a conviction and remained
sensitive to Saudi interests. Other countries are considering using deferred
prosecutions as well.
In July 2011, the United Kingdom put into effect a far tougher Bribery Act
regulating payments to foreign officials.113 The Serious Fraud Office adopted
guidelines that mirror Department of Justice guidelines for corporate prose-
cutions, including rewards for self-reporting and the use of monitorsa Brit-
ish equivalent of deferred prosecutions. In the foreword to the new Bribery
Act, Justice Secretary Jack Straw emphasized that the UK is determined to
work closely with its international partners to tackle bribery.114 Perhaps a
sign of things to come, rather than prosecute Innospec Inc. for foreign brib-
ery in 2007, the DOJ referred the case to the United Kingdoms SFO, which
obtained a guilty plea.
Now that the United States and United Kingdom share a similar ap-
proach, fewer tensions may result from corporate prosecutions. If other coun-
tries adopt the U.S. approach to corporate prosecutions, there may be more
room for collaboration, less work for U.S. prosecutors, and stronger incen-
tives for corporations around the world to adopt compliance programs and
governance reforms.
The U.S. approach to negotiating corporate prosecutions is fairly new and
much of it remains untested. All of the problems described earlier in this
book should give us more pause, especially once we realize that while the
new non-prosecution approach to corporations has taken hold, corporate
prosecutions by federal prosecutors have gone global. As a global leader, the
United States now bears a special responsibility to lead by example by ensur-
ing we all get corporate prosecutions right.
That said, not only are foreign prosecutions some of the largest ones, with
ambitious goals to reform entire industries, but they are brought in areas in
which prosecutors seek stringent punishments. For example, antitrust cases
tend to involve corporate convictions, while environmental cases tend to re-
quire judicially supervised monitors, and FCPA cases tend to specify that com-
pliance be audited. The areas dominated by foreign corporate prosecutions
show how prosecutors can insist on convictions and court-monitored com-

pliance, perhaps without overly discouraging corporations from reporting
their crimes and cooperating. There are real lessons to be learned for domes-
tic prosecutions from the ways that against all odds, U.S. prosecutors have
successfully targeted companies around the globe.
10
The Future of Corporate Prosecutions
It could potentially cost a fortune. Would really appreciate any help . . .

During the previous week, a trader at a major international bank had
emailed a coworker who submitted interest rate estimates, telling him, We
have an unbelievably large set on Monday . . . We need a really low fix.
When Monday came, the trader sent a reminder that the big day has ar-
rived and his New York counterparts were screaming at me about an un-
changed rate. The submitter duly altered his estimate, acknowledging that it
wasnt what I should be posting.
The trader was appreciative: I agree with you and totally understand. Re-
member, when I retire and write a book about this business your name will
be in golden letters.
I would prefer this not be in any books!1
Now it is in a book. Before, during, and after the global financial crisis that
began in 2007, a group of major banks were gaming the system. The trader
sending those messages worked at Barclays Bank PLC, a financial services
firm headquartered in London. He and others asked their counterparts at
other banks to manipulate an important banking rate known as the London
InterBank Offered Rate, or LIBOR.
LIBOR, a measure of how costly it is for banks to borrow money from each
other, is used in hundreds of trillions of dollars worth of transactions each
year. Other rates, such as the Euro Interbank Offered Rate (EURIBOR), are
related to it. Banks use LIBOR to set interest rates for futures and options,
including three-month Eurodollar contracts sold on the Chicago Mercantile
The Future of Corporate Prosecutions 251
Exchangethe largest futures market in the world, with a value of over

$550 trillion in 2011.2 Everything from commodity trades to student loans,
mortgages, and credit cards relies on those benchmark rates as a reference.
LIBOR is like a barometer that measures changes in pressure on the global
money markets. It may be the worlds most important number.3
The British Bankers Association set LIBOR rates daily by asking a group
of sixteen banks to estimate what they would pay to borrow funds from an-
other bank. The association would exclude the highest and lowest estimates,
and the rate was set based on the average of the rest.4 The banks were sup-
posed to submit a rate based on their own fair estimates, but emails and texts
captured how the submissions were anything but fair.
In another email exchange in 2006, the same Barclays trader said (refer-
encing the three-month Eurodollar contracts): Were getting killed on our
3m resets, we need them to be up this week before we roll out of our posi-
tions. Consensus for 3m today is 4.784.7825, it would be amazing if we
could go for 4.79 . . . Really appreciate ur help mate.
Happy to help, emailed the other banker in response. That day, Barclays
submitted a rate of 4.79 percent, the rate its traders were hoping for.
Other emails and instant messages said it was very important that the set-
ting comes as high as possible. . . . thanks, and I . . . dont [sic] want to loose
[sic] money on that one, and Seriously, thanks a million dude. Always
friendly, one banker responded to a request for a lower EURIBOR submission
by noting, We always try and do our best to help out . . . Another responded,
Done . . . for you big boy . . . More formally, another responded, Always
happy to help, leave it with me, Sir. The mood could even be celebratory, as in
2006, when a Barclays trader told a counterpart banker, Dude I owe you big
time! Come over one day after work and Im opening a bottle of Bollinger!
Thanks for the libor. The other trader replied, Know [sic] worries!!!5
Despite their poor spelling and grammar, the bankers gamed rates high
and low to make profits. The goal changed after the worldwide financial cri-
sis hit in 2007, as bankers made efforts to push rates lower to appear more
stable and not admit to higher borrowing costs than other banks. Appar-
ently management wanted Barclays to remain within the pack and keep its
head below the parapet so it would not get shot off. In early 2008, for ex-
ample, one Barclays banker admitted that the honest truth about Barclays
actual borrowing rates could be a can of worms. 6
252 Too Big to Jail
A senior Barclays employee raised concerns in December 2007:
My worry is that we are being seen to be contributing patently

false rates. We are therefore being dishonest by definition and
are at risk of damaging our reputation in the market and with
the regulators. Can we discuss urgently please?
A meeting was called with a senior compliance officer and someone from
management, which was followed by a report to the U.K. Financial Ser-
vices Authority that tough market conditions might be altering the LI-
BOR submissions, and that there might be problematic actions by other
banks as well. They later told regulators, Were clean, but were dirty-
clean, rather than clean-clean. Barclays would continue to tell the press it
had submitted accurate and fair LIBOR rates.7 Would Barclays ever get
caught, and if so, would the company be punished? Or, as a megabank, was
it too big to jail?
Too Big to Fail or Jail
The phrase too big to fail has been widely used in the wake of the last fi-
nancial crisis. Some fear the government may have encouraged what econo-
mists call a moral hazardthe biggest banks know they are so vital to the
global financial system that the government will save them if they are in
trouble, knowledge that encourages them to take risks that can push them to
the brink. This dynamic may also be affecting how prosecutors target corpo-
rations. The too big to jail concern is that some companies may be so valu-
able to the economy that prosecutors will not hold them accountable for
crimes. That concern is very real, and prosecutors, including at the very top,
have expressed it. In March 2013, Attorney General Eric Holder told the
Senate Judiciary Committee:
I am concerned that the size of some of these institutions be-

comes so large that it does become difficult for us to prosecute
them when we are hit with indications that if we do prosecuteif
we do bring a criminal chargeit will have a negative impact on
the national economy, perhaps even the world economy.8
Those comments touched off renewed questioning of whether prosecutors had

held Wall Street sufficiently accountable.9 One group of critics asked: During
the Global Financial Crisis that began in 2007, we became accustomed to the
phrase too big to fail. Is it possible that some financial executives are too big
for jail?10 The Financial Crisis Inquiry Commissions report described what
criminologists call crime-facilitative environments among lenders, an envi-
ronment ripe for mortgage fraud leading up to the crisis.11 Others, such as
federal judge Jed Rakoff, ask why more top executives have not been prose-
cuted; if there was in fact fraudulent misconduct, then the failure of the
government to bring to justice those responsible for such colossal fraud be-
speaks weaknesses in our prosecutorial system that need to be addressed.12
Of course, one more reason for a lack of prosecutions may have been the gov-
ernments own involvement in the deregulation of banking and encouraging
risky mortgage practices, and then reshaping the major banks in the wake of
the crisis.13 Criminologists Henry N. Pontell, William K. Black, and Gilbert
Geis asked whether the government was more interested in damage control
than crime control.14 And in a sarcastic response to Holders comments, the
House Financial Services Committee issued its own version of Monopolys
get out of jail free card (see Figure 10.1).
There is no such thing as too big to jail, Attorney General Holder an-
nounced in a stern video message in May 2014, underscoring that no financial
institution should be considered immune from prosecution, and having
Figure 10.1 A Too Big to Jail Card

254 Too Big to Jail
described his prior remarks as misconstrued.15 I have argued in this book

that there is such a thing as too big to jail. Moreover, the too big to jail
concern is not just about big banks not being prosecuted due to sheer size
and influence on the economy. That is just one too big to jail concern, but
I have described several others that are equally important. The too big to
jail concern also extends to whether officers or employees are held account-
able; they can literally be put in jail. The too big to jail concern extends be-
yond banks, and it applies to many other types of large corporations that may
commit a wide range of crimes, but obtain non-prosecution deals. The too
big to jail concern extends to whether those corporate prosecution agree-
ments are too lenient. And the too big to jail concern extends to whether
corporate settlements effectively punish or reform a company.
To start with just the first too big to jail criticism, the concern that fi-
nancial institutions are not prosecuted, it is important to focus on the cases
prosecutors bring, but also the ones that they do not bring. We simply do not
have good data on such cases. Prosecutors sometimes say that they are very
careful about deciding to prosecute a company and note that they often de-
cline to do so. But there is usually no public record of a decision by a prosecu-
tor to decline a case, including for the good reason that one would not want
to make an investigation public if a person is cleared of wrongdoing. Even in
the highest-profile corporate cases, prosecutors generally avoid transparency
in their decision making. We do not know whether they made a sound deci-
sion not to prosecute or a poor one, and we know even less about how many
corporate crimes never come to the attention of prosecutors.
We do know about public agreements not to prosecute, and they show
that prosecutors do not treat all companies alike. Banks are prime beneficia-
ries of the new leniency approach toward companies, as they generally receive
deferred prosecution or non-prosecution agreements rather than convictions,
including on charges related to fraud, money laundering, and other crimes.
The list of companies receiving deferred prosecution or non-prosecution
agreements includes many major banks, and several had multiple agreements
in recent years, including Barclays, HSBC, JPMorgan, UBS, and Wachovia.
Why were recidivist banks not treated more severely the second time around?
Fifty-seven deferred prosecution and non-prosecution agreements between
2001 and 2012 involved financial institutions, ranging from banks to invest-
ment advisors and trading firms. Only a handful of major banks have ever
been convicted. Moreover, the major Wall Street banks have typically re-
ceived non-prosecution agreements, rather than deferred prosecution agree-
ments filed in a court.16
The too big to jail concern extends to individuals and employees who are
not prosecuted, in cases involving financial institutions, but also in deferred
and non-prosecution agreements generally, as I described in Chapter 4. Few
higher-ups, such as CEOs, are ever prosecuted when a company settles its
case. The too big to jail concern also runs beyond Wall Street. Other large
companies, such as accounting firms, hospitals, military contractors, and phar-
maceutical companies, all reach agreements to avoid a prosecution, by argu-
ing that the collateral consequences of a conviction would be too great. There
is nothing wrong with trying to minimize collateral consequences to a corpo-
ration. Prosecuting a corporation can impact officers, employees, shareholders,
and others who committed no crime. However, a careful balance must be
struck between minimizing collateral consequences and adequately punish-
ing wrongdoers. A corporation provides a setting that can incentivize crime
and magnify its consequences. Corporate prosecutions should prevent corpo-
rations from becoming crime scenes again, but we have little assurance that
leniency is being offered in exchange for effective structural reforms.
In this chapter, I explore how we could put to rest all of these too big to
jail concerns. I look more broadly at each of the concerns with how prosecu-
tors approach corporate crime, beginning with investigations of the major
banks. In the second part of this chapter, I evaluate corporate prosecutions,
examining what we know about corporate crime rates, comparing what pros-
ecutors do in corporate cases to what happens in individual cases, looking at
what prosecutors do as compared to regulators who bring civil cases, and re-
sponding to those who argue corporations should not be criminally liable at
all. In the third part of the chapter, I explore how to address too big to jail
concerns, not by simply denying that any company is too big to jail, but by
actually making corporate prosecutions more effective, with reforms includ-
ing (1) convicting corporations and lessening reliance on deferred prosecu-
tion agreements, (2) judicial oversight of any deferred prosecution agree-
ments, (3) carefully audited compliance and structural reforms, (4) more
serious fines, and (5) greater transparency and public information about cor-
porate prosecutions.
256 Too Big to Jail
Leniency for Barclays
It took years for investigations to uncover the misconduct at Barclays and the
other banks involved in setting the LIBOR and similar rates. The Commodi-
ties Futures Trading Commission (CFTC) fined Barclays $200 million and
required a series of reforms, including firewalls to make sure LIBOR submit-
ters do not receive improper communications from others at the bank, and
documentation of all factors relied upon to make submissions.17 In the sum-
mer of 2012, Barclays received a deal rewarding its extraordinary and exten-
sive cooperation. In addition to committing to future cooperation with au-
thorities in the United States and the United Kingdom, Barclays paid a $160
million penalty to prosecutors and a $93 million fine to U.K. regulators. Bar-
clays admitted and acknowledged responsibility for its conduct, but not for any
particular crime.
Was this bank being treated as too big to jail? Barclays avoided a prose-
cution entirely, instead receiving a non-prosecution agreement. Prosecutors
noted that Barclays was the first bank to cooperate in a meaningful way.
The bank was also arguably a recidivist, having previously entered a 2010
deferred prosecution agreement for knowing and willful violations of
economic sanctions against countries such as Burma, Cuba, and Iran. In that
2010 agreement, Barclays agreed not to violate any U.S. federal law and paid
an almost $300 million fine. Now the judge from that earlier case issued an
order asking Barclays to explain why its additional crimes had not violated
the 2010 deferred prosecution agreement; the judge was apparently satisfied
with the explanation, as the deferred prosecution agreement was allowed to
expire in 2012.18 It is hard to understand why Barclays did not receive at least
a more serious result than its earlier deferred prosecution agreement, but
perhaps prosecutors were rewarding its cooperation as they built cases
against other banks involved in LIBOR misconduct.
In the United Kingdom, there was a different type of accountability: the
Barclays CEO was called in for a grilling by Parliament. He apologized: It
was wrong. I am sorry. I am disappointed, and I am also angry. There is ab-
solutely no excuse for the behaviour that was exhibited in those activities and
the types of e-mails that were written.
He also said, It is a sign of the culture of Barclays that we were willing to
be first, we were willing to be fast and we were willing to come out with it.19
He emphasized that with 140,000 employees, the actions of the fourteen or

so involved in LIBOR manipulation did not represent the entire firm. How-
ever, his questioners pressed him on the corporate culture:
I can understand a hot-headed idiot sitting in the New York

swaps desk, thinking it would be cool to send a bottle of cham-
pagne around to the bloke in London and say, Can you fix LI-
BOR for me? But here is the reality: why werent those LIBOR
setters turning round to these traders and saying, Guys, you
cant do this. Youre not allowed to do this. Stop sending me
e-mails; otherwise I will tell my boss?
The CEO responded, Some were and some werent.

Pushing harder, a legislator asked:
The LIBOR setters, I would imagine, are not hot-headed 25 to

35-year-olds who like drinking Bollinger at the weekends.
They are probably slightly boffin-like people. So what has gone
wrong there? Why has that department got it so fundamentally
wrong?
The CEO could only say:
Im trying to disagree with your characterisations of people, but

I know what you mean, because the rate setters . . . they were
some of our most senior staff.20
Moreover, U.K. regulators had found that Barclays had no specific systems
and controls in place relating to its LIBOR and EURIBOR submissions pro-
cesses until late 2009. Another legislator noted Barclays previous violation
of international sanctions. The CEO responded, In each and every one of
those cases, we have been open with the authorities and worked to get the
solution and the changes in place.21
The Barclays CEO resigned after the hearings.22 Should Im sorry have
been good enough? U.S. prosecutors could have demanded more serious moni-
toring and perhaps a more serious public inquiry, as in the United Kingdom.
258 Too Big to Jail
Prosecuting with Convictions
In 2013, perhaps responding to the too big to jail concerns, prosecutors an-
nounced a welcome change in the approach toward targeting banks: convic-
tions. Japanese subsidiaries of UBS and the Royal Bank of Scotland became
the first big banks convicted in years. The head of DOJs criminal division said:
I want financial institutions to know that this department will absolutely hold
them to account.23 Royal Bank of Scotland and UBS traders had also ma-
nipulated LIBOR, sending damning emails much like those at Barclays. For
example, as prosecutors closed in, one of the traders warned others at UBS not
to talk to investigators: The U.S. Department of Justice, mate, you know,
they are the dudes who . . . put people in jail. Why . . . would you talk to
them?24 Yet although their Japanese subsidiaries pleaded guilty and were con-
victed, UBS and Royal Bank of Scotland themselves entered deferred prosecu-
tion agreements, as have other banks, such as Dutch lender Rabobank. The
head of the criminal division at the DOJ hinted at too big to fail and too big
to jail concerns, stating that our goal here is not to destroy a major financial
institution.25 Having foreign subsidiaries rather than the parent bank take a
conviction was not exactly newfound resolve to hold banks fully criminally ac-
countable. That said, insisting on a criminal conviction of a subsidiary, as has
often occurred in pharmaceutical cases as well, is far preferable to deferred
prosecution and non-prosecution agreements that avoid convictions entirely.
Companies can be convicted through subsidiaries without the collateral conse-
quences of convicting the parent, and without forgoing prosecution.
Prosecutors can also point to the 2013 conviction of major hedge fund
SAC Capital for insider trading as a sign that financial institutions are not
too big to jail. No comparable Wall Street firm had been convicted since
Drexel Burnham Lambert pleaded guilty to securities fraud in the late 1980s.
Rather than receive a deferred prosecution, SAC pleaded guilty and paid $1.8
billion: the largest-ever penalty in an insider trading case. However, the SAC
case does not mean we should forget our too big to jail concerns. SAC was
not a public company and had largely lost outside investors by the time it
pleaded guilty. Prosecutors knew when they convicted SAC that there was no
risk of hurting innocent investors or the financial system more generally.
Perhaps a change in Wall Street prosecutions is finally coming. In April
2014, prosecutors announced convictions for Credit Suisse for offshore tax
evasion, and Frances largest bank, BNP Paribas, for Bank Secrecy Act viola-
tions. Prosecutors sought convictions, having obtained assurances from reg-
ulators that convictions will not result in charter revocations preventing the
banks from doing business in the United States.26 The too big to jail con-
cerns raised by critics may have encouraged prosecutors to make felony con-
victions of financial institutions more feasible and more common.
Has LIBOR itself been reformed, making it harder for banks to game the
system? LIBOR will now be overseen by a new entity, the company that
owns the New York Stock Exchange, but questions remain whether sufficient
changes have been made.27 Meanwhile, the LIBOR cases raise questions
of whether other major financial benchmark rates have been manipulated.
Regulators are looking into possible misconduct and collusion concerning
interest rate swaps, for example, another massive market in the hundreds of
trillions of dollars.28 More investigations and possible prosecutions of major
banks are coming.29
Banks Not Prosecuted
Despite its size, LIBOR fraud was not a main cause of the global financial
crisis. Were other banks too big to jail for conduct more closely related to
subprime mortgages, mortgage-backed securities, and credit default swaps?
In 2010, the SEC began to investigate Goldman Sachs, filing civil charges
concerning a group of transactions known as Abacus, after the premodern
calculator that involved shuffling beads to count sums. This group of trans-
actions involved shuffling the risk of bets on the subprime mortgage market
before the crisis hit.30
A U.S. Senate committee issued a report calling for a prosecution, but in
2012, prosecutors announced no charges would be pursued and the case was
closed, as the burden of proof to bring a criminal case could not be met based
on the law and facts as they exist at this time.31 Goldman paid $550 million
in a civil settlement with the SEC, admitting incomplete information in
Abacus marketing materials and agreeing to change how future marketing
materials would be reviewed.32 It may have been unlikely criminal charges
would be brought, given the difficulty of showing that anyone was misled in
complex deals between sophisticated industry players. Whether the decision
by the Department of Justice is the product of weak laws or weak enforcement,
260 Too Big to Jail
Goldman Sachs actions were deceptive and immoral, said Sen. Carl Levin,
who called for more stringent regulations.33 Maybe they were deceptive
but regulators in other cases have been unable to show banks deceived sophis-
ticated investors.34
Ratings agencies were also central players in the collapse of the housing
market. Firms such as Standard & Poors, Moodys, and others earned hun-
dreds of millions in fees for rating subprime mortgage-related investments as
sound. Did they put their stamp of approval on subprime mortgage invest-
ments they knew were risky? In early 2007, before the subprime market col-
lapse caused a global financial crisis, an employee at Standard & Poors
Financial Services LLC known only as Analyst D composed song lyrics de-
scribing how the subprime market was in trouble. To the tune of Burning down
the House by the Talking Heads, the song described how subprime is boiling
over and was bringing down the house. Thinking better of the lyrics, Analyst
D followed up the email saying, For obvious professional reasons, please
do not forward this song. If you are interested, I can sing it in your cube ;-) .
A few days later, getting over his stage fright, he sent another email with a
video of him singing and dancing the first verse to laughing coworkers.35
Five years later, DOJ filed a multibillion-dollar suit against Standard &
Poors, but not a criminal prosecution. The case would be covered by a re-
duced civil standard of proof under the Financial Institutions Reform, Re-
covery, and Enforcement Act of 1989 (FIRREA), a previously little-used law
allowing prosecutors to file civil charges for fraud affecting financial institu-
tions.36 In 2013, prosecutors won a jury trial involving FIRREA charges
against Bank of America for fast-paced sales of mortgage-backed securities by
its Countrywide unit before the financial crisis.37 FIRREA is being used
against Wells Fargo and the Bank of New York and was part of the case against
JPMorgan, which entered a record $13 billion civil settlement in 2013. Prose-
cutors announced that JPMorgan had admitted to conduct that contributed
to the wreckage of the financial crisis, and the company would therefore pay
the largest FIRREA penalty in history. As the associate attorney general put
it, We are demanding accountability and requiring remediation from those
who helped create a financial storm that devastated millions of Americans.38
The results in these civil actions do not fully alleviate too big to jail con-
cerns either. In bringing FIRREA cases, prosecutors presumably thought
they lacked the evidence for a criminal case. Some of these civil resolutions
raise real questions about whether prosecutors were adequately demanding

accountability and requiring remediation. The JPMorgan settlement was
not nearly so large as it appeared. The $13 billion included prior settlements,
such as $4 billion paid to the Federal Housing Finance Agency. There was
no explanation of where the fine amounts came from. The deal did not in-
clude clear admissions of wrongdoing or detailed descriptions of facts. In-
deed, prosecutors did not clearly explain what violations had occurred. The
deal was completed out of court and not approved by a judge. Still more trou-
bling, the deal did not purport to demand structural or compliance reforms.
Such opaque out-of-court civil deals make it all the more imperative that seri-
ous penalties result in the cases meriting criminal prosecution.
The Corporate Crime Rate
Too big to jail concerns with bank prosecutions are just a part of the story; I
have described too big to jail concerns with corporate prosecutions generally.
If we had a better sense of the underlying corporate crime rates, we would know
what to make of decisions whether to bring corporate prosecutions. Police and
prosecutors face public pressure when the murder rate goes up and too many
murder cases remain unsolved. However, there are no statistics on how many
corporations commit crimes. The FBI keeps statistics on street crimes in its Uni-
form Crime Reports, but there is no corporate equivalent. Unlike street crime
and violent crime, people who are the victims of a financial fraud, for example,
may not know it. Nor are the definitions of what constitutes many business
crimes always so clear-cut. And some corporations may never get caught.
In fact, there are not good statistics on how many companies even exist,
much less how many commit crimes. We do know that about half of U.S.
businesses are incorporated in just five statesCalifornia, Delaware, Florida,
New York, and Texas.39 Delaware reported almost 1 million active companies
in 2011, including over half of all public companies.40 The IRS reported about
12 million companies in 2011.41 A government study in 2006 concerning
shell companies, those used to hide assets or identities of owners, found about
two million firms created each year in the United States.42 That is half as
many companies as people born each year.43
How many of those companies are born to be criminals? Only a tiny frac-
tion are convicted. In federal courts, almost 3,800 organizations have been
262 Too Big to Jail
convicted since the Sentencing Guidelines were put in place in late 1991 (a
total of 3,780 through fiscal 2012). More than 300 firms have obtained de-
ferred prosecution and non-prosecution agreements. In addition, several
dozen companies were acquitted at a trial and many more had charges dis-
missed by a judge or dropped by a prosecutor. This is not much more than
4,000 prosecuted companies (see Figure 10.2).
Does that mean corporate crime is rarea few thousand companies out
of millionsor does it just mean corporate prosecutions are rare?
The picture is different for public companies. Of those with stock listed
on exchanges in the United States, 273 were prosecuted between 2001 and
2012, according to my data.44 That is not trivial and represents about 5 per-
cent of 5,000 total public companies (a very rough estimate, since numbers of
public companies change and some companies had more than one conviction).
Of those prosecuted, 46 percent were convicted (125 of 273 firms) and 54
percent received deferred prosecution or non-prosecution agreements (148 of
273 firms). Just over a quarter were foreign companies (73 of 273 firms). Pub-
lic companies paid an average fine of $45 million, a larger amount than other
companies prosecuted for the same crimes, but minuscule compared to their
valuethe fines averaged 0.04 percent of the market capitalization, or the
total dollar value of their outstanding shares, at the time of settlement.45
That prompted complaints by the victims in the BP Texas Refinery explo-
sion; the fine of $50 million in that case was just 0.07 percent of BPs market
capitalization of over $70 billion. As discussed, the fines are calculated not
350
300
250
200
150
100
50
0
1990 1995 2000 2005 2010
Deferred and Non-Prosecution Agreements Convictions
Figure 10.2 Numbers of Convictions and Deferred Prosecution and

Non-Prosecution Agreements with Organizations, 19912012
based on the size of the company but based on sentencing guidelines, stat-
utes, or, alternatively, the gains and losses caused by the crime. But the fines
actually imposed were often at or below what the guidelines or statutes rec-
ommended. The results were fines the companies could readily afford to pay.
Some scholars have tried to estimate the occurrence of different types of
white-collar and corporate crime. According to one estimate, about 14.5 per-
cent of large publicly traded firms commit fraud.46 Such evidence cannot tell
us if there should be more corporate prosecutions. We know that little effort
has been put into assessing how much corporate crime there is, and few cor-
porations are prosecuted. Looking at what happened in cases where corpora-
tions were prosecuted can tell us something more, though, about how well
prosecutors target corporations when they do decide to bring a criminal case.
Mass Incarceration and Corporate Leniency
A second way to evaluate corporate prosecutions is to compare them to pros-

ecutions of individuals. To be sure, one of my goals in this book has been to
describe how different the two worlds are. For corporations, which cannot
literally be jailed, a prosecutors goal is to single out those that seriously violate
criminal laws, in order to punish, deter, and reform them. Without offering
some leniency, corporations would have little incentive to report crimes or
adopt compliance measures, so prosecutors use both the carrot and the stick
to deter and rehabilitate.
Prosecutors rarely offer leniency to encourage individuals to rehabilitate.
We are the mass incarceration nation. Beginning in the 1970s, the United
States has had the largest prison population in the world and the highest in-
carceration rate.47 Our criminal justice system is highly punitive, and only
recently has there been any thaw in our attitude toward mass incarceration.
The U.S. Sentencing Guidelines were notorious for not even mentioning
the rehabilitative potential of the defendant, calling it not ordinarily rele-
vant.48 It took the Supreme Court to assert that self-motivated rehabilita-
tion was very much a relevant factor and may carry great weight. 49 Federal
prosecutors are now taking baby steps in the use of deferred prosecutions for
nonviolent and addicted defendants, in order to give them drug or mental
health treatment rather than prison, but these efforts have taken place on a
very small scale so far.50
264 Too Big to Jail
While corporate crimes often involve serious violations of regulatory of-

fenses rather than violence, that does not explain why corporations so often
receive alternatives to punishment even in the most serious cases, while indi-
viduals typically do not. Most of the federal criminal docket consists of non-
violent crimes. In some areas, the difference in priorities for corporations ver-
sus individuals is particularly stark. More than a third of the federal docket
now consists of prosecutions of noncitizens who violated immigration rules,
including by entering the country without permission. Federal efforts such as
Operation Streamline use fast-track procedures for the vast numbers of people
detained for illegally entering the country, offering leniency to most convicts
in order to process convictions quickly.51 These are not cases involving prose-
cution of immigrants for committing other crimes. Illegal entry or reentry
does not require much of a criminal state of mind; judges tend to presume
that immigrants know whether they are in compliance with technical immi-
gration rules. Most countries treat immigration matters as civil and not crim-
inal, as the United States largely did until recent decades. Why vast numbers
of immigrants are being labeled as criminal is a troubling question.
Few employers are prosecuted for immigration crimes. Employers may
face charges for knowingly bringing in or harboring noncitizens unlawfully
present in the United States, but this is difficult to prove.52 Ten companies
have entered deferred prosecution agreements for immigration violations. In
2006, for example, federal agents conducted raids at forty factories operated
by IFCO Systems manufacturing pallets for shipping. They detained more
than a thousand noncitizens and estimated there were thousands more
more than half of IFCO employees had false Social Security numbers.53
Several managers were charged with immigration violations.54 IFCO paid
almost $21 million in fines, including back wages and civil penalties, and
agreed to take compliance measures, including joining the E-Verify system
allowing instant checks on employee social security numbers. In another
case, WesternGeco paid $19.6 million in fines for submitting fraudulent visa
applications for workers on Gulf of Mexico oil vessels. Out of the more than
2,000 corporate convictions I examined, 107 were for immigration violations.55
These pale in comparison to the nearly 40,000 individuals prosecuted each
year for immigration violations, few of which were employers.56
Drug prosecutions are another example in which highly punitive prosecu-
tion policies have led to a high rate of incarceration, despite crimes that are
usually nonviolent. Federal drug crimes chiefly involve possession or distribu-

tion of controlled substances. More than a quarter of federal prosecutions of
individuals were for distribution or conspiracy to distribute controlled sub-
stances, and half of inmates in federal prisons are serving time for drug of-
fenses.57 The crimes are designed to shut down a businessthe illegal drug
tradebut jailing low-level dealers does little to make that happen. A small
proportion of the vast numbers prosecuted for drug offenses had any signifi-
cant criminal history or used a weapon in the offense. Less than 6 percent were
managers or leaders of a drug operation.58 As federal judge John Gleeson put
it, anyone who believes that the federal system deals only with the most seri-
ous drug and violent offenders isnt familiar with the federal criminal docket.59
Even low-level and nonviolent offenders get lengthy federal sentences, while in
contrast the guidelines offer flexible sentencing for organizations.
In addition, the overwhelming majority of crack cocaine offenders singled
out for heightened punishment were black.60 There was no leniency program
for these offenders. It was the opposite: a severity program. There were no
prosecution guidelines for drug cases as there are for corporate prosecutions.
In 1997, the DOJ got rid of guidelines that offered some guidance for when
to bring a federal drug case and when to leave a case to state authorities.61
Congress and the Sentencing Commission did eventually reduce the crack
sentencing disparity, but it took more than fifteen years before Attorney Gen-
eral Eric Holder announced that this approach toward drug prosecutions was
counterproductive and that new guidelines would permit leniency, non-
prosecution, and alternatives to prosecution for low-level drug offenders.62
The war on drugs has not affected corporations muchI found just a
handful of corporations prosecuted for illegal sales of controlled substances,
failing to track sales of Sudafed (which can be used to manufacture metham-
phetamine), or distributing drug paraphernalia. Prosecutors have decided not
to try to prosecute the hundreds or thousands of sales employees at major
pharmaceutical companies who were involved in paying kickbacks to doctors
or promoting off-label sales of drugs. They thought it better to simply prose-
cute the corporation rather than hold individuals accountable; indeed, as de-
scribed, prosecutors may prosecute a subsidiary and not hold the parent com-
pany accountable for pharmaceutical violations. HSBC was given leniency for
money laundering on a grand scale that benefited, among others, major drug
cartels, and in such cases, employees at banks are rarely prosecuted. Yet when
266 Too Big to Jail
fighting a different war on drugs, prosecutors have been willing to jail tens of
thousands of participants in the drug trade, including low-level participants.
The failure to insist on serious punishments for corporate offenders seems
especially indefensible when we strictly prosecute low-level crimes by individu-
als. Nor is it so easy to say that white-collar or corporate crimes are not really
crimes because they are regulatory, since much of what federal prosecutors do
involves nonviolent and regulatory crimes. A corporation should not be prose-
cuted for a trivial civil violation, but if serious violations warrant a criminal
case, then serious criminal punishment and structural reforms should follow.
A Tale of Two Regulators
A third way to evaluate criminal prosecutions of corporations is to compare

them to the civil alternative: enforcement by regulatory agencies. Some ar-
gue that corporations, since they cannot be held morally accountable for
crimes, should only face civil liability from regulators or private plaintiffs.
However, I view prosecutors as crucial to filling the gap left by regulators
who may lack adequate resources to punish the most severe corporate violators.
Two federal regulatory agencies provide a study in contrasting enforcement re-
sources and patterns: the Environmental Protection Agency and the Securities
and Exchange Commission. The EPA does far more enforcement than the
SEC. Comparing the two sheds light on why big banks face few prosecutions,
while prosecutors bring many environmental cases each year. If we want to get
the relationship between corporate criminal punishment and civil enforcement
right, we may need more resources for both prosecutors and regulators.
The prosecution following the Deepwater Horizon spill in the Gulf of
Mexico resulted in the largest criminal fine ($1.2 billion) and the largest
community service award ($4 billion) of all time, but those pale in compari-
son to the more than $17 billion BP may have to pay in civil fines to the EPA
and state regulators. In fiscal 2011 the EPA described 249 environmental
crime cases, resulting in $35 million in fines and restitution.63 Those crimi-
nal cases were just the tip of the iceberg; the EPA also brought civil and
administrative actions, which secured $104 million in penalties.64 In turn,
those were dwarfed by administrative proceedings, in which the EPA re-
solved 1,760 administrative penalty orders (with another $48 million in
fines) and 1,324 administrative compliance orders. Less formally, the EPA
did 19,000 inspections and received 3.5 million voluntary commitments

to reduce pollution. The EPA also brings cases in conjunction with state
regulators. Environmental prosecutions were the biggest category of criminal
prosecutions in my data. From 2011 through 2012, I found more than 500
environmental prosecutions (not including wildlife offenses), only six of
which were deferred prosecution or non-prosecution agreements. To be sure,
many of those EPA cases involved smaller companies, and a conviction in an
environmental case may not have the same consequences for a company. But
federal environmental prosecutors believe that cases should normally either
be civil or result in a criminal conviction.
By contrast, the SEC brings very few enforcement actions against compa-
nies. In 2012, they brought 813 total civil actions, but most of these were
against individualsfor example, of 106 civil cases having to do with report-
ing or disclosure, fewer than twenty were against companies.65 This may ex-
plain why there have been just twenty-three deferred prosecution agreements
from 2001 to 2012 involving securities fraud charges and just three corpora-
tions convicted of securities fraud. While antitrust, environmental, FCPA,
and other federal criminal violations were associated with higher average
fines, securities fraud cases were not.
What explains this? In part, the SEC is hamstrung by Congress. Current
laws limit the SEC to obtaining disgorgement of profits rather than fines in
most cases.66 The SEC has pushed for legislation to permit civil penalties that
are far larger.67 Moreover, as a New York Times reporter noted in 2007: Its no
secret that the Securities and Exchange Commission is terrifically understaffed
and wildly underfunded compared with the populous and wealthy Wall Street
world it is supposed to police.68 Shortly thereafter, three former SEC chairmen
echoed those sentiments with this statement: The problem with the S.E.C.
today is that it lacks the money, manpower and tools it needs to do its job.69
The SEC has since added enforcement resources and a dedicated FCPA group
and has started to use corporate monitors.70 One of the goals of the Dodd-
Frank legislation was to give the SEC more power, assistance and money at its
disposal to be an effective securities markets regulator.71 But in 2011, the SEC
noted that its budget was already forcing the agency to delay or cut back en-
forcement and market oversight efforts.72 There was mounting criticism of
how the SEC settled cases, allowing companies to neither admit nor deny
wrongdoing. One judge approved an SEC agreement, but wrote:
268 Too Big to Jail
In this age when the notion labeled too big to fail (or jail, as the
case may be) has gained currency throughout commercial mar-
kets, some cynics read the concept as code words meant as en-
couragement by an accommodating publica free pass to evade
or ignore the rules, a wink and a nod as cover for grand fraud, a
license to deceive unsuspecting customers.73
The SEC changed its policy to discourage such use of neither admit nor
deny language, but concerns remain that regulators treat major companies
too leniently.
If regulators cannot always enforce adequately, then prosecutors may be a
crucial backstop. Indeed, prosecutions may be symptoms of regulatory fail-
ures. Recall the massive money laundering case brought against HSBC, dis-
cussed in Chapter 4. The Senate issued a report calling the culture at the
bank pervasively polluted, highlighting how the Office of the Comptroller of
the Currency had failed to take any enforcement action until 2010, despite
the bank having been cited for problems as early as 2003.74 It took a jolt from
law enforcement for the regulators to realize how important the problems
were.75 We cannot expect prosecutors to completely fill in the void left by in-
adequate regulatory enforcement, though we can expect prosecutors to take
up the most serious violations and impose more serious consequences, such
as admissions of guilt, deterrent fines, and strict structural reforms.
The Abolitionists
Some believe that each of the comparisons I have just made point to one con-
clusion: that corporate prosecutions are unjust and it would be preferable to
prosecute individuals instead and bring civil regulatory actions. These aboli-
tionists argue that since corporations cannot be jailed, prosecutors should
not try to punish them. For example, law professor Albert Alschuler calls
blaming mindless legal entities for crimes a mistake and similar to the an-
cient legal practice of deodand: the punishment of an animal or inanimate
object that has killed a person.76 Professor Alschuler does find somewhat
more justified the use of corporate prosecutions to induce employees to moni-
tor each other, which is my view of their purpose. Other scholars argue that
criminal liability should be replaced with civil enforcement or with a form of
insurance.77 Corporate groups, for good reasons, may wholeheartedly agree

with those proposals to limit or do away with corporate criminal liability.
A case about dumping oily bilge water became the focus of an unlikely set
of allies bent on limiting corporate criminal liability, if not abolishing it. Re-
call the case of Ionia Management, the Greek shipping company that took its
case to trial when it was accused of using a magic pipe to illegally dump oily
water overboard. The company lost at trial, as described in the last chapter,
but appealed and was joined by a diverse group of allies. The Association of
Corporate Counsel, the Chamber of Commerce, the National Association
of Manufacturers, and the Washington Legal Foundation represented cor-
porate interests opposed to tough standards for corporate liability. But the
National Association of Criminal Defense Lawyers and the New York State
Association of Criminal Defense lawyers, which argue for fairer criminal
procedure generally, also joined them.78 They did not argue for abolition of
corporate crime, but asked the federal appeals court to recognize good com-
pliance as a defense to corporate criminal liability.
Companies have also lobbied for a compliance defense to the FCPA. Com-
pliance, of course, is already a reason sentences are reduced under the guide-
lines and in deferred prosecution and non-prosecution agreements. Perhaps,
as law professor Peter Henning points out, companies should be careful what
they wish for.79 Few cases go to trial, and with a compliance defense, prosecu-
tors could dig deep into the effectiveness of the companys policies. Would the
defense really help companies if the commission of a crime by an employee
meant that the compliance program had failed? In the Ionia case, the com-
pany was found in violation of a prior EPA consent agreement, so that infor-
mation was not helpful for the company.
Some scholars, such as Professor Alschuler, have also argued that federal
corporate criminal liability should be limitedthat companies should have
a good faith compliance defense if they are prosecuted, allowing the com-
pany to argue that a good compliance program overrides an employees failure
to comply with it.80 Still others argue that corporate criminal liability should
be limited to cases where upper management encouraged agents to commit
crimes.81 The Model Penal Code, adopted by some states, takes that approach,
and adds that a company may be prosecuted only with clear legislative intent
that a crime should apply to corporations.82 Regardless, in the Ionia case, the
federal court of appeals rejected the companys arguments, citing long-standing
270 Too Big to Jail
federal law permitting corporate criminal liability for actions of employees

acting in the scope of their employment.83
One federal appeals court has approved an even broader standard for cor-
porate criminal liabilitya collective knowledge theory in which no one
employee needs to have the full criminal intent, so long as multiple employ-
ees had the required intent collectively. The rationale is that since a corpora-
tion can compartmentalize knowledge, the corporation can be liable for the
totality of what all of the employees know within the scope of their employ-
ment. However, no criminal case since has held a corporation liable under
such a theory.84
As I have described in this book, despite the broad federal standard for
corporate criminal liability, prosecutors impose criminal liability in practice
only in a limited group of cases. Prosecutors say they select companies for
prosecution based on factors that focus on compliance and on whether civil
liability or individual prosecutions would be adequate. I have suggested
throughout that prosecutors have not adequately followed those already un-
clear principles. If prosecutors have a weak case or the underlying law or regu-
lation is based on unsound policy, then criminal enforcement is not a good
idea. Most violations of regulations are not and should not be treated as
crimesbut serious criminal violations should, including cases in which a
company was engaging in misconduct that was repeated, concealed, or toler-
ated. Defining what constitutes a serious violator or an egregious failure of
compliance is not easy, but prosecutors could adopt more concrete measures,
such as whether the company is a recidivist, the number of employees in-
volved, the size of the violation, or whether higher-ups played a role. Nor
have prosecutors made clear that a different, more serious category of crimi-
nal penalties results when there has been corporate toleration of misconduct.
Still more serious penalties should flow from recidivism.
Prosecutors as David
It is very hard to see prosecutors as the little guy in any fight. In 1940, At-
torney General Robert Jackson said that a prosecutor has more control over
life, liberty, and reputation than any other person in America.85 And al-
though federal prosecutors are already the most powerful prosecutors in the
country, with broad federal criminal law, tough federal sentencing guidelines,
and both the FBI and federal regulatory agencies at their disposal, they need
more resources to tackle large companies, which can outgun prosecutors
with massive spending. One goal in this book has been to explain why it is
understandable that prosecutors adopted a compromise approach with
corporations.
Prosecutors are highly dedicated to their jobs, and there is no evidence cor-
porations have captured or influenced prosecutors. Corporations have been
unsuccessful in opposing stricter criminal laws, although complaints have re-
sulted in some changes to the DOJs corporate prosecution guidelines. We do
know companies appeal their cases to the highest levels, even to the attorney
generalrecall the high-level meetings in Washington, D.C., that KPMGs
legal team arranged. Federal prosecutors have prestigious jobs and strong in-
centives to prosecute vigorously, but they know they must keep supervisors
advised, because ultimately the attorney general may hear about the case from
the companys lawyers, even if management just wants to be able to assure its
board that it has done everything possible to get the best deal.
There is also a revolving door concern. Many prosecutors leave for lucra-
tive work in private firms or in the private sector. There has been an explo-
sion in white-collar practice at big law firms, and companies may want to hire
former prosecutors who can get them access to those meetings at the Justice
Department.86 As noted, many corporate monitors were themselves former
prosecutors. Still, that probably gives prosecutors an incentive to be tough
on corporationsto show that they know how to handle big cases.
What can level the playing field? Prosecutors depend on investigators to
uncover corporate crime and build solid cases. The FBI is supposed to be the
lead agency investigating corporate fraud, but it assigned fewer agents to
white-collar matters after the September 11, 2001, attacks. After the global
financial crisis hit, the FBI reversed this trend, assigning more agents to in-
vestigate mortgage fraud and securities and reporting growing numbers of
fraud investigations each year from 2007 to 2011.87 This is the pipeline for
prosecutions, and if Congress wants to take corporate crime seriously, it
could fund far more agents and investigations.
Prosecutors also depend on regulators to uncover violations, as regulatory
agencies may have far more access to corporate records. Regulators uncov-
ered false hospital billing in the WakeMed case in North Carolina because
data mining uncovered abnormal patterns in the billing records. The FBI
272 Too Big to Jail
and regulators are promoting such sophisticated data-mining techniques as a

way to identify patterns of fraud, systemic problems, and unusual billing ac-
tivity. The FBI is also using data mining to detect mortgage fraud. And in
2009, the FBI created the Financial Intelligence Center to provide tactical
analysis of financial intelligence data and uncover securities fraud, money
laundering, and other financial fraud.
Federal prosecutors are the focus of this book, but state and local prosecu-
tors are far more numerous. Few have the resources to take on major corporate
cases, although some of those offices, such as the Manhattan District Attor-
neys Office and the New York Attorney Generals Office, have long done so.
States have also brought important cases regarding environmental violations,
workplace injuries, and consumer fraud, and state and local prosecutors have
increasingly sought to bring major financial fraud cases as well, with some cre-
ating regional task forces and focusing on specific issues, such as fraud that
targets seniors.88 Prosecutors at all levels have begun to cooperate in fraud in-
vestigations, including through a partnership of state attorneys general.89 Such
coalitions may prove unwieldy, or perhaps they will prove effective.
Compare the response to most recent financial crisis to the savings and
loan scandal in the 1980s. Congress, having deregulated S&Ls in the first
place, passed legislation providing for tens of millions of dollars to investi-
gate and prosecute banking crimes. Congress extended the statute of limita-
tions for bank fraud to give prosecutors five more years to bring cases, and it
funded the creation of strike forces and a Financial Institutions Fraud Unit
at DOJ to bring the cases.90 As a result, many hundreds of bank executives
who ran failed S&Ls were convicted. The S&L prosecutions show how pros-
ecutors can be tougher if given the resources. Still, some of the frauds in
those cases were fairly easy to provesome executives lavishly lent them-
selves money from bank assetsand the prosecutions still could not make
victims whole: only $130 million in restitution was recovered.91
The S&L cases were what criminologist William K. Black terms control
frauds, where those who control a company use it to defraud others and as a
shield to conceal their schemes.92 Particularly strong outside oversight is
needed to prevent those at the very top from corrupting internal controls. How-
ever, a totally corrupted company may not be worth saving, or, like Enron,
it may be defunct and not available to prosecute. For a viable company not
wholly engaged in crimes, strong internal controls are needed to prevent offi-
cers and employees at lower levels from breaking the law. Ideally, the threat of
prosecutions would prevent corporate crime in the first place, but it is not
clear that the non-prosecution approach so often used can accomplish this.
A Road Map for Reform
Sen. Jeff Merkley objected to the deferred prosecution agreement HSBC re-
ceived by citing a larger problem: four years after the financial crisis, the
Department appears to have firmly set the precedent that no bank, bank em-
ployee, or bank executive can be prosecuted. Senator Merkley called it a
too big to jail approach.93 No HSBC employees were prosecuted. Sen.
Elizabeth Warren voiced concern that, evidently, if you launder nearly a bil-
lion dollars for drug cartels and violate our international sanctions, your
company pays a fine and you go home and sleep in your own bed at night.94
On the other hand, the DOJ did require top-to-bottom compliance reforms
at HSBC, and the company switched leadership, spent hundreds of millions
of dollars on compliance, and agreed to change executive compensation so
that bonuses were based on compliance. The terms of that agreement are
actually far more rigorous than most. The question is whether the agreement
will accomplish lasting reforms. We should also ask whether other corporate
prosecution agreements result in structural reform, and why there is no eval-
uation of whether these reforms are working in practice.
The distinctive purpose of the criminal law is lost when prosecutors fail
to impose effective consequences on the most serious corporate violators.
This is particularly so where an egregious lack of compliance is the reason
the case merited criminal prosecution in the first place. When prosecutors
do target corporations, compliance is too much of a defenseprosecutors
should not be so quick to credit cosmetic compliance when they offer leni-
ency. Federal judge Jed Rakoff has argued that prosecutors are too inclined
to settle corporate cases on lenient terms after hasty investigations, and
that prosecuting only individuals would be far more effective than impos-
ing internal compliance measures that are often little more than window-
dressing.95 It would require substantial resources to prosecute more upper-
level officers and to more rigorously supervise corporate prosecutions. My
view is that both are important. Neither individuals nor corporations
should be left off the hook.
274 Too Big to Jail
When the corporation is targeted, prosecutors should seek to do far more

than impose cosmetic compliance. Such lenient settlements raise the ques-
tion of why the case is being criminally prosecuted in the first place. The stan-
dards for corporate criminal settlements and sentences should be made
tougher, not weaker. Fortunately, some corporate prosecutions described in
this book provide real models for an approach that treats corporate criminal
behavior more seriously. Each of the chapters in this book sought to answer
a different question about how we prosecute corporations and to suggest
how corporate prosecutions can be made more effective. In the concluding
sections, I focus on those concrete proposals to reduce too big to jail con-
cerns with how corporations are prosecuted.
Rethinking the Punishment of Corporations
A central purpose of criminal law is to send a message of blame. As law

professor Henry M. Hart Jr. famously put it, What distinguishes a crimi-
nal from a civil sanction . . . is the judgment of community condemnation
which accompanies and justifies its imposition.96 Criminal prosecutions
can hurt the reputations of companies more than a noncriminal settlement,
and that is part of the point. The too big to jail concern, though, is that
corporate punishments are too light. What would a system look like that
more sharply distinguished between civil and criminal enforcement against
companies? It would look more like what environmental and antitrust pros-
ecutors now do: cases would be either criminal or civil, without so many
settlements occupying a gray zone in between. In my view, a conviction should
be pursued far more often, with the option to convict a subsidiary if the col-
lateral consequences of a conviction of the parent would be too great. If the
collateral consequences of any type of plea agreement are still too great, a
deferred prosecution should be an option, but only with careful monitoring
supervised by a judge. Non-prosecution agreements should simply not be
used.
In addition, fines should be imposed within the sentencing range. The only
reason lenient fines should be offered is to reward voluntary and prompt self-
reporting and cooperation, as well to promote documented and audited com-
pliance. Compliance programs that are mere window-dressing should not be
rewarded. Prosecutors should also be far more transparent about how fines
are calculated. Judges could scrutinize corporate sentencing more closely if
corporations were required to plead guilty more often. Prosecutors should
also seek far stricter penalties for a recidivist company.
Apart from the blaming function of criminal law, the collateral consequences
that companies may most want to avoidand why they may most fear a prose-
cutionis the risk of suspension or debarment. Such regulatory consequences
may result in what is effectively a death penalty for a company, and in many
cases prosecutors and regulators are right to want to avoid such severe conse-
quences for the entire company. Yet the rules for both suspension and debar-
ment from doing work in an industry or with the government can be quite
vague. The federal government may suspend a company from government work
until the company corrects the conditions that led to the violations (the govern-
ment suspended BP in the wake of the Gulf spill, but only as to new contracts).
Or the government may debar the firm outright, typically for a fixed period up
to three years.97 Some debarments are for fraud or misconduct in government
contractingabout 16 percent as of 2011but the vast majority, 84 percent,
were for other violations, such as health care fraud or illegal exports.98 A gov-
ernment study of debarment found most were by the Department of Health
and Human Services.99 For corporate prosecutions to have real teeth, debar-
ment and suspension should be exercised more clearly and forcefully, particu-
larly for recidivists, to ensure that they implement meaningful compliance.100
Corporate crime can be deterred not just by stricter penalties but by im-
proving detection of wrongdoing. As discussed, Congress could provide far
greater investigative resources to prosecutors. In addition, greater rewards
for self-reporting by companies can help, as can incentivizing competitors to
report on each other and giving whistle-blowers incentives to report from
within a company. International prosecutions highlight the role whistle-
blowers can play. The main response to the global financial crisis, the Dodd-
Frank Wall Street Reform and Consumer Protection Act, includes a whistle-
blower provision that received very little attention at the time, but empowers
whistle-blowers that report possible violations to regulatorsby giving them
more protection from retaliation and greater rewards.101 This may ultimately
make enforcement by regulators and prosecutors stronger, although it also
might discourage internal reporting and compliance.102
276 Too Big to Jail
Taking Structural Reform Seriously
The too big to jail catchphrase is somewhat tongue in cheek, since a com-
pany literally cannot be jailed. A company can be punished, however, and
also reformed, but it is not clear that prosecutors take compliance seriously.
What makes a corporate prosecution distinctly criminal is the focus on pun-
ishment and not merely imposing fines. A big fine may not harm the corpo-
rate officers, as shareholders, customers, or the public may absorb the cost of
the fine. A corporate prosecution can condemn criminal behavior, impose
punishment, deter future crime, and rehabilitate a company to prevent future
crime. A prosecution serves a specific purpose if the company itself is to blame
for egregious violations, such as serious deviations from accepted business
practices, gross failures to comply, or repeat violations. And prosecutors say
that a lack of effective compliance is a primary consideration in prosecuting a
corporation.
This makes it yet another great too big to jail concern that so many cor-
porate prosecution agreements do not impose serious structural reforms. In
contrast, the most successful corporate prosecutions are those based on a
firm picture of what the prohibited conduct is and how preventing that con-
duct through compliance is supposed to work. Internal structures should
build compliance into the everyday work of employees, since responding to
problems after the fact is not enough if the wrong incentives exist. We do not
want prosecutors to act as superregulators and make ill-considered changes
in corporate governance.103 But effective compliance with existing regula-
tions and criminal statutes must be secured. Yet only in a few specialized
areas do prosecutors seem to know what compliance they want. The federal
prosecution guidelines should address this subject in detail.
The biggest and most complex organizations can carry out the most dam-
aging crimes. In my data, record fines are concentrated among public compa-
nies, foreign companies, and multinational companies, along with companies
in large concentrated industries, such as pharmaceuticals. A Yale University
study of federal white-collar offenses in the late 1970s found a close relation-
ship between complex organizations, crimes that require a high level of
planning and organization, and large numbers of victims across local, state,
and national borders.104 Organizational complexity itself enables more
complex and damaging crimes. But complex organizations can also be more
challenging to reform, making it especially important to take compliance

seriously.
Many of the chapters in this book describe failures: Chapter 2 described
the Arthur Andersen case and the potential costs of overly strict corporate
crime enforcement; Chapter 3 described the failure to require careful struc-
tural reforms; Chapter 4 described failures to prosecute individual employ-
ees; Chapter 5 described the failure to adequately vindicate victim interests;
Chapter 6 described the failures of the sentencing guidelines; Chapter 7 de-
scribed the failures to hire corporate monitors in most cases; Chapter 8
described failures of incentives created by criminal procedure rules. But I
have also highlighted a number of bright spots. Prosecutors have successfully
prosecuted more large-scale corporate crimes, including the pharmaceutical
cases described in Chapter 4 and the foreign corporate prosecutions described
in Chapter 9, including cases handled under the long-standing corporate leni-
ency program of the Justice Departments Antitrust Division. That program
is not so lenient at all compared to the deferred prosecution approach the
DOJ follows in other areas. Prosecutors seek to break up cartels and punish
with convictions the companies that do not report themselves first.
In other areas, prosecutors appear uncertain of their ultimate goal. Pros-
ecutors offer leniency in agreements that do not require any detailed descrip-
tion of the structural reforms or careful auditing or testing of compliance. For
example, there has been a rise in large FCPA prosecutions. Many companies
self-report FCPA violations to prosecutors. However, the agreements rarely
describe FCPA compliance in any detail; we do not know how many compa-
nies have built compliance into their business, as Siemens says it has done.
Similarly, in Big Pharma settlements, the question is whether the changes
imposed, such as modifying the way sales representatives are compensated,
will really impact industry practices.
Agreements with prosecutors typically do not alter terms of compensa-
tion or promotion. Instead they rely on hiring new compliance staffers or
on new codes of ethics, training, or other procedures. That may simply not be
enough if employees still are rewarded for conduct that bends the rules. In
other areas, agreements do not describe what compliance is expected. Telling
a company to just adopt best practices does not give real guidance; prosecu-
tors should impose provisions explaining how compliance should be imple-
mented. Serious violations demand serious structural reforms.
278 Too Big to Jail
Prosecutors could also use fines to punish noncompliance while delegat-

ing the assessment of future compliance to monitors, judges, or even regula-
tors. Law professor Jennifer Arlen has recommended that prosecutors use
fines to incentivize compliance but give civil regulators sole authority to im-
pose and assess structural reforms.105 So long as meaningful structural re-
forms follow from egregious corporate criminal violations and a regulator
exists to handle the job, such delegation can be productive. That kind of
delegation occurs in practicein the KPMG case, the IRS supervised com-
pliance throughout and for two years past the date the deferred prosecution
agreement concluded.
Assessing Compliance
When Sen. Edward Kennedy, a sponsor of the legislation that gave birth to
the sentencing guidelines, spoke about the guidelines for organizations in
1995, he pointed out that the key was that law enforcement must be able to
tell the difference between sincere and cosmetic compliance efforts.106 The
carrot-and-stick approach of the sentencing guidelines sparked a corporate
compliance revolution. However, prosecutors offer too much carrot and too
little stick. They often do not formally evaluate a companys compliance pro-
gram, say whether it gets credit for being effective, or explain how effective
compliance will be ensured after an agreement ends.107
A compliance program must be evaluated. The sentencing guidelines for
organizations insist that an effective compliance program must not be just a
checklist of written policies, yet the DOJ prosecution guidelines do not re-
quire follow-up evaluation, and as a result, neither do most deferred prosecu-
tion and non-prosecution agreements. Nor do many companies assess their
compliance routinely; according to one industry survey in 2013, less than half
conduct periodic compliance assessments.108 And nobody evaluates whether
corporate prosecution agreements are working in general. The Government
Accountability Office found that the DOJ cannot evaluate and demonstrate
the extent to which deferred prosecution and non-prosecution agreements
contribute to the departments efforts to combat corporate crime without
any measures to assess their effectiveness. DOJ has so far responded that it
will examine corporate prosecutions to develop performance measures.109
We do not know what performance measures exist, if any, or how prosecu-
tors are trained, if at all, on how to be sure that structural reforms are really
working.
Prosecutors do not seem to have a concrete idea how to measure effective
compliance. The American Bar Association is working on a set of best prac-
tices for corporate monitors, but none currently exist.110 There is little evi-
dence that compliance is assessed in most cases. Some agreements say that
the company should evaluate and improve its effectiveness, or receive moni-
tor reports on the subject, but there is rarely detail about how auditing
should be done. At best, there is generic language.
In some areas, statutes or regulations lay out best practices. For example,
laws require banks to have an anti-money-laundering program that meets min-
imum requirements and to undergo independent testing for compliance.111
That is why the HSBC agreement required adoption of a customer risk-rating
methodology. Similarly, pharmaceutical agreements have detailed provisions
for how to prevent off-label promotion of drugs. In contrast, even when the
DOJ released a book-length guide to the FCPA, it said little about what makes
for a strong compliance program aside from stating that risk assessment is
fundamental and noting how targeted audits can be used to test compli-
ance procedure.112 There are sources of data on public corruption that could be
used, and a company can generate its own data. Anonymous compliance and
reports of ethics violations can be tracked to inform risk-based analysis. Partic-
ular groups or employees can be red-flagged for additional training or supervi-
sion. Prosecutions should impose clear best practices and require careful au-
diting of corporate compliance.
Punishing and Rewarding Individuals
We can take the too big to jail concern quite literally if individuals avoid jail
time when the company settles its criminal case. We should ask whether cor-
porate prosecution deals are distorting justice for white-collar defendants.
Prosecutions of individual officers or employees accompanied just over one-
third of the deferred prosecution and non-prosecution agreements, and just
one-quarter of convictions of public companies.
Good corporate prosecutions can create incentives for companies to them-
selves hold individuals accountable. It is troubling when the officers and em-
ployees involved in criminal acts receive promotions, bonuses, or raises, rather
280 Too Big to Jail
than suffer professional consequences. The most detailed agreements with

prosecutors use structural reforms to change the incentives of individuals to
report misconduct and of companies to punish wrongdoers. Those agree-
ments require a company to create internal whistle-blower hotlines, new cor-
porate codes of conduct, and discipline for employees who violate the rules.
Some agreements change the ways that employees are paid, to encourage
them to comply with criminal laws. Cases against financial institutions pro-
vide an example, as some blamed the global financial crisis in part on com-
pensation plans that rewarded executives for taking excessive risks to gain
short-term rewards.113 Bear Stearns and Lehman Brothers each paid over
$1 billion in bonuses to executives in the years before the crisis.114 The Dodd-
Frank legislation required companies to claw back compensation from exec-
utives who engage in certain types of misconduct, but the SEC had often
failed to enforce earlier clawback provisions, and whether new rules will be
enforced remains to be seen.115 Prosecutors have gone farther in agreements
like that with HSBC and the Big Pharma settlements, calling not only for
clawbacks but also for changing the structure of compensation going forward.
Such terms, if actually taken seriously, might create conditions for better in-
ternal accountability of both higher-ups and lower-level employees.
There are other ways to hold employees and higher-ups accountable.
Sarbanes-Oxley requires that CEOs and CFOs certify corporate financial re-
ports and internal controls, and if they knowingly sign false reports, they face
jail time.116 As with other legislation enacted in response to corporate scan-
dals, it has rarely been enforced, and the high-profile prosecution of Health-
Souths CEO ended in an acquittal.117 Executives have insulated themselves
by requiring certifications from subordinates so they can defend themselves
by showing how they relied on reviews by others: the ostrich problem again.
Certification provisions could be made broader. The SEC has sometimes de-
manded that executives certify compliance; when Goldman Sachs entered an
SEC consent decree, it agreed that the general counsel or head of compliance
would certify compliance annually.118 Similarly, Health and Human Services
demands that executives certify compliance in pharmaceutical cases.119 A
few deferred prosecution and non-prosecution agreements include terms like
that; for example, the Credit Suisse agreement requires the companys CEO
to personally certify that all relevant employees received new training by
2010 and that new policies were in place. Prosecutors could demand certifi-
cations routinely and make clear that executives will be personally liable if
certifications turn out to be false and the company violates the law.
The top-to-bottom reforms adopted at Siemens integrate compliance into
the everyday jobs of employees at all levels. Prosecutors may be leery of im-
posing comprehensive reforms, but to go beyond mere window-dressing, such
structural reforms may be necessary. These can make more information about
compliance available to outsiders such as shareholders, increasing account-
ability. Far more must be done to study what makes compliance effective.
Why Come to Court?
Why are you coming to court if you tell me you dont need me? asked one
federal judge in North Carolina. Im just window dressing in this case.120
Prosecutors had spent two years negotiating a deferred prosecution agree-
ment with WakeMed, a large nonprofit hospital, for false Medicare billing.
The judge refused to sign the deal: Its very difficult for society and the court
to differentiate between the everyday working Joe or Jane who goes to prison
and the nonprofit corporate giant who doesnt go to jail, who gets a slap on the
hand and doesnt miss a beat.
If this was a slap on the wrist, what was the alternative? Pleading guilty
was not a good choice, since the judge acknowledged that a felony conviction
might make WakeMed ineligible for Medicare and Medicaid billing, possibly
resulting in the death of the nonprofit hospital. That could hurt the commu-
nity. And the agreement already required the hospital to pay millions in fines,
hire a corporate monitor, and report to prosecutors and the Department of
Health and Human Services. What the agreement did not do was permit
supervision by the judge to make sure that the hospital was taking compliance
seriously.
Judges have been almost entirely left out of these corporate settlements,
and it is not surprising that they have started to raise alarms. The judge in the
WakeMed case noted that every American wage earner and every American
citizen was a victim in the case. As discussed, victims have intervened to
stand for the public interest, but judges rarely respond to victim objections.
The problem lies with how a judges role is defined: it is hard for a judge to
protect the public interest if prosecutors design agreements to avoid judicial
oversight. In the WakeMed case, the judge ordered the terms of the
282 Too Big to Jail
agreement changed so that the corporate monitor and parties would have to
periodically report to him.121 Why is this not standard practice? Prosecutors
have done what they do best in negotiating settlements, but they are not ac-
customed to long-term supervision. Corporate prosecution settlements that
provide for probation or deferral average just over two years in length. Can a
company be reformed in just a year or two?
There is another model for handling cases that raise important issues of
public interest: the structural reform model. When regulators or prosecutors
seek a civil consent decree to reform an institution, they must do it in court,
with notice and a chance for the public to participate, and where the judge
must explicitly consider the public interest. The same standards should govern
corporate prosecutions. A few judges have refused to approve corporate plea
agreements, finding them not in the public interest. Judges should consider the
public interest when reviewing both plea agreements and deferred prosecution
agreements. Formal rules for ensuring participation of victims and the public
should be put into place. Judges should insist on full and open hearings before
approving corporate prosecution agreements. Congress could pass legislation
laying out clear standards for approving corporate criminal settlements.
It is unclear how well corporate prosecution agreements are being imple-
mented, but what we do know is alarming. There is very little information
about what high-paid corporate monitors are doing and whether it is effec-
tive. Prosecutors may have scaled back the use of monitors after being faced
with criticism regarding cronyism in hiring and complaints about monitors
overcharging. The vast majority of agreements rely on voluntary compliance
by companies rather than monitoring. At best, they may recognize that regu-
lators are already monitoring the company, but often they simply ask compa-
nies to hire consultants to review their books and records. How independent
are these consultants? Concerns have been raised in cases involving major
banks; HSBC had hired Deloitte & Touche to review transactions for money
laundering during the period for which it was later prosecuted for massive vi-
olations. During U.S. Senate hearings, Sen. Jack Reed asked, How can you
be independent if youre hired by the entity youre reviewing?122 That is all
the more reason for judges, regulators, and prosecutors to ensure indepen-
dent supervision of corporate prosecution agreements.
One judge asked why prosecutors entered a sweetheart deal with Barclays
Bank in a 2010 prosecution. The prosecutor emphasized the serious nature of
the criminal conduct, which included helping Cuba, Iran, Sudan, Libya,
and Burma to illegally move more than $500 million.123 Although regula-
tors required Barclays to hire a third party to improve compliance, the agree-
ment did not require a monitor. The judge raised the too big to jail concern:
Its proceedings like this that raise concerns in the publics mind
about fairness and justice and why are financial institutions be-
ing treated the way in which theyre being treated when every-
one else who is charged criminally has to acknowledge criminal
responsibility.
The judge pointed out that monitors have been appointed in other cases but
not this case, and insisted on status hearings every three months so I can
also monitor whats going on.124 Judges should indeed fill this gap and super-
vise corporate prosecutions through both their oversight of deferred prose-
cutions and supervision of probation when companies plead guilty.
Further, prosecutors should ban or sharply limit the use of corporate
non-prosecution agreements not filed with a judge, as whether Congress could
pass a law to do so raises questions of constitutional separation of powers
between the legislature and the executive branches. Non-prosecution agree-
ments are nearly as common as deferred prosecution agreements, but corpo-
rate agreements are far too important to avoid judicial review entirely. Nor
does a criminal prosecution system work if companies do not know whether
they might receive a non-prosecution or deferred prosecution agreement de-
pending on their clout or other invisible factors.
In the HSBC case, federal judge John Gleeson waited months before ap-
proving the deferred prosecution agreement. The judge ultimately concluded
that he had supervisory authority over such a casehe was not, to borrow a
famous phrase, a potted plant. The judge asked to receive quarterly reports to
monitor the implementation of an agreement, noting that all sorts of situa-
tions might call for his intervention, such as a possible breach of the agree-
ment and selecting a replacement monitor.125 Perhaps more judges will insist
on supervising corporate agreements. Judges could also do more in plea agree-
ments by imposing special conditions of probation, similarly making monitors
reports transparent if not public, and stating specific reasons why probation
supervision should end or continue.
284 Too Big to Jail
Judges should select monitors, allaying concerns that prosecutors offer

these plum positions mostly to former colleagues, by supervising a competi-
tive process for bidding on the positions. Judges could review the fees charged
and ensure that monitors or special masters are appointed when needed. The
overwhelming majority of deferred prosecution and non-prosecution agree-
ments now reached do not include a monitor. Judges should also review the
decision to conclude an agreement and should ask whether a company has
sufficiently reformed. A company should not be let off the hook until a judge
has reviewed the monitor reports, heard from regulators and prosecutors,
and decided it is in the public interest to conclude the case.
We should feel uneasy about the fact that some firms get convicted and
others get a better deal for similar crimes. While the reasons for this are
usually unknown, such disparities can have a corrosive effect on companies
who see others let off the hook for doing basically the same thing they did.
The DOJ has adopted no guidance on what compliance to require or how to
ensure it is effective. Still more problematic, however one defines them, are
recidivist companies, which typically face no additional punishment. I have
described how prosecutors agree to fines much lower that what the guide-
lines recommend. Lenient fines may become a merely a minor cost of doing
business, and judges should outright reject settlements that fail to adequately
punish. Federal judge William Young rejected a proposed plea agreement
with APTx Vehicle Systems Ltd. for defrauding the federal government to
the tune of $5.7 million by failing to deliver to Iraq Jeeps the army had paid
for. The prosecution deal called for a $1 million fine and a $2 million civil
settlement. Judge Young rejected the deal as against the public interest and
emphasized that a judges role is to ensure that justice is done. The judge
called the fine meager and strikingly low, given that according to the guide-
lines the company could be fined up to $11.4 million. A great many of these
corporate settlements include fines well below the limits set by statute and
the guidelines, and judges should intervene if prosecutors agree to a fine so
paltry as to result in a denigration of criminal law.126
Judicial review is no panacea. If prosecutors decide not to pursue a convic-
tion, there is nothing a judge can do, and placing a straitjacket on the types of
terms that agreements can include is not a good idea, either. Nor will all judges
supervise these complex cases carefully. Still, greater involvement of judges
and the public would be a real improvement.
Conclusion
Judge Gerard Lynch has described federal prosecutors as playing the role of
God.127 Prosecutors are the most powerful actors in our criminal justice
system, but in corporate prosecutions the tables are turned. Large organiza-
tions create complex environments ripe for commission of crimes on a massive
scale, and that complexity makes crime difficult to uncover and punish. In
this book I have described the many challenges of prosecuting corporations,
both in order to make it understandable why prosecutors tend to compromise
in the ways that they do and to underscore how important it is to get corporate
prosecutions right.
Corporations have no soul to damn, as the Lord Chancellor in England
famously remarked.128 Some critics call it nonsensical to hold corporations
criminally accountable, while critics on the other side argue that corpora-
tions should be punished especially severely.129 There is a middle ground.
The great pragmatist philosopher John Dewey famously argued we should
stop using the word person to apply to corporations, since the term is
distractingwhat matters are the concrete facts concerning how an orga-
nization actually operates and whether it needs to be regulated or given legal
rights.130 The current view held by most prosecutors is also pragmatic. Pros-
ecutors say that only serious violations of regulations and criminal statutes,
such as involvement by upper management or tolerance of misconduct, de-
serve a distinctly criminal punishment. However, prosecutors are also too
pragmatic in the negative sense of that word, sacrificing principle to expedi-
ency. Serious criminal violations demand imposition of serious structural
reforms and not just window-dressing. Prosecutors should demand compa-
nies pay full statutory fines, typically up to twice the gain or loss to victims,
and not the slap-on-the-wrist penalties that are all too common. Prosecutors
should normally seek a conviction if a corporation deserves criminal punish-
ment and the collateral consequences are not inappropriate. After all, major
companies are routinely convicted without suffering Arthur Andersens fate:
BP, SAC Capital Advisors, and Siemens received criminal convictions.
Each of the too big to jail concerns could be addressed by a new set of
guidelines for prosecuting companies, designed to strengthen the use of
criminal prosecutions as a distinct punishment for companies that engage in
the most serious violations. The overall theme of these reforms is that egregious
286 Too Big to Jail
lack of compliance should be treated as criminal and result in serious pun-

ishment and an effective overall of compliance. Prosecutions should (1) require
a conviction, except in the unusual cases in which collateral consequences
would be severe, and convictions of subsidiaries should be preferred in those
cases, but if that is not possible, then (2) a deferred prosecution should be
supervised by a judge, through either a statute or supervisory authority, typi-
cally relying on regulators or monitors reporting to the judge. Prosecutors,
having determined that a criminal prosecution is justified, should (3) insist on
detailed structural reforms to ensure that effective compliance is put into
place and supervised by prosecutors, regulators, or a monitor, and (4) impose
fines intended to be a deterrent, mitigated only by voluntary self-reporting
and carefully documented efforts to create compliance. The Organizational
Sentencing Guidelines could also be revised to provide far greater punish-
ment for recidivists and companies that do not self-report, while more clearly
requiring that compliance be audited. Corporation prosecutions deserve
more sunlight: (5) the public and the shareholders should know more about
corporate crime, including through release of all prosecution agreements,
detailed accounting of how fines are calculated, and publicly available prog-
ress reports describing compliance.
The problem of corporate prosecutions is double-edged. Under the cur-
rent system, corporate prosecutions are both over- and underused. It is trou-
bling if prosecutors offer a company an alternative to prosecution because
they think they have a weak casein such circumstances, prosecutors should
not be bringing a criminal case at all. But it is also troubling if prosecutors
bring strong cases against egregious corporate violators, only to then settle
for reduced fines and superficial compliance. Overly lenient settlements of cor-
porate prosecution undermine the legitimacy of the criminal law. They send
a corrosive too big to jail message to industry and to the public.
To be sure, none of these are silver-bullet solutions to the set of too big to
jail concerns raised by corporate prosecutions. Even with clearer guidelines,
prosecutors retain enormous discretion in making decisions about whom to
prosecute and how, and they decide whether a breakdown in compliance oc-
curred or rogue employees were responsible. Prosecutors will still largely de-
pend on corporations for information about what actually happened and must
offer leniency in exchange for cooperation and self-reporting. The ability of
judges to supervise prosecution decisions is limited, and the ability of judges,
prosecutors, and others to structurally reform corporations using a criminal

case is also limited. Lastly, and most fundamentally, we do not know enough
about how complex organizations work or what compliance systems are the
most effective. If anything, the current approach toward settling corporate
prosecutions keeps both compliance failures and success stories in the dark.
My goal in this book has been to describe the intricate hidden world of
corporate prosecutions. No longer is it an unusual practice for the largest cor-
porations to receive criminal punishments. Blockbuster corporate prosecu-
tions are the largest-scale criminal prosecutions of all time, in terms of their
economic stakes, and they deserve closer attention. The sheer size and com-
plexity of some corporate crime makes it troubling and fascinating. Indeed,
corporate crime can overwhelm the limited resources of the criminal justice
system.131 Whether and how to provide more resources to prosecutors and
regulators who investigate corporate conduct is a larger social, political, and
policy question. Meaningful regulation of corporations must come from sus-
tained political and regulatory involvement, but prosecutors provide a last
line of defense against the most serious violations.
Corporate prosecutions have been transformed in recent years, but also
compromised. While the world of corporate prosecutions has dramatically
changed, we should be troubled both by what we know and how much we do
not.132 Although the data I present here provide a rich picture of the current
practice, we lack sufficient knowledge about how prosecutors exercise their
discretion when targeting corporations. Much remains hidden, including
how agreements are carried out, whether compliance is carefully supervised,
how fines are calculated, why so few individuals are prosecuted, and what ex-
plains the wide range in fines. The apparent success stories, such as in the
Siemens case that I began this book with, suggest how large corporations and
even entire industries can be reformed. However, far more needs to be done to
investigate when and whether compliance programs are effectivecurrently,
very little is made public about how they are implemented in practice. The
globalization of corporate prosecutions raises still more questions; we should
be careful to evaluate a new corporate prosecution approach before encour-
aging its spread around the world. We want other countries to insist on ac-
countability and not just adopt new ways to compromise with corporations.
Even the biggest corporate prosecutions lack the courtroom drama of indi-
vidual criminal cases. Corporations understandably try to settle criminal cases
288 Too Big to Jail
quietly and outside the public eye. However, corporate prosecutions can suc-
ceed only if judges, prosecutors, lawyers, regulators, lawmakers, shareholders,
and ultimately the public stay informed and involved. Prosecutors have made
some changes already in response to the too big to jail concerns that people
have raised, but much more needs to be done. It is crucial that we get corpo-
rate prosecutions right, given the size, seriousness, and complexity of the
crimes that can occur in the corporate setting. Corporate prosecutions are
themselves too big to fail.
Appendix
Notes
Ac know ledg ments
Index
Appendix
This book began with a problem: I wondered what happens to companies

that are prosecuted, but there was no good source for data on corporate pros-
ecutions. While the U.S. Sentencing Commission keeps data on prosecutions
of organizations, those data were incomplete, and the problem was growing
worse, since prosecutors had started to enter into more deferred prosecution
and non-prosecution agreements that were not being tracked by the commis-
sion or anyone else. Since there was no official national corporate offender
registry, I created one, building a database of more than 300 deferred prose-
cution or non-prosecution agreements with companies, with invaluable help
over the years from Jon Ashley and the University of Virginia Law Library.
I made these data available online as a public resource, and the database re-
mains the most authoritative and complete source for information about
those agreements.1 Next, I amassed a second, larger archive of federal corpo-
rate convictions from the past decade, more than 2,000, mostly guilty pleas
by corporations, and I placed these data online as well.2 We intend to continue
to update these data.
Each chapter in this book tells a different part of the story of how corpo-
rate prosecutions have evolved. In this appendix, I describe the methods used
to collect and analyze these data. Chapter 1 of this book began by describing
the new leniency approach used by federal prosecutions. I noted that an over-
all decline in convictions of companies beginning in 2000 accompanied an
expansion in the use of deferred prosecution agreements. What was missing
from that picture? We do not know what the underlying corporate crime rate
is. Nor do we know how many corporate crimes come to the attention of
prosecutors but that they choose not to bring. I collected data on formalized
non-prosecution agreements, but other non-prosecutions may never be for-
malized in an agreement not to prosecute. Prosecutors may simply decline to
292 Appendix
pursue charges, including because they lack sufficient evidence that a crime
occurred or conclude that no crime occurred, or because they view a civil en-
forcement action as sufficient. These data do not include leniency agreements
in the Antitrust Divisions leniency program, which are kept confidential. Nor
do these data include convictions overturned on appeal, such as the Arthur
Andersen conviction. Nor do these data include cases in which the indictment
was dismissed or the company was acquitted at trial, discussed in Chapter 8.
In Chapter 1, I displayed total corporate fines from 1994 through 2012. The
commissions data are useful since they go back to the early 1990s, but as I
found when I collected data on corporate prosecutions from 2001 to 2012,
and as others have found when examining 1990s data, the commission un-
derreports total fines, perhaps because of incomplete reporting by the federal
courts.
Not only have total fines gone up over the last decade in particular, but
average fines have also gone up steadily, as Figure A.1 shows. This could re-
flect prosecutors focusing on the most serious offenders. I note that there are
growing discrepancies between what I found in dockets and the commission
data, which suggest their information is incomplete. In the period from 2001
to 2005, discrepancies may also be due to the fact that it was not always pos-
sible to separate the commissions data into calendar years (they use fiscal
years). There may be discrepancies in dates reported to the commission re-
18,000,000.00
16,000,000.00
14,000,000.00
12,000,000.00
10,000,000.00
8,000,000.00
6,000,000.00
4,000,000.00
2,000,000.00
0.00
1990 1995 2000 2005 2010
Dockets Data from Sentencing Commission Data
Figure A.1 Average Corporate Fines, 19942012

Appendix 293
Table A.1 The Top Twenty Corporate Fines, 20012012

Company Fine Year Crime
1 Pharmacia & Upjohn $1.195 billion 2007 Pharmaceuticals
2 GlaxoSmithKline, LLC $957 million 2012 Pharmaceuticals
3 Eli Lilly $515 million 2009 Pharmaceuticals
4 Abbott Laboratories $500 million 2012 Pharmaceuticals
5 AU Optronics Corp. $500 million 2012 Antitrust
6 Yazaki Corp. $470 million 2012 Antitrust
7 Siemens Aktiengesellschaft $448.5 million 2009 FCPA
8 Kellogg Brown & Root LLC $402 million 2009 FCPA
9 BAE Systems plc $400 million 2010 FCPA
10 LG Display Co., Ltd. $400 million 2008 Antitrust
11 UBS AG $400 million 2012 Fraud
12 Air France/KLM $350 million 2008 Antitrust
13 Allergan $350 million 2010 Pharmaceuticals
14 Prudential Equity Group, LLC $325 million 2008 Securities fraud
15 Merck Sharp & Dohme Corp. $322 million 2012 Pharmaceuticals
16 British Airways $300 million 2007 Antitrust
17 Korean Airlines $300 million 2007 Antitrust
18 Samsung Electronics Company $300 million 2005 Antitrust
19 TAP Pharmaceutical Products, Inc. $290 million 2001 Pharmaceuticals
20 Guidant LLC $254 million 2004 Pharmaceuticals
garding when sentencing occurred versus when the judgment was entered.
There may also be cases the commission reported that were not available in
docket sheets, including, perhaps if a case was sealed.
Table A.1 lists the top twenty corporate fines from 2001 to 2012 to give a
sense of the small number of very large blockbuster cases that have pushed
up the fines in recent years. The largest fine is now the $1.256 billion fine
paid by BP in 2013. These cases were dominated by pharmaceutical-related
and antitrust prosecutions, with more FCPA prosecutions in recent years.
Figure A.2 displays the fines each year in deferred prosecution and non-
prosecution agreements from 2001 to 2012, when added to the fines in cases
of corporate convictions (displaying data collected from dockets and not
commission data). While fines have gone up in deferred prosecution and
non-prosecution agreements, the bulk of the fines each year are in cases of
convictions.
294 Appendix
In Chapter 3, I explore how fines are just a part of the total payments made
by prosecuted organizations, which may also be sued by private plaintiffs,
they may make disgorgement, forfeiture, restitution, and community service
payments to prosecutors, and they may pay fines and make other payments to
regulators. As noted in Chapter 3, information on civil suits reflects what
could be learned from reported cases or media accounts; many civil settle-
ments are kept confidential. The figures on total payments do not include ex-
penses for legal defense, accountants, compliance, media, and other expenses
companies incur when prosecuted. The average fines and total payments var-
ied quite a bit depending on the crime. Figure A.3 shows the variation in aver-
age fines and total payments, broken down by type of crime. The largest aver-
age fines and total payments were in securities fraud cases, pharmaceutical
cases, and Bank Secrecy Act cases, followed by antitrust and FCPA cases.
In Chapter 3, I also discussed characteristics of deferred prosecution and
non-prosecution agreements, focusing on what types of compliance was re-
quired. The figure presented in Chapter 3 showed that compliance reforms
are generally required, but fewer agreements required corporate monitors
or specific governance changes. In many agreements, regulators required com-
pliance, not just prosecutors. The charts below display the mixture of crimes
that companies were prosecuted for that received deferred prosecution and
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
2001 2006 2011
Convictions Deferred and Non-Prosecution

Agreements
Figure A.2 Added Fines in Organizational Deferred Prosecution and

Non-Prosecution Agreements and Convictions, 20012012
Appendix 295
non-prosecution agreements, in Figure A.4, versus the crimes in cases in

which the companies were convicted, in Figure A.5. As discussed in Chap-
ters 3 and 9, the deferred prosecution and non-prosecution agreements were
dominated by fraud and FCPA cases. The convictions were dominated by
antitrust, environmental, and fraud statements convictions. These data re-
flect the most specific lead charges against the companies; often, the lead
offenses charged are also accompanied by more general charges such as fraud
or false statements.
Chapter 4 focuses on prosecutions of employees. As noted, in about
one-third (35 percent, or 89 of 255) deferred prosecution or non-prosecution
agreements, corporate officers or employees were prosecuted for related crimes,
based on information available from prosecutors press releases, docket
searches, and news searches for reports of such individual prosecutions.
In about two-thirds of those agreements, no employees were prosecuted. Of
course, even if employees were indicted and a prosecution was initiated, the
case might not result in a conviction.
$140,000,000
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0
ig g
st
PA
S
a
em n
d
nm d
Ph d
W l
un ct
rt
ta
m rin
po ent
lif
st atio
au
au
P
o
ru
po
La y A
en
FC
Fo
ild
AP
ar
Im de
tit
Fr
Fr
Ex
r
ey ec
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at
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ie
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rit
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nk
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Fa
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Average Fine Average Total Payment
Figure A.3 Average Fines and Payments in Corporate Prosecutions,

20012012, by Crime
296 Appendix
Chapter 5 focuses on the role of victims in corporate prosecutions, and

presented data on rising amounts of restitution paid by convicted organiza-
tions. I included Sentencing Commission data for the period before 2001,
but found that the data were missing restitution information collected from
docket sheets and deferred prosecutions from 2001 to 2012. Chapter 6 dis-
cussed sentencing of corporations, and noted how few of the deferred pros-
ecution and non-prosecution agreements provided a sentencing guidelines
Fraud (79)
FCPA (63 )
Kickbacks (16)
Bank Secrecy Act (13)
Immigration (10)
Import/Export (12)
Antitrust (7)
Environmental (5)
Other (39)
Figure A.4 Crimes and Organizational Deferred Prosecution and

Non-Prosecution Agreements, 20012012
Environmental (501)
Fraud (403)
Antitrust (167)
False statements (107)
Food and Drug (68)
Import/Export (112)
Immigration (107)
FCPA (34 )
Money Laundering (85)
Wildlife (76)
Pharma (68)
Other (280)
Figure A.5 Crimes and Organizational Convictions, 20012012

Appendix 297
calculation; when that did occur, the sentence was at or below the bottom of
the guidelines. In that chapter, I also discussed Sentencing Commission
data, which provide information on judges sentencing calculations far richer
than what can be gathered from docket sheets, such as, for example, when they
did or did not credit for corporate compliance and the like. Chapter 7 focuses
on the role of corporate monitors, and described how 25 percent (65 of 255)
deferred prosecution and non-prosecution agreements from 2001 to 2012 re-
quire a monitor to provide independent supervision of that compliance.
Chapter 9 focuses on prosecutions of foreign corporations. Figure A.6
displays the types of crimes that foreign corporations were convicted of;
Chapter 9 explains why in these areas in particular, corporate prosecutions
have taken off, and it presents data concerning rising fines in foreign corpo-
rate prosecutions and in antitrust and FCPA cases in particular.
Data Collection
I have tried to gather all of the available information about organizational

prosecutions in federal courts, focusing on the period 20012012. I have
not gathered information about state court prosecutions of organizations. I
could not find any large states that keep data on organizations separate from
sentencing information on individual defendants. From reading reported
cases and news reports, I gather that state and local prosecutors do not bring
Antitrust (78)
Ocean Dumping (73)
FCPA (48 )
Enviromental (13)
Import/Export (17)
Immigration (5)
Money Laundering (2)
Fraud (12)
Pharma (4)
Other (30)
Figure A.6 Foreign Corporate Crimes of Prosecution

298 Appendix
major corporate cases nearly to the degree that federal prosecutors do. The
notable exceptions are the Manhattan District Attorneys Office and the
New York Attorney Generals Office, which have long stood watch over Wall
Street, and a few other more active state attorneys general. They sometimes
cooperate with federal prosecutors in important cases, but they may also
sometimes pick up cases that federal prosecutors decide not to bring.
The Sentencing Commission began keeping data on prosecutions of orga-
nizations, including corporations, partnerships, limited liability companies,
and other entities, after the Organizational Sentencing Guidelines took
effect in 1991. The commission relies on information provided by federal
judges. I include in several tables data from the commission for purposes of
comparison and to provide some information about organizational prosecu-
tions before 2001. However, their data were apparently quite spotty in the
1990s, and they remain incomplete to this day.3 The commission does report
several hundred more corporate convictions during the period 20012009
than I was able to locate. However, the commission does not report deferred
prosecution and non-prosecution agreements. For conviction of organiza-
tions, the commission is missing quite a bit of fine and restitution informa-
tion. This may be due to their dependence on reporting by courthouses, or it
may be because they have less information in cases in which sentencing is not
done under the guidelines. The commission does not publish names of con-
victed organizations (or individuals). They do not follow up and add informa-
tion not supplied by the judge and not used to sentence a particular firm; as
a result, they often do not note whether a convicted company is public or not,
for example, although that information should be readily available.4
To gather far more complete data, I decided to hand-collect data on all
corporate prosecutions from 2001 to 2012 resulting in a conviction or a de-
ferred prosecution or non-prosecution agreement. These data are available
online as a resource, including the text of prosecution agreements themselves
(and we will continue updating it; 2013 agreements are available, for exam-
ple). I identified 255 deferred prosecution and non-prosecution agreements
with organizations from 2001 to 2012, as well as 14 such agreements from
1992 to 2000. The deferred prosecution agreements were brought across the
country, but almost half were brought by the Department of Justice itself
(119 cases), particularly the Fraud Section (75 cases), and other departments
such as the Antitrust Division (8 cases). Other agreements were brought by
Appendix 299
U.S. Attorneys Offices around the country, led by the Southern District of
New York (32 cases), which, due to its proximity to Wall Street, has tradi-
tionally brought corporate and white-collar prosecutions, but also other of-
fices such as the District of Massachusetts (17 cases) and the District of New
Jersey (11 cases), and U.S. attorneys in California (23 total).
These data on deferred prosecution and non-prosecution agreements was
collected starting in 2005, by identifying agreements through news searches,
press releases by the Department of Justice and U.S. Attorneys Office, and
also when practitioners brought agreements to our attention. The Govern-
ment Accountability Office conducted a study of federal deferred prosecution
and non-prosecution agreements with organizations, and in August 2010, the
GAO provided a list of those agreements in response to an information re-
quest, which added several additional agreements that had not previously
been known. Finally, searches of the Bloomberg dockets database located a
handful of additional deferred prosecution agreements with companies that
had not previously been known. Some of these agreements have been re-
ported in the news, but the text of the agreements themselves have not made
public. Jon Ashley has contacted each of the U.S. Attorneys Offices to re-
quest those agreements, and they have not been disclosed; some were said to
be under seal by agreement between the parties, while others could not be
located by the relevant office. An effort by the First Amendment Clinic at
the University of Virginia School of Law to litigate Freedom of Information
Act requests for missing agreements is under way.
I did not treat as a separate case a deferred prosecution or non-prosecution
agreement that additionally named a subsidiary, unless prosecutors entered
a separate agreement with the subsidiary. Since plea agreements, in contrast
to deferred prosecution and non-prosecution agreements, sometimes for-
mally included a separate conviction and agreement with the subsidiary, the
set of corporate convictions contained more separate but related cases.
The collection of corporate convictions was a much larger project. I iden-
tified 2,008 federal corporate convictions entered from January 1, 2001,
through December 31, 2012. These data on corporate prosecutions came from
several sources. First, we collected large numbers of plea agreements, as well
as identifying a small number of cases in which a company was convicted at a
trial. These were identified with substantial help from Jon Ashley and a team
of law student research assistants. Those agreements were identified in several
300 Appendix
stages. First, plea agreements were located using searches of DOJ and U.S.
Attorneys Office websites, which post press releases and sometimes the
agreements themselves online (a more common practice in recent years), and
by contacting such offices. SEC database searches located additional agree-
ments reported by corporations to the SEC. News searches and Westlaw
searches were also used to identify additional agreements. Plea agreements
were obtained and have been made available online, along with a spreadsheet
detailing these data. The agreements that we did not locate, if any, were likely
mostly small firms not listed or required to report convictions to the SEC.
I excluded corporate convictions for petty offenses such as traffic tickets, of
which there were a fair number in a few district courts.
Second, we searched and collected docket sheets. Jon Ashley and I
searched both the dockets database on WestlawNext and the Bloomberg
dockets database and ran multiple searches specifying terms such as corp.
and inc. and incorporated and LLC. We eliminated cases in which the
firm had the charges dismissed or was acquitted at trial. The docket sheets
were very useful as a supplement to plea agreements, since docket sheets typ-
ically noted the final sentence and fine imposed, while plea agreements might
only specify a sentence range for the judge to consider. I also thank David
Uhlmann and the Michigan Environmental Crimes Project for sharing pre-
liminary environmental prosecution data from 2005 to 2010.
Data Analysis
A range of information was coded concerning these corporate prosecutions.

As displayed above, the deferred prosecution and non-prosecution agreements
had more detailed information coded concerning the various compliance-
related terms in the agreements. The deferred prosecution and non-prosecution
agreements also had information coded concerning agreements and penalties
by regulators as well as any available public information about settlements
in private suits. Only for the deferred prosecution and non-prosecution agree-
ments, I collected information regarding whether the prosecution of the
corporation was accompanied by a prosecution of employees.
For just the FCPA cases, I coded information concerning the SEC en-
forcement cases and prosecutions and enforcement actions against employ-
ees, to compare outcomes in criminal prosecutions with civil enforcement, as
Appendix 301
described in Chapter 9. For all of the corporate prosecutions, however, infor-

mation was coded concerning the crime, the prosecuting office, the fines, res-
titution, and other penalties, probation, and whether a corporate monitor
was appointed, as well as characteristics of the companies, including whether
they were publicly listed in the United States and whether they were incor-
porated in the United States or abroad.
To examine whether larger fines were correlated with certain types of
companies or crimes, I analyzed that information using two regressions. For
these regressions, cases with zero fine had one dollar added to them (and in
fact, there was a nominal fine in such cases, since I did not include in the fine
calculations the several hundred dollar special assessments imposed by fed-
eral courts). I thank Vahid Gholampour for his invaluable assistance in con-
ducting these analyses of these data. Tables A.2 and A.3 present results of
log regressions run on the independent variable of the fines imposed, in all
2,262 corporate prosecutions studied from 20012012, as well as on the to-
tal payments made by those firms.
I wondered whether larger fines were correlated with certain types of
crimes, or companies, specifically, whether firms were foreign or domes-
tic, and public or not public (defined as whether the company had stock
listed in the United States, and include subsidiaries, and firms with
American depositary receipts listed in the United States). Of the 2,262
cases examined from 2001 to 2012, only about 80 were dropped from the
analysis because they were missing fine information. The first table shows
a regression of just the criminal fine. The second displays an otherwise
identical regression, but with the total payment by the firm, including res-
titution or forfeiture as well as the fine. For the second regression, only
about forty cases were dropped from the analysis due to missing payment
information.
The regression selected as the most informative and the best fit was a log
regression, because there was such a wide range of fines, with many firms
receiving nominal fines and, at the other end of the spectrum, firms with
fines in the hundreds of millions of dollars. Using a linear regression and other
types of regressions suggested that the effects were not uniform among these
data. The tables above also present exponentials of the coefficients to show
how many times larger, within a 95 percent confidence interval, the fines were
when controlling for the other factors.
302 Appendix
Table A.2 Regression of Logfines

Crime (1) Exp. of
Code Variables Logfine Coefficients 95% Interval
foreign 2.000*** 7.39 3.17 17.20
(0.431)
public 1.456*** 4.29 2.02 9.10
(0.384)
1 antiT 4.624*** 101.90 38.77 267.81
(0.493)
4 env 2.427*** 11.32 5.71 22.44
(0.349)
2 FCPA 4.336*** 76.40 21.00 278.01
(0.659)
3 fraud 1.346*** 0.26 0.13 0.53
(0.363)
10 immig 0.206 1.23 0.38 4.00
(0.602)
9 money 2.870*** 0.06 0.01 0.25
(0.753)
6 food 0.895 2.45 0.64 9.35
(0.684)
7 pharma 3.973*** 53.14 14.95 188.88
(0.647)
8 bankSecrecy 5.166*** 0.01 0.00 0.03
(0.886)
12 impExp 1.250** 3.49 1.22 9.96
(0.535)
13 Apps 3.399*** 29.93 7.10 126.17
(0.734)
14 secFraud 3.221*** 0.04 0.00 0.34
(1.090)
15 bribery 2.926** 18.65 1.03 337.28
(1.477)
18 healthFraud 3.372*** 0.03 0.01 0.13
(0.698)
19 accFraud 9.349*** 0.00 0.00 0.02
(2.652)
Constant 7.757***
(0.237)
Observations 2,180
R-squared 0.222
Standard errors in parentheses
* p < 0.1
** p < 0.05
*** p < 0.01
Appendix 303
Table A.3 Regression of Log on Total Payment

Crime (1) Exp. of
Code Variables logAdjPay Coefficients 95% Interval
foreign 2.209*** 9.11 4.39 18.88
(0.372)
public 2.362*** 10.61 5.54 20.34
(0.332)
1 antiT 3.409*** 30.23 13.14 69.55
(0.425)
4 env 1.670*** 5.31 2.94 9.58
(0.301)
2 FCPA 2.064*** 7.88 2.58 24.03
(0.569)
3 fraud 1.728*** 5.63 3.05 10.38
(0.312)
10 immig 0.500 1.65 0.59 4.57
(0.520)
9 money 0.101 0.90 0.25 3.23
(0.649)
6 food 0.0953 1.10 0.34 3.52
(0.594)
7 pharma 2.900*** 18.17 6.08 54.36
(0.559)
8 bankSecrecy 0.831 2.30 0.53 10.02
(0.752)
12 impExp 0.813* 2.25 0.91 5.59
(0.463)
13 Apps 2.086*** 8.05 2.34 27.74
(0.631)
14 secFraud 0.433 1.54 0.25 9.56
(0.931)
15 bribery 1.232 3.43 0.28 42.46
(1.284)
18 healthFraud 0.944 2.57 0.80 8.30
(0.598)
19 accFraud 2.923 0.05 0.00 4.95
(2.307)
Constant 9.440***
(0.203)
Observations 2,218
R-squared 0.132
Standard errors in parentheses
* p < 0.1
** p < 0.05
*** p < 0.01
304 Appendix
What the tables show is that that among all of these prosecutions, the pub-
lic companies received fines that were on average over four times larger than
the other companies, even controlling for the type of crime and other charac-
teristics of the cases. That was not surprising; public companies are far larger
and might tend to commit more substantial offenses that impact more victims
or result in more gains to the company. I also found that foreign companies
paid fines that were on average over seven times larger, even controlling for
some other characteristics of the cases. In addition, several crimes stood out
as associated with far larger fines on average: antitrust, FCPA, and pharma-
ceutical prosecutions in particular. Antitrust cases had fines on average over a
hundred times larger, FCPA cases over seventy-five times larger, and pharma-
ceutical cases on average over fifty times larger than other cases.
The results taking into account total payments by companies, and not
just the criminal fine, were similar, but with even larger average payments
by public companies (nine times larger payments on average) and public
companies (over ten times larger payments on average), while someone more
modest crime-related increases. Total payments for prosecuted companies
were on average thirty times larger in antitrust cases, almost eight times
larger on average for FCPA cases, and eighteen times larger for pharmaceu-
tical cases.
I emphasize, however, that those averages should not be taken as an overly
precise measure of the relative size of the effect, since the confidence intervals
in these regressions were quite wide, and therefore reflect wide ranges in esti-
mates. Another important qualification is that these results only show associa-
tions among cases obtained, in which prosecutors successfully brought cases
against organizations in federal court during that time period. These data do
not reflect cases not brought by prosecutors, dismissed by the judge, or dropped
by prosecutors, or rare corporate trial acquittals or reversals on appeal. Most
important, these data do not show that prosecutors are necessarily more ag-
gressive when they pursue, for example, foreign firms or public firms or anti-
trust cases. These data could reflect that more very substantial and serious
cases involving foreign firms or public firms or antitrust violations happened
to come to prosecutors attention. Or, as to foreign firms, it may be that pros-
ecutors simply decide to pursue cases against foreign firms only when they
are very serious and involve large firms and substantial harm or egregious
violations.
Appendix 305
The descriptions in this book of what prosecutors say their priorities are,
including bringing antitrust and FCPA cases, suggest that the biggest cases
do reflect prosecutors goals to be aggressive in these areas. To be sure,
prosecutors may simply have more low-hanging fruit, or big serious cases,
come their way in those areas. For example, the pharmaceutical cases involve
very large criminal and civil fines, but as discussed, they are often initially
brought by qui tam whistle-blowers. How prosecutors exercise their discre-
tion cannot be known just from observing the outcomes in cases they do de-
cide to bring. These data, while detailed, provide only a first step. There are
rich and complex explanations for how prosecutors use their discretion in
corporate prosecutions. My goal in this book has been to situate these data
by using examples from cases, describing the changes in prosecutors prac-
tices, and exploring the dynamics at work in legislatures, regulatory agencies,
courts, the defense bar, and the business world.
notes
1. United States vs. Goliath

1. Siri Schubert and T. Christian Miller, At Siemens, Bribery Was Just a Line Item, New
York Times, December 20, 2008.
2. Frontline, Black Money, PBS, April 7, 2009, www.pbs.org/wgbh/pages/frontline/black
money/etc/script.html.
3. Carter Dougherty, Ex-Manager at Siemens Convicted in Bribery Scandal, New York
Times, July 28, 2008.
4. Frontline, Black Money.
5. John C. Coffee, No Soul to Damn: No Body to Kick: An Unscandalized Inquiry into the
Problem of Corporate Punishment, Michigan Law Review 79 (1981): 386.
6. 212 U.S. 481 (1909).
7. Ibid., 494 496.
8. 558 U.S. 310 (2010).
9. 1 U.S.C. 1.
10. More than 95 percent of felonies are prosecuted at the local level. Bureau of Justice Statis-
tics, U.S. Dept. of Justice, Office of Justice Programs, Felony Sentences in State Courts 2010
(2011). In contrast, while few states keep data on organizational prosecutions, reported
cases suggest state and local prosecutors do not bring major corporate cases to the degree
federal prosecutors do, with some notable exceptions, such as the Manhattan District At-
torneys Office and New York Attorney Generals Office, which have long stood watch over
Wall Street. For an exploration of corporate prosecutions brought by local prosecutors,
particularly in smaller cases, see Michael L. Benson and Francis T. Cullen, Combating Cor-
porate Crime: Local Prosecutors at Work (Boston: Northeastern University Press, 1998).
11. Mark A. Cohen, Theories of Punishment and Empirical Trends in Corporate Criminal
Sanctions, Managerial and Decision Economics 17 (1996): 401.
12. U.S. Department of Justice, Office of the Deputy Attorney General, Corporate Fraud
Task Force, First Year Report to the President, July 22, 2003, 2.2.
13. Brandon L. Garrett and Jon Ashley, Federal Organizational Prosecution Agreements,
University of Virginia School of Law, http://lib.law.virginia .edu/Garrett/prosecution
_agreements/home.suphp. All deferred prosecution and non-prosecution agreements
cited in this book by name of company can be read at that website.
14. Brandon L. Garrett and Jon Ashley, Federal Organizational Plea Agreements, University
of Virginia School of Law, http://lib.law.virginia .edu/Garrett/plea _agreements/home
308 Notes to Pages 825
.php. All corporate plea agreements with judgments entered between 2001 and 2012 cited
in this book by name of company can be read at that website, while any 20132014 agree-
ments are cited in full.
15. David Crawford and Mike Esterl, Inside Bribery Probe of Siemens: Liechtenstein Bank
Triggered an International Hunt, Wall Street Journal, December 28, 2007.
16. United States v. Siemens Aktiengesellschaft, No. CR-8-367 (December 15, 2008), Plea
Agreement, 98, www.usdoj.gov/opa/documents/siemens.pdf.
18. U.S. Dept. of Justice, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Cor-
rupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal
Fines, press release, December 15, 2008.
19. Nathan Vardi, The Bribery Racket, Forbes, May 28, 2010.
20. Mike Esterl et al., Siemens Internal Review Hits Hurdles, Wall Street Journal, January
23, 2008; David Crawford and Mike Esterl, Siemens Ruling Details Bribery across the
Globe, Wall Street Journal, November 16, 2007.
21. Siemens Plea Agreement, 4.
22. Schubert and Miller, Where Bribery Was Just a Line Item.
23. Catherine Hickley, Siemens Bribes Leave Von Pierer Unbowed in CEO Memoir, Bloom-
berg News, January 26, 2011.
24. U.S. Dept. of Justice, Siemens AG and Three Subsidiaries Plead Guilty.
25. Ex-Siemens Execs Found Guilty in Bribery Case, Reuters, April 20, 2010.
26. Honor de Balzac, Le Pre Goriot (New York: W. W. Norton, 1835), 124, 131.
2. The Company in the Courtroom

1. U.S. v. Arthur Andersen, LLP, No. H-02-121 (S.D.Tx. May 13, 2002), Trial Transcript,
16631665.
2. Ibid., 1665.
3. Ibid., 1672.
4. Ibid., 1973.
5. Ibid., 1676.
6. Barbara Ley Toffler, Final Accounting (New York: Broadway Books, 2003), 20, 27.
7. Ibid., 7879, 8384.
8. Ibid., 9298.
9. Andersen Trial Transcript, 1683, 16881689.
10. Julie Mason, Andersen Fires Enron Auditor, Houston Chronicle, January 16, 2002.
11. Andersen Trial Transcript, 664.
12. Ibid., 18001806, 29222923.
13. Complaint, SEC v. Bergonzi, No. 1: CV02-1084 (E.D.P.A. 2002).
14. Leslie Wayne, How Delaware Thrives as a Corporate Tax Haven, New York Times, June
30, 2012.
15. Alix Stuart, Is Going Public Going Out of Style, CFO Magazine, May 1, 2011.
16. SEC Rules of Practice, 17 C.F.R. 201.102(e) (2006).
17. Andersen Trial Transcript, 667 668.
Notes to Pages 2531 309
18. Ibid., 4603.

19. Ibid., 18741879.
20. Ibid., 6394.
21. Joe Berardino, Enron: A Wake-Up Call, Wall Street Journal, December 4, 2001.
22. 18 U.S.C. 1512(b)(a)(A)(B).
23. For example, the generic obstruction statute, 18 U.S.C. 1503, did not require a persua-
sion theory, but it required a pending judicial proceeding; similarly, 18 U.S.C. 1505 re-
quired a pending administrative proceeding.
24. For fiscal 20002012, 8 percent, or 210, of 2,592 firms found guilty were convicted at a
trial. U.S. Sentencing Commission, Sourcebook of Federal Sentencing Statistics, various edi-
tions, 20002012.
25. Todd Ackerman, Andersen Verdict, Case Turns on Counsels Note, Houston Chronicle,
June 10, 2002.
26. Karen Hosler, Andersen Puts Blame on Auditor, Baltimore Sun, January 25, 2002.
27. Delroy Alexander and Stephen J. Hedges, Andersen Charged in Shredding, Chicago Tri-
bune, March 15, 2002.
28. Jonathan Weil, Richard B. Schmitt, and Devon Spurgeon, Arthur Andersen Met with
U.S., Hoping to Strike Agreement, Wall Street Journal, April 8, 2002.
29. Richard B. Schmitt et al., Behind Andersens Tug of War with U.S. Prosecutors, Wall
Street Journal, April 19, 2002.
30. Gil Rudawsky, Goldman Sachs Legal Bills Could Top $100 Million, Daily Finance, April
30, 2010.
32. Ibid., 2523.
33. Ibid., 65, 68.
34. Ibid., 29.
35. Ibid., 3132.
36. Ibid., 32.
37. Joel Bakan, The Corporation (New York: Free Press, 2004), 1718.
38. Richard W. Stevenson and Richard A. Oppel Jr., Enrons Many Strands: The Overview;
U.S. to Reconsider Agency Contracts in Enron Scandal, New York Times, January 26,
2002.
40. Ibid., 347348, 351355.
41. Ibid., 372.
42. Ibid., 356, 258.
43. Ibid., 369.
44. Ibid., 382, 392.
45. Ibid., 644.
46. Jt. Appendix at 2613, Athur Andersen LLP v. United States, 2005 WL 474013 *133.
47. Ibid., 27562760.
49. Ibid., 2063.
50. Ibid., 1734.
51. Ibid., 1885 (the memo was introduced as exhibit 1012A at trial).
52. Ibid., 1850.

53. Ibid., 18911893.
54. Ibid., 18961897.
55. Ibid., 1904, 1909.
56. Ibid., 2262.
57. Ibid., 1976.
58. Mason, Andersen Fires Enron Auditor.
60. Ibid., 2003.
61. Ibid., 2007, 2020, 20332035, 2302.
62. Ibid., 21352136.
63. Ibid., 2689.
64. Ibid., 2433.
65. Ibid., 2773.
66. Jonathan D. Glater, Witness Cites Confusion in Shredding at Andersen, New York
Times, May 23, 2002.
67. Andersen Trial Transcript, 480 481.
68. Ibid., 2786.
69. Ibid., 18841885.
70. Ibid., 4965 4966, 50185021.
71. Ibid., 5498.
72. Ibid., 5714, 5715.
73. Ibid., 3670.
74. Stephen Landsman, Death of an Accountant, Chicago-Kent Law Review 78 (2003): 1222.
75. 212 U.S. 481 (1909).
76. Paul Halliday, Dismembering the Body Politic: Partisan Politics in Englands Towns, 16501730
(Cambridge: Cambridge University Press, 1998).
77. Eng. Rep., vol. 77, 9. 973 (10 Co. Rep.32b). The quotation comes from Cokes report of the
Case of Suttons Hospital, the single most influential writing on corporations in the seven-
teenth and eighteenth centuries. Halliday, Dismembering the Body Politic, 31.
78. William Blackstone, Commentaries on the Laws of England, 15th ed. (London, 1809).
79. E.g., People v. Corporation of Albany, 11 Wed. 539 (N.Y. Sup. Ct. 1834).
80. Bissell v. Mich. S. R.R. Co., 22 N.Y. 258, 263264 (N.Y. 1860).
81. State v. Morris & Essex Railroad, 23 N.J.L. 360 (1852); Commonwealth v. Proprietors of New
Bedford Bridge, 68 Mass. 339 (1854). For a wonderful discussion of the evolution of these
cases, see Kathleen Brickey, Corporate Criminal Liability (Deerfield, Illinois: Clark Board-
man Callaghan 1992), 2.08.
82. United States v. Nearing, 252 F. 223, 231 (S.D.N.Y. 1918).
83. Model Penal Code 2.07(1).
84. Gary Fields and John R. Emshwiller, Many Failed Efforts to Count Nations Federal
Criminal Laws, Wall Street Journal, July 22, 2011.
85. For example, official extortion comes from the phrase under color of right in the Hobbs
Act.
86. John C. Coffee Jr., Paradigms Lost: The Blurring of the Criminal Law Modelsand
What Can Be Done About It, Yale Law Journal 101 (1992): 1880.
87. Watergate Special Prosecution Report (1975), 7277; 15 U.S.C. 78a, 78(m), 78dd-13,
78ff.; Report of the Securities and Exchange Commission on Questionable and Illegal Corporate
Payments and Practices (May 12, 1976).
89. Ibid., 6332 6333.
90. Ibid., 6344.
91. Ibid., 6289 6316.
92. Ibid., 6313.
93. Ibid., 6310, 6316.
94. Ibid., 6485.
95. Ibid., 6340.
96. Ibid., 6371, 6373.
97. Ibid., 6354 6356, 6444.
98. Ibid., 6668.
99. Ibid., 6482, 6618.
100. Ibid., 6638.
101. Ibid., 1732.
102. Ibid., 6638.
103. Ibid., 6686 6689.
104. Mary Flood, The Andersen Verdict, Decision by Jurors Hinged on Memo, Houston
Chronicle, June 16, 2002.
105. Andersen Trial Transcript, 6702, 6710 6711, 6720.
106. Ibid., 6784.
107. Ibid., 6813 6815, 6928, 6995.
108. Ibid., 6890.
109. Ibid., 6891, 6901.
110. Ibid., 6893.
111. Ibid., 6925.
112. Luisa Beltran, Brett Gering, and Alice Martin, Andersen Guilty, CNN, June 13, 2002.
113. Ibid.
114. Flood, The Andersen Verdict.
115. See Linda Tucci, Andersen Clears Out Office but Leaves Some Ex-Staffers Behind,
St.Louis Post-Dispatch, August 29, 2002.
116. U.S. v. Arthur Andersen, LLP, 374 F.3d 281, 299 (5th Cir. 2004).
117. Brief of Amici Curiae Washington Legal Foundation and Chamber of Commerce of the
United States in Support of Petitioner, U.S. v. Arthur Andersen, No. 04368, February 22,
2005.
118. U.S. v. Arthur Andersen, 2005 WL 1106590 (April 27, 2005).
119. 18 U.S.C. 1512(b)(2)(A)(B); U.S. v. Doss (9th Cir. 2011); United States v. Farrell, 126 F.3d
484, 488 (3d Cir. 1997); United States v. Thompson, 76 F.3d 442, 452 (2d Cir. 1996).
120. Mary Flood, Supreme Court Overturns Arthur Andersens Enron Conviction, Houston
Chronicle, May 31, 2005.
121. Ibid.
122. Elizabeth K. Ainslie, Essay: Indicting Corporations Revisited: Lessons of the Arthur
Andersen Prosecution, American Criminal Law Review 43 (Winter 2006): 110.
123. United States v. Stein (Stein I), 435 F. Supp.2d 330, 336, 381 (S.D.N.Y. 2006).
124. U.S. Gen. Accounting Office, Report to the Chairman, Committee on Banking, Housing
and Urban Affairs, U.S. Senate, Financial Statement Restatements: Trends, Market Impacts,
Regulatory Responses and Remaining Challenges (2002), 4.
125. Floyd Norris, The Markets: Market Place: Yes, He Can Top That, New York Times, July
17, 2002.
126. Public Company Accounting Reform and Investor Protection Act of 2002. 107 Pub. L.
No. 204, 116 Stat. 745 (2002) (codified at 15 U.S.C. 7201).
127. 18 U.S.C. 1519.
128. Pub. L. No. 110197, 4, 121 Sta. 2557 (January 7, 2008); 18 U.S.C. 1341.
129. 18 U.S.C. 1349.
130. 18 U.S.C. 1513.
131. 18 U.S.C. 905.
132. U.S. Sentencing Guidelines Manual (2003), 2B1.1(a)(1), (b)(2)(C), 2J1.23.
133. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111203,
124 Stat. 1376 (2010); 7 U.S.C. 13(a)(5) (new insider trading crimes).
134. David A. Skeel Jr. and William J. Stuntz, Christianity and the (Modest) Rule of Law,
University of Pennsylvania Journal of Constitutional Law 8 (2006): 826827.
135. Vikramaditya S. Khanna, Corporate Crime Legislation: A Political Economy Analysis,
Washington University Law Quarterly 82 (2004): 97.
136. John C. Roper, Feds Wont Retry Andersen, Houston Chronicle, November 23, 2005.
3. What Happens to a Prosecution Deferred?

1. Google Inc., Code of Conduct, 1, http://investor.google.com/corporate/code-of-conduct
.html.
2. U.S. Department of Justice, Google Forfeits $500 Million Generated by Online Ads and
Prescription Drug Sales by Canadian Online Pharmacies, press release, August 24, 2001.
3. Senate Permanent Subcommittee on Investigations of the Committee on Homeland Secu-
rity and Governmental Affairs, U.S. Tax Shelter Industry: The Role of Accountants, Lawyers,
and Financial Professionals, Senate Hearing 108- 473 (November 18 and 20, 2003), 1:32.
4. Ibid., 1:39 44.
5. Frontline, Tax Me if You Can: KPMGs Senate Testimony, PBS, February 19, 2004.
6. United States v. KPMG, No. 1:05-CR-00903-LAP (S.D.N.Y., August 29, 2005), State-
ment of Facts, 34.
7. George W. Bush, Remarks by the President at Malcolm Baldrige National Quality Award
Ceremony, March 7, 2002.
8. Larry D. Thompson, Deputy Attorney General, U.S. Department of Justice, Remarks at
Michigan Federal Bar Association, October 5, 2002.
9. Frontline, Tax Me if You Can: Interview with Carl Levin, PBS, February 19, 2004.
10. IRS, KPMG to Pay $456 Million for Criminal Violations in Relation to Largest-Ever Tax
Shelter Fraud Case, press release, August 29, 2005.
11. KPMG History, KPMG, www.kpmg.com/Global/en/about/Overview/Pages/History.aspx.
12. KPMG, Why KPMG? Culture, www.kpmg.com/global/en/careers/whykpmg/culture
/pages/default.aspx.
13. KPMG, www.kpmg.com.

14. Senate Hearing 108- 473. Appendix A provides a case-study description of BLIPS.
15. Senate Hearing 108- 473, opening statement of Sen. Carl Levin.
16. Ibid., 129.
17. The government noted that only two of the almost 200 BLIPS clients stayed in BLIPS
somewhat longer than 60 days, both exiting before year-end to get their tax loss. The gov-
ernment quoted an email from two participants stating, It would be a nice idea if we could
find a client to stay in beyond 60 days because it otherwise looks terrible. U.S. v. Pfaff et
al., 2010 WL 8939963 *16 (January 15, 2010), Appellate Brief.
18. Frontline, Tax Me if You Can: KPMG Exhibits, KPMG Email: Simon Says, PBS, Febru-
ary 19, 2004.
19. KPMG Agreement, Statement of Facts, 6.
20. Senate Hearing 108- 473; KPMG Agreement, Statement of Facts, 67.
21. Senate Permanent Subcommittee on Investigations of the Committee on Homeland Secu-
rity and Governmental Affairs, The Role of Professional Firms in the U.S. Tax Shelter Indus-
try, S. Rep. No. 109-54, April 13, 2005, 13 (Senate Report).
22. Senate Hearing 108- 473, 1920.
23. Ibid., 31.
24. Ibid., 151.
25. Ibid., 37, 46.
26. KPMG Agreement, Statement of Facts, 2930; Senate Hearing 108- 473, 157.
27. Senate Report, 22, 148.
28. Ibid., 22.
30. Senate Hearing 108- 473, 159.
32. IRS Notice 2000- 44.
33. Treasury Regulation 1.752756; see also Testimony of Calvin H. Johnson, Senate Hear-
ing 108- 473, 15. See United States v. Home Concrete & Supply LLC, 132 S. Ct. 1836 (2012)
(holding IRS audit violated three-year statute of limitations when it sought in 2006 to en-
force 2000 fi lings using Son of Boss tax shelter).
34. United States v. Morton Salt, 338 U.S. 632, 642 643 (1950).
35. Internal Revenue Act of 1864, 14, 13 Stat. 226 (1864) (current version at 26 U.S.C.
7602 (1988)).
36. United States v. KPMG, 316 F. Supp.2d 30, 3132 (D.D.C. 2004); KPMG Agreement,
Statement of Facts, 2833.
38. Ibid., 30.
39. Senate Hearing 108- 473, 910.
40. See, e.g., David Cay Johnston, Corporate Risk of Tax Audit Is Still Shrinking, I.R.S. Data
Show, New York Times, April 12, 2004; IRS Oversight Board, Annual Report 2007 (2008), 9.
41. U.S. Securities and Exchange Commission, Address of William O. Douglas before the Bond
Club of Hartford, 1938.
42. U.S. Department of Justice, United States Attorneys Manual (2008), 9-28.400, Princi-
ples of Federal Prosecution of Business Organizations: Special Policy Concerns.
43. United States v. Stein, 435 F. Supp.2d 330, 339 (S.D.N.Y. 2006).
44. IRS Announcement IR 2004- 64, May 5, 2004.
45. Lynnley Browning, Court Case Gives Rare Look at Tax Shelter Clients, New York Times,
June 11, 2005.
46. Executive Order No. 13,271.
47. See, e.g., Stephen J. Rackmill, Printzliens Legacy, the Brooklyn Plan, A.K.A. Deferred
Prosecution, Federal Probation, June 1996, 8.
48. U.S. Sentencing Guidelines Manual (2011), 8B2.1(a)(3).
49. Defense Industry Initiative on Business Ethics and Conduct, Who We Are, www.dii.org
/about-us.
50. Michele DeStefano, Creating a Culture of Compliance: Why Departmentalization May
Not Be the Answer, Hastings Business Law Journal 10 (2014): 155.
51. Memorandum from Eric Holder, Deputy Attorney General, Department of Justice, to
Component Heads and United States Attorneys, Bringing Criminal Charges against
Corporations, June 16, 1999.
52. Memorandum from Deputy Attorney General Larry D. Thompson, U.S. Department of
Justice, to Heads of Department Components and U.S. Attorneys, Principles of Federal
Prosecution of Business Organizations, January 20, 2003.
53. Jennifer Arlen, Corporate Crime Liability: Theory and Evidence, in Research Handbook
on the Economics of Criminal Law, ed. A. Harel and K. Hylton (Northampton, MA:
Edward Elgar, 2012).
54. Thompson, Principles, I.A.
55. Vanessa Blum, Justice Deferred: The Feds New Weapon of Choice Makes Companies
Turn Snitch to Save Themselves, Legal Times, March 21, 2005, 1 (quoting prosecutor in
Computer Associates case).
56. Terrence E. Deal and Allan A. Kennedy, Corporate Cultures: The Rites and Rituals of Corpo-
rate Life, 2nd ed. (Cambridge, MA: Perseus Books, 2000), 109154.
57. Kim S. Cameron and Robert E. Quinn, Diagnosing and Changing Organizational Culture,
3rd ed. (San Francisco: Jossey-Bass, 2011).
58. Edgar H. Schein, The Corporate Culture Survival Guide, rev. ed. (Hoboken, NJ: John Wiley
and Sons, 2009), describes methodologies for determining the current state of corporate
culture and presenting models for changing those cultures.
59. Brent Fisse and John Braithwaite, The Impact of Publicity on Corporate Offenders (Albany:
State University of New York Press, 1983), 232235.
60. Barry D. Baysinger, Organizational Theory and the Criminal Liability of Organizations,
Boston University Law Review 71 (1991): 367.
61. Lauren B. Edelman et al., Legal Ambiguity and the Politics of Compliance: Affirmative
Action Officers Dilemma, Law and Policy 13 (1991): 71.
62. U.S. v. Stein, 435 F.Supp.2d 330, 339, 345 (S.D.N.Y. 2006).
63. Ibid., 348.
64. Ibid., 348349.
65. Alberto R. Gonzales, U.S. Attorney General, U.S. Department of Justice, Prepared Re-
marks at the Press Conference Regarding KPMG Corporate Fraud Case, August 29, 2005.
66. Fed. R. Crim. P. 6(e)(3)(A); see also United States v. Procter & Gamble, 356 U.S. 677
682 683 (1958).
67. United States v. KPMG LLP, No. 1:05-CR-00903-LAP (S.D.N.Y., August 29, 2005).
69. U.S. Sentencing Guidelines Manual (2004), 8C2.5(g).
70. The agreements with Adelphia Communications, Collins & Aikman, Elan Corp., Hitachi,
MCI, NEC Corporation, NetVersant, Omega Advisors, Royal Ahold, Stryker Orthope-
dics, and Tommy Hilfiger lack such admissions. The Elan Corp. agreement notes, This
Agreement is made in compromise of disputed claims and states the firm did not admit
guilt. Elan Corp. Agreement, 3.
71. Edward Wyatt, Judge Blocks Citigroup Settlement with S.E.C., New York Times,
November 28, 2011.
72. James B. Stewart, S.E.C. to Require Admissions of Guilt, New York Times, June 21,
2013.
73. Russell Mokhiber, Raman Defends Deferred and Non Prosecution Agreements for Major
Corporate Crime Cases, Corporate Crime Reporter, May 22, 2013.
74. In earlier agreements in the Southern District of New York and the District of New Jersey,
prosecutors did not always insist on acceptance of responsibility. Antitrust agreements of-
ten do not include acceptance of responsibility or such statements of facts.
75. Roger Williams Medical Center Agreement, 2.
76. Barclays Bank PLC Agreement, 1.
77. Officers Certificate, Deferred Prosecution Agreement, United States v. Ingersoll-Rand,
1:07-CR-00294-RJL (October 31, 2007).
78. Letter from Michael J. Sullivan, U.S. Attorney, U.S. Department of Justice, to Ethan
M. Posner, Partner, Covington & Burling LLP, March 27, 2007.
79. Peter J. Henning, Sending a Message for Backpedaling on Settlements, New York Times,
March 25, 2013.
80. This figure includes cases in which the subsidiary of a Fortune 500 firm entered an agreement.
81. ABB Ltd. Agreement, 4-5.
82. Beazer Homes Agreement, 3.
83. Example include the agreement with Bixby Energy Systems, Inc., in which the government
cited its financial condition. Bixby Energy Agreement, 10. Collins & Aikman paid no fine
or restitution in light of its dire financial situation. Collins & Aikman Agreement, 3.
CommunityOne Bank was on the verge of failure and its holding company had negative
net worth. CommunityOne Bank Agreement, 2. The Diamondback Capital Management
agreement cited the negative effect . . . on Diamondbacks financial condition and its re-
maining employees and investors. Diamondback Capital Management Agreement, 1.
_agreements/home.suphp.
85. The First Amendment Clinic at the University of Virginia School of Law is currently liti-
gating FOIA requests for thirty prosecution agreements. Ben Protess, Your Homework
Assignment: Sue the Federal Government, New York Times, April 8, 2014.
86. Mary Jacoby, Grassley Grills DOJ National Security Chief about Secret Settlement with
Islamic Bank, Main Justice, September 21, 2011.
87. 18 U.S.C. 1341, 1343; Neder v. United States, 527 U.S. 1, 2223, 25 (1999) (discussing
materiality requirement).
88. McNally v. United States, 483 U.S. 350, 356 (1987) (quoting Congressional Globe, 41st
Cong., 3rd Sess. 35 (1870) (remarks of Rep. Farnsworth)).
89. 18 U.S.C. 1343 (wire fraud), 1344 (bank fraud), 1346 (honest services), 1347 (health care
fraud), 1348 (securities and commodities fraud), 1351 (foreign labor contracting fraud).
90. 18 U.S.C. 287 (false claims); 18 U.S.C. 371 (conspiracy to defraud the United States).
91. U.S. Department of Justice, Bank of America Agrees to Pay $137.3 Million in Restitution
to Federal and State Agencies as a Condition of the Justice Departments Antitrust Corpo-
rate Leniency Program, press release, December 7, 2010.
92. N. Richard Janis, Deputizing Company Counsel as Agents of the Federal Government:
How Our Adversary System of Justice Is Being Destroyed, Washington Lawyer, March
2005, 34.
93. Richard A. Epstein, The Deferred Prosecution Racket, Wall Street Journal, November
28, 2006.
94. Letter from Ralph Nader and Robert Weissman to Alberto Gonzales, Attorney General,
June 5, 2006, Multinational Monitor Editors Blog, July 6, 2006, www.multinationalmonitor
.org/editorsblog/?p=30.
95. Government Accountability Office, Preliminary Observations on the DOJs Use and Over-
sight of Deferred Prosecution and Non-Prosecution Agreements, June 25, 2009, 41.
96. Ibid., Table 52.
97. KPMG Agreement, 21.
98. Office of the Inspector General, U.S. Department of Justice, Audit Report06-17, Office of
Justice Programs Annual Financial Statement: Fiscal Year 2005 (2006).
99. On the 1980s trend toward larger fines and more prosecutions of large public firms, see
Marc A. Cohen, Corporate Crime and Punishment: An Update on Sentencing Practice in
the Federal Courts, 19881990, Boston University Law Review 71 (1991): 252253.
100. Cf. 18 U.S.C. 3663A (mandatory restitution to victims in certain federal criminal cases,
including fraud cases) with 18 U.S.C. 3663 (restitution discretionary in cases not covered
by 18 U.S.C. 3663A).
101. The companies are Prudential Equity Group, LLC ($325 million), Technip S.A. ($240
million), Snaprogetti Netherlands ($240 million), JGC ($218.8 million), Barclays Bank
PLC ($160 million), Forest Laboratories ($150 million), GlaxoSmithKline ($140 million),
Serono Holding, Inc. ($137 million), Science Applications International Corp. ($130 mil-
lion), and KPMG ($128 million), for a total of $1,738,736,000.
102. KPMG Agreement, 18.
103. Gonzales, Prepared Remarks at the Press Conference Regarding KPMG Corporate
Fraud Case.
104. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934
and Commission Statement on the Relationship of Cooperation to Agency Enforcement
Decisions, Exchange Act Release No. 44,969, 76 SEC Docket 296, October 23, 2001,
www.sec.gov/litigation/investreport/34-44969.htm (asking, among factors informing
SEC discretion, Did the company adopt and ensure enforcement of new and more effec-
tive internal controls and procedures designed to prevent a recurrence of the misconduct?);
EPA Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of
Violations, 65 Federal Register 19,618, April 11, 2000; FAR Contractor Business Ethics
Compliance Program and Disclosure Requirements, 73 Federal Register 67064, 67091

67092, November 12, 2008; Enforcement Advisory, Division of Enforcement, U.S. Com-
modity Futures Trading Commission, Cooperation Factors in Enforcement Division Sanction
Recommendations, August 11, 2004; Office of Foreign Assets Control, Department of the
Treasury, 31 C.F.R. 501.601 606 (2006).
105. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111148, 6102 (2010).
106. OECD, Recommendation of the Council for Further Combating Bribery of Foreign Public
Officials in International Business Transactions, Annex II, 2009.
107. Orthofi x International N.V. Agreement, C-3.
108. MoneyGram International Agreement, C-2.
109. GlaxoSmithKline Plea Agreement, Addendum A.1.
110. Abt Associates Agreement, 5.
111. On the question of whether it is a good thing for prosecutors and regulators to encourage
the separation of the compliance and legal functions, see DeStefano, Creating a Culture of
Compliance.
112. Aibel Group Agreement, 9.
113. Aurora Foods Agreement, 4.
114. P.P. List Management Agreement, 5 6.
115. Academi LLC Agreement, 5.
116. Governors Independent Investigation Panel, Report to the Governor: Upper Big Branch,
May 2011, 4.
117. David M. Uhlmann, For 29 Dead Miners, No Justice, New York Times, December 10, 2011.
118. See, e.g., Kimberly D. Krawiec, Cosmetic Compliance and the Failure of Negotiated Gov-
ernance, Washington University Law Quarterly 81 (2003): 504505.
119. Vikramaditya S. Khanna, Corporate Crime Legislation: A Political Economy Analysis,
Washington University Law Quarterly 82 (2003): 108; Daniel Fischel and Alan O. Sykes,
Corporate Crime, Journal of Legal Studies 25 (1996): 348; Jonathan R. Macey, Agency
Theory and the Criminal Liability of Organizations, Boston University Law Review 71
(1991): 316.
120. U.S. Sentencing Guidelines 8B2.1(b)(5)(B).
121. The Computer Associates case is one such example. Computer Associates, CA Announces
That Term of Independent Examiner Extended to May 1, 2007, press release, September
16, 2006.
122. 18 U.S.C. 3161(h)(2) (2008). The legislative history is not informative. See H.R. Rep.
No. 931508 (1974), 1, reprinted in U.S. Code Congressional and Administrative News,
1974, 7401.
123. U.S. Government Accountability Office, GAO-10-110, DOJ Has Taken Steps to Better
Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness,
2009, 25.
124. United States v. Meyer, 157 F.3d 1067, 1076 (7th Cir. 1998); United States v. Miller, 406 F.3d
323, 334 (5th Cir. 2005).
125. Stolt-Nielson, S.A. v. United States, 442 F.3d 177, 187 (3d Cir. 2006).
126. Stolt-Nielsen, S.A. v. United States, No. 06-cr- 466 (E.D. Pa. November 29, 2007).
127. New York Racing Association Agreement, 10.
128. James M. Odato, NYRA Deal in the Works, Albany Times Union, December 6, 2003;
Associated Press, Video Slot Machines Starting Up at NYCs First Racino, NJ.com,
October 27, 2011.
129. Roger Williams Medical Center Agreement, 5; Office of Governor Donald L. Carcieri,
State of Rhode Island, Health Department to Renew Hospital License with Increased
Oversight, press release, April 7, 2006.
130. Bristol-Myers Squibb Agreement, 20.
131. House Subcommittee Hearing 111-52, June 25, 2009 (It was not my idea, it was not my
suggestion, I did not suggest Seton Hall).
132. Prosecutor to Corporation: Endow a Chair at My Law School, or Else, Corporate Crime
Reporter, August 3, 2005, 32.
133. U.S. Attorneys Manual, 916.325.
134. Justice Department Letter Vindicates Former American Express Bank International
Chairman, Reuters, June 30, 2010.
135. U.S. Attorneys Office, S.D.N.Y., Statement on the Dismissal of Charges against KPMG,
press release, January 3, 2007.
136. United States v. KPMG LLP, No. 1:05-CR-00903-LAP, 2007 WL 541956 (S.D.N.Y., Feb-
ruary 14, 2007).
137. This is the Aibel Group case, discussed along with other recidivist firms in Chapter 6.
138. Edward Iwata, Ernst & Young Partners Indicted, USA Today, May 30, 2007.
139. Letter from Michael J. Garcia, U.S. Attorney, U.S. Department of Justice, to Robert
B.Fiske Jr. and James P. Rouhandeh, Partners, Davis Polk & Wardwell, March 26, 2007, 2.
140. Sidley Austin LLP Pays IRS $39.4 Million Penalty, press release, May 13, 2007; Lynnley
Browning, Big Law Firm Wont Face Criminal Charges in Tax Case, New York Times,
May 24, 2007.
141. Rebecca Leung, Gimme Shelter, 60 Minutes, February 11, 2009.
142. BDO USA, LLP, Deferred Prosecution Agreement, 3.
143. Ibid., 2.
144. Lynnley Browning, 7 Indicted on Charges of Selling Tax Shelters, New York Times, June
9, 2009.
145. Chad Bray, Tax-Shelter Case Brings Convictions, Wall Street Journal, May 25, 2011;
United States v. Daugerdas et al., 2012 WL 2149238 (S.D.N.Y. June 4, 2012); Christie
Smythe and Bob Van Voris, Former Lawyer Daugerdas Convicted in Tax-Fraud Scheme
Retrial, Bloomberg News, November 1, 2013.
146. HVB Bank Agreement.
4. The Ostriches
1. C. Plinius Secundus, Plinys Natural History in Thirty-Seven Books, Trans. Dr. Philemon
Holland (London: George Barclay, 1601).
2. Dr. Karl S. Kruszelnicki, Ostrich Head in Sand, ABC Science, November 2, 2006.
3. U.S. v. Black, 530 F.3d 596, 604 (7th Cir. 2008). But even Judge Posner could not resist in-
cluding the image above in one of his decisions: Gonzalez-Servin v. Ford Motor Co., 662 F.3d
931, 934 (7th Cir. 2011). Judge Posner was criticizing a litigant, not the instruction. He
also included an image of a lawyer with his head in the sand.
4. United States v. Ramsey, 785 F.2d 184, 189 (7th Cir. 1986).
5. E.g., Justin C. From, Avoiding Not-So-Harmless Errors: The Appropriate Standards for
Appellate Review of Willful-Blindness Jury Instructions, Iowa Law Review 97 (2011): 275.
6. Francis T. Cullen, Corporate Crime under Attack: The Ford Pinto Case and Beyond (Cincin-
nati, OH: Anderson Publishing, 1987), 352.
7. William K. Black, The Best Way to Rob a Bank Is to Own One (Austin: University of Texas
Press, 2005), xiiixv.
8. U.S. Sentencing Commission, 2011 Sourcebook of Federal Sentencing Statistics (2012), Table
3 (8,632 offenders; over 10 percent of the federal criminal docket consisted of fraud con-
victs). For a study of individual white-collar prosecutions in the federal system, see David
Weisburd et al., Crimes of the Middle Classes: White-Collar Offenders in the Federal Courts
(New Haven, CT: Yale University Press, 1991), 104106.
9. Mendelsohn Says Criminal Bribery Prosecutions Doubled in 2007, Corporate Crime Re-
porter 36, no. 1 (September 16, 2008): 22.
10. Kurt Eichenwald, Economy and Business; After a Boom, There Will Be Scandal, New
York Times, December 16, 2002.
11. John C. Danford, When Enforcement Becomes Harassment, New York Times, May 6,
2003; Joel Cohen, No More Perp Walks, National Law Journal, August 5, 2002.
12. Lauro v. Charles, 219 F.3d 202, 204 (2d Cir. 2000).
13. U.S. v. Arthur Andersen, LLP., No. H-02-121 (S.D.T.X. June 6, 2002), Trial Transcript,
6278.
14. United States v. Duncan, Defendant David Duncans Memorandum of Law in Support of
His Unopposed Motion to Withdraw His Guilty Plea and to Dismiss the Information,
No. 02-209 (2005), Exhibit C, Rearraignment (April 9, 2005), 18.
15. Fed. R. Crim. P.11(d)(2)(B) (2012).
16. Ibid., 3.
17. Stephen Taub, Enron Auditor Withdraws Guilty Plea, CFO.com, November 28, 2005.
18. Docket entry, SEC v. Duncan, 4:08-cv-00314 (2008).
19. Charles E. Ramirez, Andersen Workers Settle into New Careers, Detroit News, Decem-
ber 1, 2002.
20. Linda Tucci, Andersen Clears out Office but Leaves Some Ex-Staffers Behind, St. Louis
Post-Dispatch, August 29, 2002.
21. Edwin H. Sutherland, White Collar Crime (New York: Dryden Press, 1949), 29; Edwin
H. Sutherland, White-Collar Criminality, American Sociolog ical Review 1 (1940): 5.
22. Gilbert Geis, White-Collar Crime: What Is It? in Reflecting on White-Collar and Corporate
Crime, ed. David Shichor, Larry Gaines, and Andrea Schoepfer (Long Grove, IL: Waveland
Press, 2012).
23. C.S. Lewis, The Screwtape Letters and Screwtape Purposes (New York: Macmillan, 1961), viii.
24. E.g., John Braithwaite, White Collar Crime, Annual Review of Sociology 11 (1985): 121;
Marshall B. Clinard, Corporate Ethics and Crime: The Role of Middle Management (Beverly
Hills, CA: Sage, 1983).
25. James William Coleman, The Criminal Elite: Understanding White Collar Crime (New
York: St. Martins Press, 1998), 206207.
26. Kristen Hays, Skilling Maintains Innocence, Vows Appeal, Houston Chronicle, October
24, 2006.
27. Skilling v. United States, 130 S.Ct. 2896 (2010).

28. Weisburd et al., Crimes of the Middle Classes, 85, 172.
29. Sridhar Ramamoorti, The Psychology and Sociology of Fraud, Issues in Accounting Edu-
cation 23 (2008): 529.
30. Coleman, The Criminal Elite, 196.
31. Ramamoorti, The Psychology and Sociology of Fraud, 527.
32. For a careful study of the role of cooperating defendants in white-collar investigations, see
Weisburd et al., Crimes of the Middle Classes, 104106.
33. Brandon L. Garrett, Convicting the Innocent: Where Criminal Prosecutions Go Wrong (Cam-
bridge, MA: Harvard University Press, 2011), 118144.
34. United States v. Stein, 495 F. Supp.2d 390, 417 418 (S.D.N.Y 2007) (Stein II).
35. Ibid., 395, 402 403.
36. United States v. Stein, 541 F.3d 130, 137 (2d Cir. 2008).
37. Ibid., 408 409.
38. Stein II, 495 F. Supp.2d at 401 402.
39. Ibid., 402.
40. Memorandum from Deputy Attorney General Larry D. Thompson, U.S. Department of
Justice, to Heads of Department Components and U.S. Attorneys, U.S. Department of
Justice, January 20, 2003.
41. Ibid., II.A.
42. Upjohn Co. v. United States, 449 U.S. 383, 394395 (1981).
43. Charles Gasparino, Merrill Fires Two Linked to Enron, Wall Street Journal, September
19, 2002.
44. Dennis J. Block and Nancy F. Barton, Implications of the Attorney-Client Privilege and
Work-Product Doctrine, in Barry F. McNeil and Brad D. Brian, eds., Internal Corporate
Investigations, 17, 37 (Chicago, Illinois: American Bar Association 2007) (quoting Fred-
erick B. Lacey).
45. George M. Cohen, Of Coerced Waiver, Government Leverage, and Corporate Loyalty:
The Holder, Thompson, and McNulty Memos and Their Critics, Virginia Law Review in
Brief 93 (2007): 160.
46. ABA Task Force on Attorney-Client Privilege, Report to the House of Delegates, August
2006, 17.
47. United States v. KPMG, 316 F. Supp. 2d 42 44 (D.D.C. 2004); KPMG Agreement,
Statement of Facts, at 2833.
48. KPMG Agreement, 3536. KPMG did not offer to waive privilege regarding com-
munications about the prosecution agreement itself or civil matters, or as to third par-
ties, including employees. KPMG agreed to cooperate in pending investigations and
prosecutions.
49. See, e.g., Lance Cole, Revoking Our Privileges: Federal Law Enforcements Multi-Front
Assault on the Attorney-Client Privilege (and Why It Is Misguided), Villanova Law Re-
view 48 (2003): 469; William R. McLucas et al., The Decline of the Attorney-Client Privi-
lege in the Corporate Setting, Journal of Criminal Law and Criminology 96 (2006): 621.
50. Mary Beth Buchanan, Effective Cooperation by Business Organizations and the Impact
of Privilege Waivers, Wake Forest Law Review 39 (2004): 598.
51. United States Chamber of Commerce, Testimony before the American Bar Association
Task Force on Attorney-Client Privilege, February 22, 2005.
52. Memorandum from Robert D. McCallum Jr., Acting Deputy Attorney General, to Heads
of Department Components and U.S. Attorneys, October 21, 2005.
53. Daniel Richman, Decisions about Coercion: The Corporate Attorney-Client Privilege
Waiver Problem, DePaul Law Review 57 (2008): 299300.
54. In one additional case, of Symbol Technologies, privilege had previously been waived.
55. Braswell v. United States, 487 U.S. 99, 105, 115 (1988).
56. Lisa Kern Griffin, Compelled Cooperation and the New Corporate Criminal Procedure,
New York University Law Review 82 (2007): 311; Samuel W. Buell, Criminal Procedure
within the Firm, Stanford Law Review 59 (2007): 1613; Preet Bharara, Corporations Cry
Uncle and Their Employees Cry Foul: Rethinking Prosecutorial Pressure on Corporate
Defendants, American Criminal Law Review 44 (2007): 53.
57. 385 U.S. 493, 497, 500 (1967); see also Brandon L. Garrett, Corporate Confessions, Car-
dozo Law Review 30 (2008): 930931.
58. Stein II, 440 F.Supp.2d at 322.
59. Ibid., 322, 330.
60. United States v. Stein, 435 F. Supp.2d 330, 33839 (S.D.N.Y. 2006) (Stein I).
61. Brandon L. Garrett, The Substance of False Confessions, Stanford Law Review 62 (2010):
1051.
62. Stein I, 435 F.Supp.2d 330 (S.D.N.Y. 2006).
63. U.S. v. Stein, 495 F.Supp.2d 390, 420 424 (S.D.N.Y. July 16, 2007).
64. Attorney-Client Privilege Protection Act of 2007, S. 186, 110th Cong. 3 (2007).
65. Christopher M. Matthews, Senators Question Enforcement Policies in Hearing, Main
Justice, November 30, 2010.
66. FBI, Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100
Million Foreign Bribe Scheme, press release, December 13, 2011.
67. Joe Palazzolo, Specter Salutes Justice Dept, Slams Republicans, Wall Street Journal, De-
cember 14, 2011.
68. Douglas Gillison, Facing Extradition, Siemens Argentina Defendant Settles with SEC,
CNN Money, December 3, 2013.
69. Scott D. Hammond, Measuring the Value of Second-in Cooperation in Corporate Plea
Negotiations, American Bar Association Section of Antitrust Law Spring Meeting,
March 29, 2006. The Antitrust Division has altered its approach toward carve-outs to
focus on potential targets rather than employees who do not cooperate. See Department of
Justice, Office of Public Affairs, Statement of Assistant Attorney General Bill Baer on
Changes to Antitrust Divisions Carve-Out Practice Regarding Corporate Plea Agree-
ments, April 12, 2013.
70. Amsouth Deferred Prosecution Agreement, 7 (October 13, 2005).
71. 31 C.F.R. 1020.320.
72. Marshall B. Clinard and Peter C. Yeager, Illegal Corporate Behavior (Washington, DC:
U.S. Government Printing Office, 1979).
73. Mark A. Cohen, Corporate Crime and Punishment: An Update on Sentencing Practice in
the Federal Courts, Boston University Law Review 71 (1991): 268.
74. Greenpeace, Climate Activists Convicted of Climbing Mt. Rushmore, Sending Critical Mes-
sage, press release, January 5, 2010; Docket, U.S. v. Greenpeace, Inc., 5:09-cr-50058-KES-1
(D.S.D. February 3, 2010).
75. Department of Justice, Former Morgan Stanley Managing Director Pleas Guilty for Role
in Evading Internal Controls Required by FCPA, press release, April 25, 2012.
76. Securities and Exchange Commission, SEC Charges Former Morgan Stanley Executive
with FCPA Violations and Investment Adviser Fraud, press release, April 25, 2012.
77. Julia Preston, 270 Immigrants Sent to Prison in Federal Push, New York Times, May 24,
2008.
78. Ingrid V. Eagly, Prosecuting Immigration, Northwestern University Law Review
104 (2010): 13021303; Immigration Raids: Postville and Beyond: Hearing Before
theSubcommittee. on Immigration, Citizenship, Refugees, Border Security, and Inter-
national Law of the House Committee on the Judiciary, 110th Cong. 106 (July 24,
2008).
79. Spencer S. Hsu, Immigration Raid Jars a Small Town, Washington Post, May 18,
2008.
80. U.S. v. Agriprocessors, Inc., No. 2:08-cr-01324-LRR (N.D. Iowa, November 19, 2009).
81. Department of Justice, Rochester Asbestos Contractor and Company Sentenced for Vio-
lating Clean Air Act and Lying to OHSA, press release, September 22, 2011.
82. Mendelsohn Says Criminal Bribery Prosecutions Doubled in 2007, Corporate Crime
Reporter 36, no. 1 (September 16, 2008): 22.
83. 31 U.S.C. 53315332.
84. 18 U.S.C. 19561957.
85. 18 U.S.C. 5324.
86. 18 U.S.C. 1957(a).
87. 31 U.S.C. 5318(I). The USA PATRIOT Act of 2012 strengthened controls over foreign
accounts. See, e.g., 31 U.S.C. 5331.
88. 31 U.S.C. 53115314e.
89. Douglas Gillison, We Didnt Protect HSBC, Treasury Officials Tell Senate Committee,
Main Justice, March 7, 2013.
90. 12 USC 93(d)(1).
91. Ibid., 93(d)(1)(B), (d)(2).
92. 31 U.S.C. 5318(h)(l) and 12 C.F.R. 563.177(c).
93. U.S. Senate, Permanent Subcommittee on Investigations, Committee on Homeland Secu-
rity and Governmental Affairs, U.S. Vulnerabilities to Money Laundering, Drugs, and Ter-
rorism Financing: HSBC Case History, July 17, 2012, 23.
94. Ibid., 4 6.
95. See, e.g., 2000 International Narcotics Control Strategy Report, U.S. Department of
State, V-2728.
96. HSBC Case Study, 35, 49.
97. Sigue Confirms Resolution of Compliance Issues, January 28, 2008, www.globenews
wire.com/newsroom/news.html?d=135137.
98. HSBC Case Study, 7.
99. Carrick Mollenkamp and Brett Wolf, Special Report: HSBCS Money-Laundering
Crackdown Riddled with Lapses, Reuters, July 13, 2012.
100. Christopher M. Matthews, HSBC Says Its Sorry: Highlights from the Banks Senate
Hearing, Wall Street Journal, July 17, 2012.
101. HSBC Case Study, 2627, 3032.
102. Ben Protess and Jessica Silver-Greenberg, HSBC to Pay 1.92 Billion to Settle Charges of
Money Laundering, New York Times, December 10, 2012.
103. HSBC Deferred Prosecution Agreement, December 11, 2012, 6.
104. Ibid., Statement of Facts, 81.
105. MoneyGram Intl Deferred Prosecution Agreement, 14.
106. Hearing, U.S. v. Barclays, No. CR 10218 (D.D.C. August 17, 2010), 5 6.
107. Ibid., 12.
108. 21 U.S.C. 331, 333.
109. Food and Drug Modernization Act of 1997, 21 U.S.C. 36aaa(b)(c).
110. 42 U.S.C. 1320a7b(b)(2)(A) (2006).
111. Federal Bureau of Investigations, Financial Crimes Report to the Public 2011 (2011).
112. Scott Hensley, Pfizer Whistleblower Tells His Story, National Public Radio, September
3, 2009.
113. Bill Berkrot, Pfizer Whistleblowers Ordeal Reaps Big Rewards, Reuters, September 2, 2009.
114. Ibid.
115. Eric Holder, U.S. Attorney General, Speech at Press Conference on Medicare Fraud
Strike Force Actions, February 17, 2011; U.S. Department of Justice, Health Care Fraud
Prevention and Enforcement Efforts Result in Record-Breaking Recoveries Totaling
Nearly $4.1 Billion, press release, February 14, 2012.
116. 42 U.S.C. 1320a-7 (2006).
117. Health Care Programs: Fraud and Abuse; Revised OIG Exclusion Authorities Resulting
from Public Law 104191, 63 Fed. Reg. 46,676, 46,680 (September 2, 1998) (codified at 42
C.F.R. pts. 1000, 1001, 1002, 1005).
118. Duff Wilson, Side Effects May Include Lawsuits, New York Times, October 3, 2010.
119. Department of Justice, Abbott Labs to Pay $1.5 Billion to Resolve Criminal and Civil In-
vestigation of Off-Label Promotion of Depakote, press release, May 7 2012.
120. Duff Wilson, For $520 Million, AstraZeneca Will Settle Case over Marketing of a Drug,
New York Times, April 26, 2010.
121. Department of Justice, GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve
Fraud Allegations and Failure to Report Safety Data, press release, July 2, 2012.
122. Ibid., 71, 80, 82.
123. U.S. v. GlaxoSmithKline, Criminal Information, 70, July 2, 2012, www.justice .gov/opa
/documents/gsk/gsk-criminal-info.pdf.
124. Alex Wayne, Glaxo Case Pushes U.S. Health Settlements to $6.6 Billion, Bloomberg
Businessweek, September 27, 2012.
125. GlaxoSmithKline Plea Agreement Addendum, 1, 8.
126. Abbott Labs Corporate Integrity Agreement, 5254, www.justice.gov/opa/abbott-court
-docs-2012/CorporateIntegrityStatement.pdf.
127. Katie Thomas, Glaxo Says It Will Stop Paying Doctors to Promote Drugs, New York
Times, December 16, 2013.
128. Eric Holder, U.S. Attorney General, Speech at Press Conference on Medicare Fraud
Strike Force Actions, February 17, 2011.
129. Corporate Fraud Task Force, Report to the President, 2008, iii, at www.justice.gov/ar
chive/dag/cftf/corporate-fraud2008.pdf.
130. Department of Justice, Former Officer and Director of Global Engineering and Construc-
tion Company Pleads Guilty to Foreign Bribery and Kickback Charges, press release,
September 3, 2008.
131. Stanley Plea Agreement, 1417.
132. Laurel Brubaker Calkins, Ex-KBR CEO Stanley Gets 21 2 Years in Prison for Foreign
Bribes, Bloomberg, February 24, 2012.
133. Stanley Plea Agreement, 1418.
134. James B. Stewart, Bribes without Jail Time, New York Times, April 27, 2012.
135. U.S. v. Ebbers, 458 F.3d 110, 113115 (2d Cir. 2006).
136. Ibid., 124.
137. Jury Instructions, 19, U.S. v. Ebbers, 02-cr-1144 (BSJ) (S.D.N.Y. March 4, 2005).
138. Ibid., 1920.
139. Ebbers, 458 F.3d at 129.
140. Dan Ackman, Bernie Ebbers Guilty, Forbes, March 15, 2005.
141. U.S. v. Ebbers, 458 F.3d 110, 125 (2nd Cir. 2006).
142. FDA, Regulatory Procedures Manual, March 2007, 6-5-1.
143. Friedman v. Sebelius, 686 F.3d 813, 816 (D.C. Cir 2012).
144. HHS-OIG Drops Potential Action against Forest CEO, press release, August 5, 2011.
145. Friedman v. Sebelius, 686 F.3d at 828.
146. David M. Uhlmann, For 29 Dead Miners, No Justice, New York Times, December. 9,
2011; Howard Berkes, Massey Mine Boss Pleads Guilty as Feds Target Execs, National
Public Radio, March 29, 2012; John Raby, Ex-CEO Implicated in Massey Coal Mine
Case, USA Today, February 28, 2013.
147. United States v. Stevens, 909 F.2d 431 (11th Cir. 1990).
148. 18 U.S.C. 371.
149. United States v. Hughes Aircraft Co., 20 F.3d 974 (9th Cir. 1994).
150. E.g., United States v. Philip Morris USA Inc., 449 F.Supp.2d 1 (D.D.C. 2006).
151. Jeff rey M. Kaplan and Joseph E. Murphy, Compliance Programs and the Corporate Sentenc-
ing Guidelines (New York: Clark Boardman Callaghan 2012), 22:11.
152. Jeff rey T. Frederick, Mastering Voir Dire and Jury Selection: Gain an Edge in Questioning
Your Jury (Chicago: American Bar Association 2012).
153. Stein I, 435 F. Supp.2d at 380382.
154. Stein II, 495 F. Supp.2d at 410 417.
155. United States v. Stein, 541 F.3d 130 (2d Cir. 2008).
156. Stein v. KPMG, LLP, 486 F.3d 753, 756 (2d Cir. 2007).
157. United States v. Pfaff, 407 Fed. Appx. 506, 508 (2d Cir. 2010).
158. 26 U.S.C. 7201; 18 U.S.C. 371 (conspiracy to commit offense against the U.S.).
159. Pfaff, 407 Fed. Appx. at 509.
160. Larson Certiorari Petition at 7.
161. Appellate Brief, United States v. Pfaff et al., 2010 WL 8939963 *30, 45 46, 129 (January 15,
2010).
162. Ibid., 61, 118.
163. United States v. Pfaff, 619 F.3d 172, 175 (2d Cir. 2010) (per curiam).
164. United States v. Coplan, 703 F.3d 45 (2d Cir. 2012).

165. United States v. Rosen, 487 F.Supp.2d 721, 737 (E.D.Va. 2007).
166. Memorandum from Deputy Attorney Gen. Paul J. McNulty, U.S. Department of Jus-
tice, to Heads of Department Components and U.S. Attorneys, U.S. Department of
Justice, December 12, 2006, 811 n. 3.
167. Ibid., 1112.
168. Memorandum from Deputy Attorney General Mark R. Filip, U.S. Department of Justice,
to Heads of Department Components and U.S. Attorneys, U.S. Department of Justice,
August 28, 2008, 13.
169. Alicia Mundy, U.S. Effort to Remove Drug CEO Jolts Firms, Wall Street Journal, April
26, 2011; Henry N. Pontell, William K. Black, and Gilbert Geis, Too Big to Fail, Too
Powerful to Jail? On the Absence of Criminal Prosecutions after the 2008 Financial Melt-
down, Crime Law Social Change, 2013.
170. Zachery Kouwe, Bear Stearns Managers Acquitted of Fraud Charges, New York Times,
November 10, 2009.
171. Sam Buell, Is the White Collar Offender Privileged? Duke Law Journal 63 (2013): 823;
U.S. Sentencing Commission, Final Report on the Impact of United States v. Booker on
Federal Sentencing, 2006, 75; U.S. Sentencing Commission, Report on the Continuing
Impact of United States v. Booker on Federal Sentencing (2012), 6, 67.
5. The Victims
1. Statement of Ralph Dean, February 4, 2008, United States v. BP Products North America,
No. 4:07-cr-00434 (S.D.Tex Feb. 4, 2008), 3.
2. Ibid., 3 4.
3. Abraham Lustgarten, Run to Failure: BP and the Making of the Deepwater Horizon Disaster
(New York: W. W. Norton, 2012), 123.
4. U.S. Chemical Safety and Hazard Board Investigation Report, Refinery Explosion and Fire,
March 20, 2007, 31 (CSHBI Report).
5. Lustgarten, Run to Failure, 123.
6. CSHBI Report, 23, 52.
7. Ibid., 2122, 24.
8. Ibid., 2122; Victims Joint Memorandum in Opposition to Plea Agreement, 910, United
States v. BP Products North America, No. 4:07-cr-00434 (S.D.Tex. Dec. 19, 2007).
9. CSHBI Report, 17.
10. Dean Statement, 6.
11. Lustgarten, Run to Failure, 129131.
12. Ibid.
13. Ibid., 155.
14. Ibid., 160.
16. 42 U.S.C. 7412(r)(7), 7413(c)(1).
17. U.S. Department of Justice, British Petroleum to Pay More than $370 Million in Envtl.
Crimes, Fraud Cases, press release, October 25, 2007.
18. Kenna v. U.S. Dist. Ct. for the Cent. Dist. of Cal., 435 F.3d 1011, 1013 (9th Cir. 2006).
19. Wayne R. LaFave et al., 1 Criminal Procedure 1.4(k) (West 2d ed. 2004).
20. 18 U.S.C. 3663; 18 U.S.C. 3663A. On the history of the victims rights movement, see
Douglas E. Beloof, Paul G. Cassell, and Steven J. Twist, Victims in Criminal Procedure, 3rd ed.
(Durham, North Carolina: Carolina Academic Press, 2010), 517.
21. U.S.S.G. 8B1.1(a).
22. 18 U.S.C. 3664(f)(2).
23. 18 U.S.C. 3664(i), ( j) .
24. 18 U.S.C. 3664( j) .
25. 28 C.F.R. 9.4, 9.8(b).
26. 28 C.F.R. 9; Department of Justice, Returning Forfeited Assets to Crime Victims: An Over-
view of Remission and Restoration (2008).
27. See U.S. Department of Justice, FY 2011 Summary of Justice Assets Placed into Official
Use by Federal Agency by Type, 2011 (describing over $5.6 million in forfeiture to federal
agencies in 2011). In contrast, hundreds of millions of dollars are distributed to state and
local agencies. See U.S. Department of Justice, Equitable Sharing Payments of Cash and
sale Proceeds Executed during Fiscal Year 2011, by Recipient Agency.
28. JPMorgan Deferred Prosecution Agreement, January 6, 2014, Exhibit D, 1.
29. 18 U.S.C. 3663A(3). The legislative history does not speak to white-collar matters or
fraud prosecutions in particular, but notes concern with overly complex restitution deter-
minations. Victim Restitution Act of 1995, S. Rep.104179, 104th Congress at 19 (Dec. 6,
1995).
30. 28 C.F.R. 9.9(c).
31. Kenneth N. Gilpin, Republic New York Pleads Guilty to Securities Fraud, New York
Times, December 18, 2001. I note the docket sheet shows a different amount, $569 million
in restitution for Republic Securities. Omitted were apparently erroneous entries of
$9,999,999,999 or $9,999,999,997 that the commission apparently intended to use in neigh-
boring columns to denote missing or indeterminate data or remedial orders not specified.
32. I include the commission data, because they have data from before 2001. For 20022009,
commission data were adjusted to report it in calendar years, rather than fiscal years. For
years before 2002, the commission does not provide month or calendar year of sentence, so
it was not possible to adjust the data.
33. Receivers Final Report and Agreed Motion to Close Receivership, 45, SEC v. KL Group,
LLC, No. 9:05-cv-80186 (S.D. Fla. Dec. 10, 2008).
34. Ibid., 4.
35. SEC v. Cioffi, 866 F.2d 65, 66, 72 (E.D.N.Y. 2012).
36. 18 U.S.C. 3771.
37. U.S.S.G. 5F1.4; 18 U.S.C. 3555.
38. 18 U.S.C. 3771(e).
39. See, e.g., In re McNulty, 597 F.3d 344 (6th Cir. 2010).
40. According to the Sentencing Commission, only one organization was ordered to give vic-
tims notice in a federal criminal case in 2009; none were required to do so in 2008.
41. Hearing on BP Plea Agreement, 100, U.S. v. BP Products North America, Inc., No. 4:07-
cr- 00434 (S.D. Tex. Oct. 7, 2008).
42. U.S. Department of Justice, Attorney General Guidelines for Victim and Witness Assis-
tance, May 29, 2005.
43. For a discussion of the frustration victims feel when prosecutors keep them in the dark, see
Stephanos Bibas, Transparency and Participation in Criminal Procedure, New York Uni-
versity Law Review 81 (2006): 922923, 924.
44. U.S. v. BP Products of North America Inc., No. H-07- 434, 2008 WL 501321 at *1 (S.D.
Tex. Feb. 21, 2008).
46. 33 U.S.C. 1319(c)(1) (negligent Clean Water Act violations); 1319(2)(A) (prohibiting
knowingly violating requirements imposed in a pretreatment program approved under the
Clean Water Act).
47. U.S. Department of Justice, Factors in Decisions on Criminal Prosecutions for Environ-
mental Violations in the Context of Significant Voluntary Compliance or Disclosure Ef-
forts by the Violator, July 1, 1991.
48. David Uhlmann, The Erosion of Corporate Criminal Liability, Maryland Law Review 72
(2013): 1295.
49. Fed. R. Crim. Pro. R. 11(c); In re Morgan, 506 F.3d 705, 712 (9th Cir. 2007) (a judge must
make an individualized assessment of the plea agreement); U.S. v. Smith, 417 F.3d 483,
487 (5th Cir. 2005) (a judge may reject a plea agreement based on the courts belief that
the defendant would receive too light of a sentence).
50. U.S. v. Crowell, 60 F.3d 199, 205206 (5th Cir. 1995).
51. Victims Joint Memorandum, 2, United States v. B.P. Products North America Inc., 4:07-
cr- 00434 (S.D. Tex. Dec. 19, 2007).
52. Alice Gomstyn, BP Texas City Refinery Blast Victim: BP Keeps Killing People, ABC
News, July 7, 2010.
53. United States v. Van Schaick, 134 F. 592, 602 (C.C.S.D.N.Y. 1904).
54. James W. Harlow, Corporate Criminal Liability for Homicide: A Statutory Framework,
Duke Law Journal 6 (2011): 123.
55. Rochester Ry. & Light, 88 N.E. at 24 (quoting N.Y. Penal Code 179 (1908)).
56. Lee Strobel, Reckless Homicide? Fords Pinto Trial (South Bend, IN: AND Books, 1980), 20.
57. Ibid., 2022.
58. Ibid., 2425.
59. State v. Ford Motor Co., 47 U.S.L.W. 2514, 2515 (Ind. Super. Ct. 1979).
60. Strobel, Reckless Homicide?, 265, 270271.
61. Francis T. Cullen, Corporate Crime under Attack: The Ford Pinto Case and Beyond (Cincin-
nati, OH: Anderson, 1987), 292293.
62. Ibid., 293.
63. See, e.g., People v. ONeil, 550 N.E.2d 1090, 1098 (Ill. App. Ct. 1990); United States v. Van
Schaick, 134 F. 592, 602 605 (C.C.S.D.N.Y. 1904). See also Patrick J. Schott, Comment,
Corporate Criminal Liability for Work-Site Deaths: Old Law Used a New Way, Mar-
quette Law Review 71 (1988): 805. Many of those cases are quite dated. For a New York
case dismissing a second-degree manslaughter indictment against a company, see People v.
Warner-Lambert Co., 414 N.E.2d 660 (N.Y. 1980).
64. The prosecutors could have pursued convictions under 29 U.S.C. 666(e), for willful viola-
tions of the Occupational Safety and Health Act, resulting in a workers death, although,
perhaps surprisingly, that is a misdemeanor and penalties are quite low (not more than
$10,000).
65. Text: Victim Impact Statement, New York Times, August 11, 2005.
66. Jennifer Bayot, Ebbers Sentenced to 25 Years in Prison for $11 Billion Fraud, New York
Times, July 13, 2005.
67. In re Dean, 527 F.3d 391, 396 (5th Cir. 2008).
68. Hearing on Plea Agreement, United States v. BP Products North America, 4:07-cr-00434
(S.D. Tex. Oct. 7, 2008).
69. Ibid., 1819.
70. Ibid., 23.
71. Ibid., 67.
72. CSHBI Report, 20.
73. Ibid., 60, 64.
74. Ibid., 38.
75. Ibid., 60.
76. Transcript of Sentencing, 8, United States v. BP Products North America, Inc., No. 4:07-cr-
434 (S.D.Tex. March 26, 2009).
77. BP Products North America Inc.s Sentencing Memorandum at 6, 11, United States v. BP,
No. 4:07-cr- 434 (S.D.Tex. Nov. 20, 2007).
78. Ibid., 1011.
79. 18 U.S.C. 2571(c)(3).
80. Victims Joint Memorandum in Opposition to Plea Agreement at 35, BP Products North
America, Inc., CR. No. 4:07-cr- 434 (S.D.Tex. Dec. 19, 2007).
81. Ibid., 8.
82. Marilee Enge and David Postman, Judge Rejects Exxon Deal, Anchorage Daily News,
April 25, 1991.
83. However, the judge ultimately required Exxon to pay only $25 million, and credited $100
million based on cooperation and cleanup costs. Exxon did pay a total of $100 million in
restitution. United States v. Exxon Corporation (Alaska), www.justice.gov/enrd/3499.htm.
84. Hearing on Plea Agreement, 163, United States v. BP Products North America, 4:07-cr-00434
(S.D. Tex. Oct. 7, 2008).
86. Victims Joint Memorandum in Opposition to Plea Agreement, 12.
87. Brad Heath, Paul Davidson, and Chris Woodyard, Hearings to Open on Alaska Oil Field
Woes, USA Today, September 6, 2006.
89. BP Deferred Prosecution Agreement, United States v. BP America, Inc., No. 07-cr-00683,
(N.D. Ill. Oct. 25, 2007); U.S. Commodity Futures Trading Commission, BP Agrees to
Pay a Total of $303 Million in Sanctions to Settle Charges of Manipulation and Attempted
Manipulation in the Propane Market, October 25, 2007.
91. Press Release, What Experts Say about the Criminal Penalties in the BP Texas City Refin-
ery Explosion, Texans for Public Justice, http://info.tpj.org/press_releases/BP/experts.pdf.
92. U.S. Department of Labor, US Department of Labors OSHA Issues Record-Breaking
Fines to BP, news release, October 30, 2009.
93. Richard Mauer and Anna M. Tinsley, Gulf Oil Spill: BP Has a Long Record of Legal,
Ethical Violations, McClatchy, May 8, 2010.
94. Order Granting United States Unopposed Motion to Enter Consent Decree, U.S. v. BP
Products North America, No. 4:10-cv-3569 (S.D. Tex. Dec. 30, 2010).
95. United States Memorandum in Support of Its Unopposed Motion to Enter Consent De-
cree at 7, United States v. BP Products North America, No. 4:10-cv-03569 (S.D. Tex. Dec. 9,
2010).
96. Ibid., 11.
97. Ibid., 11 n. 7.
98. Ibid., 14.
99. Marian Wang, Despite Safety Concerns at Texas Refinery, U.S. Wont Revoke BP Proba-
tion, ProPublica, September 28, 2010.
100. Tom Fowler and Lise Olsen, Throw Out 2007 BP Plea Deal, Blast Victims Tell Feds,
Houston Chronicle, July 5, 2010.
101. 18 U.S.C. 3771(a)(2), (e).
102. Memorandum Opinion and Order, 2, United States v. CITGO Petroleum Corp., No.
C-06-563 (S.D. Tex., Sept. 14, 2012).
103. Ibid., 3.
104. Ibid., 7.
105. Memorandum Opinion and Order, 20, United States v. CITGO Petroleum Corp., No.
C-06-563 (S.D. Tex., April 30, 2014).
106. For examples of civil suits in which admissions made in prior criminal litigation were relied
upon by courts in permitting the civil litigation to go forward, see, e.g., Davis v. Beazer
Homes, U.S.A., Inc., No. 1:08CV247, 2009 WL 3855935 *7 (M.D.N.C. Nov. 17, 2009)
(finding admissions a significant factor in assessing the plausibility of plaintiffs claims.);
Somerville v. Stryker Orthopaedics, No. C 08 02443 JSW, 2009 WL 2901591 *3 (N.D.Cal.,
Sept. 4, 2009) (citing to non-prosecution agreement attached to complaint). For a judge
finding a non-prosecution agreement inadmissible in civil litigation, see Andrew Keshner,
Non-Prosecution Agreement Ruled Inadmissible in Suit, New York Law Journal, September
17, 2011.
107. Barbara Black, Should the SEC Be a Collection Agency for Defrauded Investors? Busi-
ness Lawyer 63 (2008): 330331.
108. 15 U.S.C. 7246.
109. Plan of Allocation for the Restitution Fund, 2 n. 2, United States v. Computer Assocs. Intl,
Inc., No. 04 0837 (E.D.N.Y. June 28, 2005).
110. Gretchen Morgenson, Giving Away Lots of Money Is Easy, Right? New York Times,
Feb. 13, 2005.
111. Notice of Claims Process for Distribution of the Restitution Fund, In Re: United States
v. Computer Associates International, No. 04 0837 (E.D.N.Y. 2005), www.computerassoci
atesrestitutionfund.com/pdf/carf1not.pdf.
112. Order of Judge I. Leo Glasser, United States v. Computer Assocs. Intl, Inc., No. 04 0837,
(E.D.N.Y. Mar. 27, 2008).
113. Notice of Claims Process for Distribution of the Restitution Fund, United States v. Com-
puter Assocs. Intl, Inc., No. 04 0837 (E.D.N.Y. 2005), www.computerassociatesrestitu
tionfund.co/pdf/carf1not.pdf. For a detailed discussion of this problem, see Adam S. Zim-
merman and David M. Jaros, The Criminal Class Action, University of Pennsylvania Law
Review 159 (2011): 1398.
114. In re: Bristol-Myers Squibb Derivative Litigation, No. 02 Civ. 8571(LAP), 2007 WL
959081 (S.D.N.Y. 2007).
115. Ibid., *5.
116. Alex Berenson, Lilly Settles with 18,000 over Zyprexa, New York Times, January 5, 2007.
117. Hood v. Eli Lilly & Co. (In re Zyprexa Prods. Liab. Litig.), 671 F. Supp.2d 397, 404 405
(E.D.N.Y. 2009).
118. Agreement between Newsday, Inc., Hoy Publications LLC, & the U.S. Attorneys Office
forthe Eastern Dist. of N.Y. at 4, 6, In re Newsday Litig., No. 08 0096 (E.D.N.Y. Dec.
17, 2007).
119. United States v. Brennan (In re Newsday Litig.), No. 08 0096, 2008 WL 4279570, at *13
(E.D.N.Y. Sept. 18, 2008).
120. Letter to Hon. Jack B. Weinstein, 3, In re Newsday Litigation, Criminal Action No. Misc.-
08-0096, Civil Action No. CV-08-5280 (E.D.N.Y. Jan. 28, 2009).
121. SEC v. Bear, Stearns & Co., 626 F. Supp.2d 402, 416 417, 420 (S.D.N.Y. 2009) (ruling
unclaimed money in the Distribution Funds transferred to the U.S. Department of the
Treasury); 28 U.S.C. 20412042.
122. 18 U.S.C. 3771(d)(2).
123. Zimmerman and Jaros, The Criminal Class Action, 1385.
124. Transcript of Change of Plea and Sentencing Hearing, 17, 22, United States v. Alcatel-
Lucent, Case No. 1:10-cr-20907-MGC (S.D. Fla. June 1, 2011).
125. Ibid., 2324.
126. Ibid., 2728.
127. Ibid., 49.
128. Ibid., 52.
129. Transcript of Change of Plea and Sentencing Hearing at 52, United States v. Alcatel-Lucent,
Case No. 1:10-cr-20907-MGC (S.D. Fla. June 1, 2011).
130. In re: Instituto Costarricense de Electricidad, No. 1112708-G (11th Cir. 2011) (unpub-
lished decision).
131. U.S. Attorneys Office, Chevron Corp. Agrees to Pay $30 Million in Oil-for-Food Settle-
ment, press release, November 14, 2007.
132. Plea Agreement at Exhibit B, U.S. v. Style Craft Furniture Co., Ltd, No. 1:08-cr-00279
(D.N.J., May 1, 2009).
133. United States v. Urciuoli, 613 F.3d 11, 18 (1st Cir. 2010).
134. See Memorandum from Mark Filip, Deputy Attorney General, to Holders of the U.S.
Attorneys Manual, May 14, 2008; United States Attorneys Manual 916.325 (2010).
135. Jef Feeley and Janelle Lawrence, Merck Units Plea over Vioxx Investigation Accepted
by Judge, Bloomberg Businessweek, April 19, 2012.
136. Ibid.
137. Jef Feeley and Janelle Lawrence, Orthofi xs Settlement of Medicare Probe Rejected by
Judge, Bloomberg Businessweek, September 6, 2012.
138. Jef Feeley and Janelle Lawrence, Orthofi x Medicare Fraud Probe Is Rejected Again
by Judge, Bloomberg Businessweek, December 13, 2012.
139. Richard A. Bierschbach and Stephanos Bibas, Notice-and-Comment Sentencing, Min-
nesota Law Review 97 (2012): 1.
140. Peter Maas, What Happened at the Macondo Well? New York Review of Books, Septem-
ber 29, 2011, 38 41.
141. Deepwater Horizon Study Group, Final Report on the investigation of the Macondo Well
Blowout, March 1, 2011, 67.
142. National Commission on the BP Deepwater Horizon Oil Spill & Offshore Drilling, Deep
Water: The Gulf Oil Disaster and the Future of Offshore Drilling, 2011 (National Commis-
sion Report)., vii, 122.
143. Ibid., ix, 221.
144. Deepwater Horizon Study Group, 5, 6; see also National Commission Report, 221.
145. Clifford Krauss, Engineer Arrested in BP Oil Spill Case, New York Times, April 24,
2012.
146. Affidavit of Barbara ODonnell, U.S. v. Mix (E.D.L.A. April 23, 2012).
147. BP Must Pay $400M for Indiana Refinery Emissions Controls, ENS Newswire, May 24,
2012.
148. 18 U.S.C. 1115.
149. Steven Mufson, BP Agrees to Criminal Plea, $4 Billion Settlement in Gulf Oil Spill
Case, Washington Post, November 15, 2012.
150. News Release, EPA to Lift Suspension and Debarment of BP from Federal Government
Contracts/Agreement contains strong provisions to continue safety and ethics improve-
ments in order to comply, Environmental Protection Agency, March 13, 2014.
151. BP Texas Lawsuit: Texas City Resident Sue Oil Company, Associated Press, June 14, 2012;
Harvey Rice, Jury Absolves BP in Gas Leak Trial, Houston Chronicle, October 10, 2013.
152. Erwin Seba, BP Texas City Refinery Not Profitable for YearsReport, Reuters, June 6,
2012; BP BP Completes Sale of Texas City Refinery and Related Assets to Marathon Pe-
troleum, press release, February 1, 2013.
153. Alice Gomstyn, BP Texas City Refinery Blast Victim: BP Keeps Killing People, ABC
News, July 7, 2010.
6. The Carrot and the Stick

1. Mary Flood and Tom Fowler, Enrons Auditor Is Given the Max, Houston Chronicle, Oc-
tober 17, 2002.
2. United States v. Booker, 543 U.S. 220 (2005).
3. U.S.S.G. Chapter 5, Pt. A (Sentencing Table).
4. Jennifer Arlen, The Failure of the Organizational Sentencing Guidelines, Miami Law
Review 66 (2012): 231.
5. Compare 18 U.S.C. 3571(c) with 3571(d), which provides for fines up to twice the loss
to victims or the gain to the firm.
6. Order, United States v. Andersen, LLP, Docket No. 4:02-cr-00121 (S.D. Tex. Mar 07, 2002).
7. Johnson & Johnson Deferred Prosecution Agreement at 4.
8. U.S. v. Siemens A.G., Case 1:08-cr-00267-RJL (D.D.C. Feb. 4, 2009), Plea Hearing and
Sentencing, 5.
9. Ibid., 67.
10. Ibid., 9.
11. Fed. R. Crim. P.4(a), Fed. R. Crim. P.43(b); see Christopher Jackson, When a Company
Confesses, Michigan Law Review 109 (2010): 387.
12. Siemens Plea Hearing, 1012, 2021.
13. Ibid., 15, 24, 30.
14. Ibid., 1719.
15. Siemens Plea Agreement, 4; Mike Esterl et al., Siemens Internal Review Hits Hurdles,
Wall Street Journal, January 23, 2008; David Crawford and Mike Esterl, Siemens Ruling
Details Bribery across the Globe, Wall Street Journal, November 16, 2007.
16. 18 U.S.C. 3571.
17. Ibid., 31, 34.
18. U.S. v. Guidant, Crim. No. 10-mj-67 (D.MN. 2010), Memorandum Opinion and Order,
1619.
19. A judge is not obligated to accept a Type C agreement that is involuntary, unfair, or con-
trary to the interests of justice. See, e.g., U.S. v. Kling, 516 F.3d 702, 704 (8th Cir. 2008).
20. Ibid., 22.
21. Letter to Hon. Donavan W. Frank, U.S. v. Guidant, Crim. No. 10-mj-67 (D.MN. April 12,
2010).
22. Ibid., 26.
23. U.S. v. Guidant LLC, No. 10-mj- 67, 708 F.Supp.2d 903, 921 (D.MN. 2010).
24. Judge Accepts Guilty Plea by Guidant, Bloomberg News, January 13, 2011; Judge Adds
Probation to Guidant Plea Deal, Associated Press, January 12, 2011.
25. John C. Coffee Jr., No Soul to Damn: No Body to Kick: An Unscandalized Inquiry into
the Problem of Corporate Punishment, Michigan Law Review 79 (1981): 388; Mark
A.Cohen, Theories of Punishment and Empirical Trends in Corporate Criminal Sanc-
tions, Managerial and Decision Economics 17 (1996): 399, 401; Ilene H. Nagel and John L.
Hagan, The Sentencing of White-Collar Criminals in Federal Courts: A Socio-Legal Ex-
ploration of Disparity, Michigan Law Review 80 (1982): 1427.
26. Southern Union Co. v. U.S., 132 S.Ct. 2344 (Breyer, J., dissenting).
27. Richard S. Gruner, Towards an Organizational Jurisprudence: Transforming Corporate
Criminal Law through Federal Sentencing Reform, Arizona Law Review 36 (1994): 408;
Ilene H. Nagel and Winthrop M. Swenson, Federal Sentencing Guidelines for Corpora-
tions: Their Development, Theoretical Underpinnings, and Some Thoughts about Their
Future, Washington University Law Quarterly 71 (1993): 215.
28. Criminal Fine Enforcement Act of 1984, Pub. L. No. 98596, 98 Stat. 3134 (1984); Crim-
inal Fines Improvement Act of 1987, Pub. L. No. 100185, 101 Stat. 1279 (1987).
29. Mark A. Cohen et al., Report on Sentencing of Organizations in the Federal Courts,
19841987, in United States Sentencing Commission, Discussion Materials on Organi-
zational Sanctions, 1988, 711.
30. Cindy R. Alexander et al., Regulating Corporate Criminal Sanctions: Federal Guide-
lines and the Sentencing of Public Firms, Journal of Law and Economics 42 (1999): 416,
419 420.
31. United States v. Booker, 543 U.S. 220 (2005).
32. For discussion of deterrence approach, see, e.g., Jeff rey S. Parker, Criminal Sentencing
Policy for Organizations: The Unifying Approach of Optimal Penalties, American Crimi-
nal Law Review 26 (1989): 554561.
33. Jennifer Arlen, The Potentially Perverse Effects of Corporate Criminal Liability, Journal
of Legal Studies 23 (1994): 833; Jennifer Arlen and Reinier Kraakman, Controlling Corpo-
rate Misconduct: An Analysis of Corporate Liability Regimes, New York University Law
Review 72 (1997): 699.
34. In re Caremark Intl., Inc. Derivative Litigation, 698 A.2d 959, 970 (Del. Ch. 1996).
35. U.S.S.G. 8C.1.1 (2010).
36. Department of Justice, Nexus Technologies Inc. and Three Employees Plead Guilty to
Paying Bribes to Vietnamese Officials, press release, March 16, 2010.
37. U.S. v. Nguyen et al., 2:08-cr-00522 (Sept. 8, 2010 E.D.P.A.), Governments Sentencing
Memorandum, 13.
38. Ibid., 9.
39. Judgment, U.S. v. Nguyen et al., 2:08-cr-00522 (Sept. 15, 2010 E.D.P.A.).
40. U.S.S.G. 8C2.2.
41. 2008 Commission Datafi le.
42. U.S. v. Barclays, No. CR 10218 (D.D.C. August 18, 2010), Hearing, 18.
43. Ibid., 15.
44. U.S.S.G. 8B1.1 (in a case with an identifiable victim the court shall enter a restitution
order for the full amount of the victims loss).
45. 18 USC 3571(d).
46. U.S.S.G. 2B1.1; United States v. Parris, 573 F. Supp.2d 744, 754 (E.D.N.Y. 2008); U.S. v.
Adelson, 441 F.Supp.2d 506, 510 (S.D.N.Y. 2006).
47. U.S.S.G. 2B1.1 Application Note 3(A)(ii).
48. U.S.S.G. 8C2.9.
49. Ibid., 8C2.5.
50. Ibid., 8C2.6.
51. Ibid., 8C2.5(b).
52. Ibid., 8C2.6 (table of minimum and maximum multipliers).
53. U.S. Sentencing Commission, 20092012 Sourcebook, 2012, Table 54. Five companies
received credit for effective compliance from 1992 through 2012.
54. USSG 8B2.1(b)(2), USSG 8B2.1(a)(2); Report of the Ad Hoc Advisory Group on the
Organizational Guidelines, October 7, 2003.
55. USSG 8C2.5(3).
56. Mei Lin Kwan-Gett and Dane A. Lund, Crediting Corporate Compliance but Withholding
the Corporate Compliance Guidelines Credit, Federal Sentencing Reporter 26 (2013): 49.
57. 2008 Datafi le, ICPSR, Organizations Convicted in Federal Criminal Courts Series, www
.icpsr.umich.edu/icpsrweb/ICPSR/series/85.
58. Arlen, The Failure of the Organizational Sentencing Guidelines, supra.
59. U.S.S.G. 8C2.5(g)(1).
60. 2012 Sourcebook, Table 54 (28.6% accepted responsibility).
61. U.S.S.G. 8C2.5(g)(2).
62. U.S.S.G. 8C2.5(g)(3); 2012 Sourcebook, table 54.
63. Ibid.
64. U.S.S.G. 8C4.1.
65. Motion to Depart, 3 4, U.S. v. Panalpina, No. 10-cr-765 (S.D.Tx. Dec. 7, 2010).
66. Ibid., 45.
67. USSG 2B1.1.

68. U.S. v. Bernard L. Madoff, 09 CR 213 (DC) (S.D.N.Y. June 29, 2009), Sentencing Hearing,
40, 43.
69. Ibid., 330.
70. Ibid., 20.
71. Ibid., 34.
72. Ibid., 36, 38.
73. Diana B. Henriques, Madoff Is Sentenced to 150 Years for Ponzi Scheme, New York
Times, June 29, 2009.
74. U.S. v. Madoff, Sentencing Hearing, 46 47.
75. Sam Buell, Is the White Collar Offender Privileged? Duke Law Journal 63 (2013):
823.
76. Susan Pulliam and Chad Bray, Trader Draws Record Sentence, Wall Street Journal, Octo-
ber 13, 2011; United States v. Rajaratnam, No. 09 Cr. 1184, slip op. at 1 (S.D.N.Y. Jan. 31,
2012).
77. U.S. Sentencing Commission, 20002012 Sourcebooks of Federal Sentencing Statistics.
78. Fed. R. Crim. P.11(c)(1)(B) (plea agreement may recommend that a particular sentence
or sentencing range is appropriate), Fed. R. Crim. P. 11 (c)(1)(C) (plea agreement may
agree that a specific sentence or sentencing range is the appropriate disposition of the
case); Fed. R. Crim. P.11(c)(5) (procedure for rejecting a (c)(1)(A) or (C) plea agreement);
see, e.g., In re Morgan, 506 F.3d 705, 712 (9th Cir. 2007) (court must make an individual-
ized assessment of the plea agreement); United States v. Smith, 417 F.3d 483, 487 (5th Cir.
2005) (A district court may properly reject a plea agreement based on the courts belief
that the defendant would receive too light of a sentence.).
79. U.S. v. Wampler, 624 F.3d 1330, 133233 (10th Cir. 2010) (describing how the court re-
jected a plea agreement because it unjustly let the companys principals off the hook).
80. Pamela MacLean and Karen Gullo, Samsung SDIs Plea Deal in Price Fixing Case
Blocked, Bloomberg, April 20, 2011.
81. U.S.A.M. 928.1300.
82. See, e.g., 2011 Sourcebook, Table 53 (69.4 percent placed on probation); 2010 Sourcebook
at Tbl.53 (70.5 percent placed on probation).
83. U.S.S.G. 8D1.1(a)(3). This rule applies only to firms with more than 50 employees.
U.S.S.G. 8D1.3(a)(1)(6).
84. Ibid., 8D1.3(a)(1).
85. Nagel & Swenson, 216, 234; see, e.g., United States v. Missouri Valley Constr. Co., 741
F.2d 1542 (8th Cir.1984); United States v. John Scher Presents, Inc., 746 F.2d 959 (3d
Cir.1984).
86. Michael B. Gerrard, Corporate Probation: The Con Edison Sentence, New York Law
Journal, May 26, 1995.
87. 42 USC 11001 et seq.
88. U.S.S.G. 8D1.4, Application Note 1.
89. U.S.S.G. 8D1.4(5).
90. 2012 Sourcebook, Table 53.
91. Andrew Weissmann and Joshua A. Block, White-Collar Defendants and White-Collar
Crimes, Yale Law Journal Pocket Part 116 (2007): 286; U.S. Sentencing Commission,
Measuring Recidivism: The Criminal History Computation of the Federal Sentencing

Guidelines, 2004, 13.
92. 2011 Sourcebook, Table 54 (1.4 percent had a prior conviction in the past ten years). In
2009 and 2010, it was zero percent. 20092010 Sourcebook, Table 54.
93. For example, in 2008 the one recidivist company violated a probation order. 2008 Source-
book, Table 54.
94. U.S.S.G. 8C2.5(c); see also U.S.S.G. 2.8.
95. ABB Vetco Gray (UK) Ltd. Plea Agreement.
96. Ibid., Statement of Facts, 1.
97. Department of Justice, Aibel Group Ltd. Pleads Guilty to Foreign Bribery and Agrees to
Pay $4.2 Million in Criminal Fines, press release, November 21, 2008.
98. Ibid.
99. Department of Justice, ABB Ltd and Two Subsidiaries Resolve Foreign Corrupt Practices
Act Investigation and Will Pay $19 Million in Criminal Penalties, press release, Septem-
ber 29, 2010.
100. Deferred Prosecution Hearing, U.S. v. ABB Ltd., Cr. No. H-10-665 (S.D.Tex. Sept. 29,
2010).
101. Ibid., 13.
102. Ibid., 10.
103. Department of Justice, Agencies Listed by Size Categories, www.justice .gov/crt/508
/report2/agencies.php.
104. Transcript of Deferred Prosecution Hearing, U.S. v. ABB Ltd., 1011.
105. Ibid., 12.
106. USSG 8C2.5(c).
107. Ibid., 14.
108. Ibid., 20.
109. Samuel W. Buell, The Blaming Function of Entity Criminal Liability, Indiana Law Journal
81 (2006): 501. John C. Coffee Jr. developed shortcomings of a reputation-focused approach
towards corporate crime. Coffee, No Soul to Damn, 424 434.
110. Gilbert Geis and Joseph DiMento, Should We Prosecute Corporations and/or Individu-
als? in Corporate Crime: Contemporary Debates, ed. Frank Pearce and Laureen Snider
(Toronto, Ontario: University of Toronto Press, 1995), 79 (describing 1983 study).
111. Cindy R. Alexander, On the Nature of the Reputational Penalty for Corporate Crime:
Evidence, Journal of Law and Economics 42 (1999): 493.
112. Alpha Natural Resources, December 6, 2011 (SPX five day big winners [include] Alpha
Natural Resources (ANR) 24.05% . . .).
113. Dan M. Kahan, What Do Alternative Sanctions Mean? University of Chicago Law Re-
view 63 (1996): 643.
114. See U.S.S.G. 8C2.5, commentary (n. 14).
115. Jayne W. Barnard, Reintegrative Shaming in Corporate Sentencing, Southern California
Law Review 72 (1999): 961962.
116. U.S.S.G. 8D1.4(a); Andrew Cowan, Scarlet Letters for Corporations? Punishment by
Publicity under the New Sentencing Guidelines, Southern California Law Review 65
(1992): 2387.
117. Griffin Industries Agreement.
118. See EMI-SAR Trucking Plea Agreement.

119. Drew Griffin and Andy Segal, Feds Found Pfi zer Too Big to Nail, CNN.com, April 2,
2010.
120. See, e.g. In re Catfish Antitrust Litigation, 908 F. Supp.400 (N.D. Miss. 1995) (a civil
antitrust case).
121. Associated Press, Lockheed Drops Titan Merger after Delays by Bribery Probe, Los Angeles
Times, June 27, 2004.
122. Plea Agreement, U.S. v. Abbott Labs, Case No. 1:12-cr-00026-SGW (May 7, 2012).
123. Lloyds Deferred Prosecution Agreement, 15.
124. U.S. v. BP Products North America, Inc., No. 4:07-cr- 434 (S.D. Tex. March 26, 2009),
Transcript of Sentencing, 10.
7. Enter the Monitors

1. Plutarchs Lives and Writings: The Translation Called Drydens, ed. A.H. Clough (1905), 1:21.
2. Sentencing Memorandum, U.S. v. Siemens Aktiengesellschaft (D.D.C. December 12,
2008).
3. Siemens, Sustaining Business Integrity, (2011), www.siemens.com/sustainability/pool
/compliance/integrity_initiative/sustaining-business-integrity.pdf.
4. Sentencing Memo, 22.
5. Siemens Plea Agreement,1112.
6. Securities and Exchange Commission, Bristol-Myers Squibb Company Agrees to Pay
$150 Million to Settle Fraud Charges, press release, August 4, 2004.
7. U.S. Department of Justice, Statement from U.S. Attorney Christopher J. Christie on
Expiration of Deferred Prosecution Agreement with Bristol-Myers Squibb, June 14,
2007.
8. U.S. Department of Justice, Office of the Deputy Attorney General, Selection and Use of
Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with
Corporations, March 7, 2008 (Morford Memo).
9. The Aurora Foods agreement refers to an outside consultant. Aurora Foods Non-
Prosecution Agreement, 4. The Bank of New York agreement refers to an independent ex-
aminer. Bank of New York Non-Prosecution Agreement, 1112. The Boeing Agreement
refers to a Special Compliance Officer. Boeing Non-Prosecution Agreement, 6. The G.E.
agreement refers to an Independent Consultant. G.E. Non-Prosecution Agreement, 3.
10. Morford Memo, 2.
11. Ibid.
12. James B. Jacobs et al., The RICO Trusteeships after Twenty Years: A Progress Report,
Labor Law 19 (2004): 419.
13. U.S. v. Intl Bhd. of Teamsters, 742 F.Supp.94, 102 (S.D.N.Y. 1990).
14. I first explored the connection between structural reform litigation and corporate prosecu-
tion agreements in a law review article. Brandon L. Garrett, Structural Reform Prosecu-
tion, Virginia Law Review 93 (2007): 853.
15. Abram Chayes, The Role of the Judge in Public Law Litigation, Harvard Law Review 89
(1976): 1281, 1284, 1298.
16. For example, in a series of controversial decisions, the Supreme Court found remedies in
certain desegregation cases too intrusive. Missouri v. Jenkins, 515 U.S. 70, 112113 (1983);
Frew v. Hawkins, 540 U.S. 431, 442 (2004).
17. E.g., William Fletcher, The Discretionary Constitution: Institutional Remedies and Judi-
cial Legitimacy, Yale Law Journal 91 (1982): 625; Paul J. Mishkin, Federal Courts as
State Reformers, Washington and Lee Law Review 35 (1978): 951; Charles F.Sabel and
William H. Simon, Destabilization Rights: How Public Law Litigation Succeeds, Har-
vard Law Review 117 (2004): 10191020; John C. Jeff ries Jr. and George A. Rutherglen,
Structural Reform Revisited, California Law Review 95 (2007): 1387.
18. One set of monitor reports that were made public were in the University of Medicine and
Dentistry of New Jersey case.
19. One cannot always tell from docket sheets whether the judge added special conditions, like
a special master, to probation, but this appears to be fairly uncommon outside of FCPA and
environmental cases.
20. Those three are the B.P., Computer Associates, and N.Y. Racing Association agreements.
21. Russell Mokhiber, Morford Memo Morphed: Who Picks the Corporate Monitors? Cor-
porate Crime Reporter, January 1, 2013.
22. Lincoln Savings & Loan Association v. Wall, 743 F. Supp.901, 920 (D.D.C. 1990); Donald
C. Langevoort, Where Were the Lawyers? A Behavioral Inquiry into Lawyers Responsi-
bility for Clients Fraud, Vanderbilt Law Review 46 (1993): 76 (Where were the lawyers?
Perhaps rhetorical, even sarcastic, this question is being asked all too frequently after large
financial frauds).
23. Jill E. Fisch and Kenneth M. Rosen, Is There a Role for Lawyers in Preventing Future
Enrons? Villanova Law Review 48 (2003): 1097.
24. 148 Cong. Rec. S6524 (daily ed. July 10, 2002) (statement of Sen. Corzine).
25. Preliminary Report of the American Bar Associations Task Force on Corporate Responsi-
bility, July 16, 2002, 4750.
26. Sarbanes-Oxley Act, 307, 15 U.S.C. 7245 (2002). The SEC also gave firms the option
of establishing a Qualified Legal Compliance Committee (QLCC) to receive reports of
misconduct from attorneys. 17 C.F.R. 205.3.
27. John C. Coffee Jr., Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant
Reforms, Boston University Law Review 84 (2004): 360363.
28. Barry F. McNeil and Brad D. Dian, Internal Corporate Investigations (Chicago: American
Bar Association, 2007), 18.
29. Peter J. Henning, The Mounting Costs of Internal Investigations, New York Times,
March 5, 2012.
30. David S. Hilzenrath, Justice Department, SEC Investigations Often Rely on Companies
Internal Probes, Washington Post, May 22, 2011.
31. Nathan Vardi, The Bribery Racket, Forbes, May 28, 2010.
32. Jenkins Gilchrist Agreement, 2 (March 26, 2007); IRS news release IR-2007-71 (March 29,
2007), www.irs.gov/pub/irs-news/ir-07-071.pdf.
33. BMS Deferred Prosecution Agreement, 5.
34. Ibid., 5, 12, 14.
35. Ibid., Attachment B, 3, 5.
36. U.S. Department of Justice, Bristol-Myers Squibb Charged with Conspiring to Commit
Securities Fraud; Prosecution Deferred for Two Years, press release, June 15, 2005.
37. In re Bristol-Myers Squibb Securities Litigation, Master File No. 02-CV-2251 (LAP)
(S,D.N.Y.).
38. BMS DPA, 8.
39. Ibid., 31, 34.
40. Brooke A. Masters, Bristol-Myers Outs Its Chief at Monitors Urging, Washington Post,
September 13, 2006.
41. Form 10-Q, Bristol-Myers Squibb Company, Quarterly Report under Section 13 or 15 of
the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2007.
42. The passages that discuss Dr. Waigels work are based on an October 2, 2012, phone inter-
view with him, and any quotations attributed to him come from that interview. I am very
grateful that Dr. Waigel was willing to share his recollections and views concerning the
monitorship.
43. Siemens Plea Agreement, 1112; see also Siemens, Continuous Improvement.
44. Siemens, Index According to the Reporting Guidance on the 10th Principle by the UN
Global Compact and Transparency International, April 2012, www.siemens.com/sustain
ability/pool/en/core _topics/compliance/siemens-acrg-index-2011-en.pdf.
45. Ibid., 7475.
46. I am grateful to Joseph Warin for discussing the monitoring work in a phone conversation
on March 22, 2013.
47. Siemens, 2011 Annual Report, www.siemens.com/investor/pool/en/investor_relations
/siemens _ar_2011.pdf.
48. Siemens, Annual Shareholders Meeting of Siemens AG, Speech by Peter Lscher, Presi-
dent and CEO, January 24, 2012, www.siemens.com/press/pool/de/events/2012/corpo
rate/2012-q1/2012-hv-speech-loescher.pdf.
49. Vikramaditya Khanna and Timothy L. Dickinson, The Corporate Monitor: The New
Corporate Czar?, Michigan Law Review 105 (2007): 1713.
50. E.g., Weatherford Intl Inc. Deferred Prosecution Agreement (November 26, 2013), D-8.
51. Government Accountability Office, Preliminary Observations on the DOJs Use and
Oversight of Deferred Prosecution and Non-Prosecution Agreements, June 25, 2009,
41.
52. New Release, Willbros Reports Results from Continuing Operations for the Fourth
Quarter and 2011 and Filing of Annual Report on Form 10-K, http://phx.corporate-ir
.net/phoenix.zhtml?c=95816&p=irol-newsArticle&ID=1681131.
53. Faro Technologies, Inc., SEC Filings, www.faro.com/contentv2.aspx?ct=us&content=misc
&item=8.
54. Sue Reisinger, Attorney General Holder Welcomes James Cole as Deputy AG, Corporate
Counsel, January 5, 2011.
55. Nathan Vardi, How Federal Crackdown on Bribery Hurts Business and Enriches Insid-
ers, Forbes.com, May 24, 2010.
56. Email, Monitor Agreement, October 15, 2007, http://judiciary.house .gov/hearings
/pdf/Zimmer090625.pdf.
57. Prepared Statement by Christopher J. Christie, 53, Hearing before the Subcommittee
on Commercial and Administrative Law of the Committee on the Judiciary, Account-
ability, Transparency, and Uniformity in Corporate Deferred and Non-Prosecution

Agreements, June 25, 2009, http://judiciary.house.gov/hearings/printers/111th/111-52
_50593.PDF.
58. Ibid., 119.
59. Ibid.
60. Christopher Dela Cruz, Chris Christie Faces Questions about U.S. Attorney Contracts
amid Release of Documents, The Star Ledger, June 25, 2009.
61. Hearing Testimony, October 22, 2007, email.
62. Ibid., October 19, 2007, email; see also David Kocieniewski, In Testy Exchange in Con-
gress, Christie Defends His Record as a Prosecutor, New York Times, June 26, 2009.
63. Statement by Christie, 54.
64. Ibid., 114.
65. Hearing before the Subcommittee on Commercial and Administrative Law of the Com-
mittee on the Judiciary, Deferred Prosecution: Should Corporate Settlement Agreements
Be without Guidelines, March 11, 2008, 290, http://judiciary.house.gov/hearings/print
ers/110th/41190.PDF.
66. Ibid., 294; see also Testimony of the Honorable John Ashcroft, Former United States At-
torney General, Chairman, The Ashcroft Group, LLC and Monitor for Zimmer, Inc.,
http://judiciary.house.gov/hearings/pdf/Ashcroft080311.pdf.
67. March 11, 2008, Hearing, 294.
68. Ibid.
69. Ibid.; Philip Shenon, New Guidelines ahead of Ashcroft Testimony, New York Times,
March 11, 2008.
70. June 25, 2009, Hearing, 5.
72. Ibid., 4.
73. Government Accountability Office, Preliminary Observations on the DOJs Use and
Oversight of Deferred Prosecution and Non-Prosecution Agreements, June 25, 2009, 41
(noting that in only two of twenty-six agreements reviewed was the monitor required pro-
vided a work plan in advance).
75. Ibid., 57, 8.
76. Examples include the Aksat Denizcilik Ve Ticaret A.S., B. Navi Ship Management Services,
Hiong Guan Navegacion Japan Co. Ltd., and Fleet Management Ltd. plea agreements.
77. For example, the Capital Data Management agreement notes, Defendant will employ an
independent corporate monitor, acceptable to the USAO and the Probation Office, to en-
sure compliance pursuant to the compliance program, and the corporate monitor shall sub-
mit quarterly reports to the United States Probation Office.
78. Chalos & Co., P.C., Kassian Navigations Probation Terminated Early for Extraordinary
Environmental Compliance Measures, www.chaloslaw.com/kassian-navigation.html.
79. Sue Reisinger, U.S. Attorney Accuses Wright Medical Group of Breaching Deferred
Prosecution Agreement, Corporate Counsel, September 15, 2011; David Voreacos, Wright
Medical Stays under U.S. Oversight in Kickback Case, Bloomberg, September 15, 2011.
80. Siemens, Problem-Specific MethodsIntegrity Pacts, www.siemens.com/sustainability
/en/core-topics/collective-action/our-approach.htm.
81. Siemens, Sustaining Business Integrity.

82. Speech by Peter Lscher.
8. The Constitutional Rights of Corporations

1. Petitioners Appendix 3a 4a, Southern Union Co. v. United States, No. 1194 (D.Ct. Oct.
19, 2011); Southern Union Co. v. United States, Court of Appeals Appendix 445 450, 569,
574575 (2d Cir. 2012).
2. Southern Union Co. v. United States, No. 1194, 132 S.Ct. 2344 (Oct. 19, 2011), Brief for
the United States in Opposition, 4.
3. Petioners Appendix, 42a.
4. Joint Appendix, 152.
5. 42 U.S.C. 6928(d).
6. 132 S.Ct. 2344 (2012).
7. 530 U.S. 466 (2000).
8. Ibid., n. 2.
9. FBI, Taiwan-Based AU Optronics Corporation Sentenced to Pay $500 Million Criminal
Fine for Role in LCD Price Fixing Conspiracy, press release, September 20, 2012.
10. Department of Justice, Taiwan-Based AU Optronics Corporation, Its Houston-Based
Subsidiary and Former Top Executives Convicted for Role in LCD Price-Fixing Conspir-
acy, press release, March 13, 2012; Department of Justice, Taiwan-Based AU Optronics
Corporation Sentenced to Pay $500 Million Criminal Fine for Role in LCD Price-Fixing
Conspiracy, press release, September 20, 2012.
11. David Debold and Matthew Benjamin, The Best to Be Done in a Bad Situation: Southern
Union on Remand, Criminal Law Reporter 91 (November 13, 2013): 91.
12. Jonathan A. Marcantel, The Corporation as a Real Constitutional Person, U.C. Davis
Business Law Journal, 2011.
13. Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61 (1809).
14. Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010), Transcript of Oral
Argument, 7.
15. Trustees of Dartmouth College v. Woodard, 17 U.S. (1 Wheat.) 518 (1819).
16. Santa Clara County v. S. Pac. R.R., 118 U.S. 394, 396 (1886) (assuming in a preliminary
note that corporations have Fourteenth Amendment equal protection clause rights).
17. Hale v. Henkel, 201 U.S. 43, 7475 (1906).
18. Northwestern National Life Insurance Co. v. Riggs, 203 U.S. 243, 255 (1906).
19. Citizens United v. FEC, 130 S. Ct. 876, 948 (2010) (Stevens, J., dissenting).
20. Paul v. Virginia, 75 U.S. (8 Wall.) 168, 177 (1869) (The term citizens . . . [as used in the
Fourteenth Amendment] applies only to natural persons . . . not to artificial persons cre-
ated by the legislature).
21. See, e.g., Jess M. Krannich, The Corporate Person: A New Analytical Approach to a
Flawed Method of Constitutional Interpretation, Loyola University Chicago Law Journal
37 (2005): 62; Carl J. Mayer, Personalizing the Impersonal: Corporations and the Bill of
Rights, Hastings Law Journal 41 (1990): 650.
22. First National Bank v. Bellotti, 435 U.S. 765, 765 n. 14 (1978).
23. NAACP v. Alabama, 357 U.S. 449 (1958); Hunt v. Washington State Apple Advertising
Commission, 432 U.S. 333, 343344 (1977); UAW v. Brock, 477 U.S. 274, 288290 (1986).
24. Northwestern National Life Insurance Co. v. Riggs, 203 U.S. 243, 255 (1906).
25. Smyth v. Ames, 169 U.S. 466, 522 (1898).
26. United States v. ABB Inc., No. 10-CR- 664 (S.D. Tex.), United States v. ABB Ltd.-Jordan,
No. 10-CR-665 (S.D. Tex.), and United States v. OShea, No. 09 CR-629 (S.D. Tex.).
27. Defendants Motion to Dismiss the Indictment with Prejudice Due to Repeated and In-
tentional Government Misconduct, United States v. Aguilar, 831 F.Supp. 2d 1180 (C.D.
Cal. 2011) (No. 101031).
28. Ibid., 13.
29. U.S. Department of Justice, California Company and Two Executives Indicted for Their
Alleged Participation in Scheme to Bribe Officials at State-owned Electrical Utility in
Mexico, press release, October 21, 2010.
30. Alison Frankel, What FCPA defendants Can Learn from Blockbuster Lindsey Win,
Thompson Reuters, December 2, 2011.
31. U.S. Department of Justice, Southern California Company, Two Executives and Interme-
diary Convicted in Scheme to Bribe Officials at State-Owned Electrical Utility in Mexico,
press release, May 10, 2011.
32. U.S. v. Aguilar, 831 F.Supp.2d 1180, 1189 (C.D.Cal. 2011); Order Granting Motion to
Dismiss, 12; Supplemental Brief in Support of Motion to Dismiss the Indictment with
Prejudice Due to Repeated and Intentional Government Misconduct, 10, United States v.
Aguilar, No. 101031 (C.D. Cal. September 8, 2011).
33. Defendants Motion to Dismiss the Indictment with Prejudice Due to Repeated and In-
tentional Government Misconduct, 910; Aguilar, 831 F.Supp.2d at 11901193.
34. Defendants Motion, 13.
35. Ibid., 21.
36. Aguilar, 831 F.Supp.2d at 1185.
37. Ibid., 1182.
38. Fiery Jury Instructions, Inside Counsel, July 1, 2009.
39. Steven Andersen, Asbestos Acquittal: W.R. Grace Unexpectedly Wins Environmental
Crimes Trial, Inside Counsel, July 1, 2009.
40. Brad Heath and Kevin McCoy, Federal prosecutors Likely to Keep Jobs after Cases Col-
lapse, USA Today, December 10, 2010; Spencer S. Hsu, Jennifer Jenkins, and Ted Mell-
nik, DOJ Review of Flawed FBI Forensics Processes Lacked Transparency, Washington
Post, April 17, 2012; Spencer S. Hsu, Justice Dept., FBI to Review Use of Forensic Evi-
dence in Thousands of Cases, Washington Post, July 10, 2012.
41. E.g., U.S.A.M. 95.001(E).
42. William J. Stuntz, Commentary, O.J. Simpson, Bill Clinton, and the Transsubstantive
Fourth Amendment, Harvard Law Review 114 (2001): 858861.
43. Bernard Schwartz, Administrative Law, 3rd ed. (Boston: Little, Brown, 1991), 3.1.
44. Order, U.S. v. Arthur Andersen, No. H-02-0121 (S.D.T.X. April 9, 2002).
45. Boyd v. U.S., 116 U.S. 616 (1886).
46. 201 U.S. 43, 70 (1906).
47. United States v. Morton Salt, 338 U.S. 632, 652 (1950).
48. Ibid.
49. Administrative Procedure Act, 5 U.S.C. 555(d) (2006).
50. 15 U.S.C. 78u(a)(1).
51. Michele Galen, When the Subpoena Has Your Name on It, Business Week, October 7,
1991.
52. See v. City of Seattle, 387 U.S. 541 (1967); Camara v. Municipal Court, 387 U.S. 523 (1967).
53. Donovan v. Dewey, 452 U.S. 594 (1981).
54. Marshall v. Barlow, 436 U.S. 307 (1978), Colonnade Catering Corp. v. U.S., 397 U.S. 72
(1970), U.S. v. Biswell, 406 U.S. 311 (1972).
55. Dow Chemical Co. v. United States, 476 U.S. 227 (1986).
56. Dow Chemical Co. v. United States, 749 F.2d 307, 314 (6th Cir. 1984).
57. United States v. Agriprocessors, Inc., 2009 WL 2255729 *2 (N.D.Iowa 2009).
58. Wilson v. United States, 221 U.S. 361, 383384 (1911); Hale v. Henkel, 201 U.S. 43, 7475
(1906); United States v. White, 322 U.S. 694 (1944).
59. Shapiro v. United States, 335 U.S. 1 (1948).
60. Braswell v. United States, 487 U.S. 99 (1988).
61. Ibid.; Bellis v. United States, 417 U.S. 85, 9293 (1974).
62. FCC v. AT&T Inc., 131 S.Ct. 1177 (2011).
63. Ibid., 1182, 1184.
64. United States v. Hartsell, 127 F.3d 343, 350 (4th Cir.1997) (agreeing with the Ninth Circuit
that neither the Sixth Amendment to the United States Constitution nor the Criminal
Justice Act [18 U.S.C. 3006A] provides that counsel must be appointed, at public ex-
pense, to represent a corporation in criminal proceedings.)
65. United States v. Hagerman, 545 F.3d 579, 581582 (7th Cir.2008).
66. E.g., RZS Holdings AVV v. PDVSA Petroleo S.A., 506 F.3d 350, 354 n. 4 (4th Cir.2007);
U.S. v. Unimex, 991F.3d 546, 549 (11th Cir. 1993); Lowery v. Hoffman, 188 F.R.D. 651,
653 654 (M.D.Ala.1999); Eagle Associates v. Bank of Montreal, 926 F.2d 1305, 13091310
(2d Cir.1991); First Amendment Foundation v. Village of Brookfield, 575 F.Supp. 1207
(N.D.Ill.1983); but see United States v. Reeves, 431 F.2d 1187 (9th Cir.1970).
67. United States v. Unimex, Inc., 991 F.2d 546, 550 (9th Cir.1993).
68. United States v. Rocky Mountain Corp., 746 F.Supp.2d 790, 801 (W.D.Va 2010).
69. Ibid., 802.
70. United States v. Follin, 979 F.2d 369, 374 (5th Cir. 1992); United States v. King, 134 F.3d
1173 (2d Cir. 1998).
71. U.S. Constitution, Eighth Amendment.
72. Rhodes v. Chapman, 452 U.S. 337, 345346 (1981).
73. United States v. Bajakajian, 524 U.S. 321, 322 (1998) (fines must be grossly disproportion-
ate to the offense).
74. United States v. Martin Linen Supply Corp., 430 U.S. 564 (1977); Fong Foo v. U.S., 369 U.S.
142 (1962); see also Peter J. Henning, The Conundrum of Corporate Criminal Liability:
Seeking a Consistent Approach to the Constitutional Rights of Corporations in Criminal
Prosecutions, Tennessee Law Review 63 (1996): 845849.
75. For a time, corporations could pursue the theory that a prior civil proceedings was sufficiently
punitive that double jeopardy attached, following United States v. Halper, 490 U.S. 435 (1989).
The Supreme Court then rejected that rule. Hudson v. United States, 522 U.S. 93, 99 (1997).
76. See, e.g., United States v. Cotton Baking Co., Inc., 513 F.Supp.223, 224 (M.D. La. 1981);
United States v. Ashland Oil, Inc., 537 F.Supp.427, 429 (M.D. Tenn. 1982).
77. Trial Transcript, S.A. v. Stora Enso North America, 3:06-cr-00323-CFD (D.Ct. July 18,
2007), 29, 621.
78. Motion for Judgment of Acquittal Pursuant to Federal Rule of Criminal Procedure 29,
U.S.A. v. Stora Enso North America, 3:06-cr-00323-CFD (D.Ct. July 18, 2007), 5.
79. Jeff rey May, Paper Makers Subsidiary Acquitted of Price Fixing, Despite Evidence
from Corporate Leniency Applicant, Trade Regulation Talk (blog), July 23, 2007, at
http://traderegulation .blogspot .com /2007/07/paper-makers -north-american-subsid
iary.html.
80. Stora Enso Trial Transcript, 13, 34.
81. Ibid., 37.
82. Ibid., 605.
83. Ibid., 68, 8990.
84. Ibid., 66 69.
85. Ibid., 87.
86. Ibid., 117, 119.
87. Ibid., 277, 286, 299302.
88. Ibid., 604.
89. Ibid., 576, 578, 580.
90. Ibid., 616 617, 629.
91. Ibid., 380383.
92. Ibid., 644.
9. Foreign Corporate Criminals

1. Transcript: Black Money, Frontline, PBS, 2009, www.pbs .org /wgbh/pages/frontline
/blackmoney/etc/script.html.
2. David Pallister, The Arms Deal They Called the Dove: How Britain Grasped the Biggest
Prize, Guardian, December 14, 2006.
3. Neil Roland, Japan and Canada Failing to Crack Down on Bribes Says Watchdog Group,
Financial Week, June 25, 2008.
4. Alice Fisher, Assistant Attorney General, U.S. Department of Justice, Address at
the American Bar Review National Institute on the Foreign Corrupt Practices Act,
October 16, 2006.
5. See Benjamin Weiser, For Prosecutor in New York, A Global Beat, New York Times,
March 28, 2011.
6. H.R. 5175, S. 3295 (111th Cong. Sess. 2), 102.
7. Michael Robinson, BBC Lifts the Lid on Secret BAE Slush Fund, BBC News, October 5,
2004.
8. David Leigh and Rob Evans, BAEs Secret Money Machine, Guardian, www.guardian.co
.uk/baefiles/page/0,,2095840,00.html.
9. Christopher Drew and Nicola Clark, BAE Settles Corruption Charges, New York Times,
February 5, 2010.
10. Robinson, BBC Lifts the Lid.
11. Josh Meyer, U.S. Probing BAE Payoff Allegations, Los Angeles Times, June 15, 2007;
Kevin Sullivan, Saudi Reportedly Got $2 Billion for British Arms Deal, Washington Post,
June 8, 2007, A15.
12. On the Application of Corner House Research and Others v. Director of the Serious Fraud
Office, 2008 UKHL 60, www.publications.parliament.uk/pa/ld200708/ldjudgmt/jd080730
/corner-1.htm.
13. United States v. Verdugo-Urquidez, 494 U.S. 259, 281282 (1990) (Brennan, J., dissenting)
(internal quotation and citation omitted).
14. Mark Pieth and Radha Ivory, eds., Corporate Criminal Liability: Emergency, Convergence,
and Risk (Heidelberg: Springer Dordrecht, 2011).
15. Ibid., 913; Allens Arthur Robinson, Corporate Culture as a Basis for the Criminal Li-
ability of Corporations, for the United Nations Special Representative of the Secretary-
General on Human Rights and Business (February 2008); Sara Sun Beale and Adam
G. Safwat, What Developments in Western Europe Tell Us about American Critiques of
Corporate Criminal Liability, Buffalo Criminal Law Review 8 (2004): 110, 160.
16. Nelson D. Schwartz and Lowell Bergman, Payload: Taking Aim at Corporate Bribery,
New York Times, November 25, 2007; David Howarth, Mystery of the Saudi Threat,
Guardian, August 1, 2008.
17. Christopher Hope and James Kirkup, BAE Bribery Case Could Be Reopened, Telegraph,
April 11, 2008; Christoper Hope, SFO Was Right to Call Off Saudi Corruption Inquiry,
Say Law Lords, Telegraph, July 30, 2008.
18. David Leigh and Rob Evans, U.S. Obtains Swiss Records and Flies in British Witness in
BAE Investigation, Guardian, November 26, 2007.
19. Helen Power, Fraud Office to Re-interview BAE Chiefs as Legal Adviser Says It Has a
Strong Case, Times, December 18, 2009; Alex Spence, Judges Comments Throw into
Doubt BAEs 30m Pact over Fraud Inquiry, Times, March 27, 2010.
20. U.S. Sentencing Memorandum, United States v. BAE Systems PLC, No. 1:10-cr-035, 15
(D.D.C. Feb. 22, 2010).
21. Tom Schoenberg and David Voreacos, UBS Whistle-Blower Secures $104 Million Award
from IRS, Bloomberg, September 12, 2012.
22. Alan Fram, IRS Pays Whistleblower $104 Million, Associated Press, September 11, 2012.
23. A. Westin et al., Whistleblowing! Loyalty and Dissent in the Corporation (New York:
McGraw-Hill, 1981).
24. 31 U.S.C. 37293733.
25. SEC Office of the Whistleblower, Claim a Reward, www.sec.gov/about/offices/owb/owb
-awards.shtml; 15 U.S.C. 78u-6, 6(h)(1)(B).
26. Tax Relief and Health Care Act of 2006, Pub. L. No. 109 432, 406, 120 Stat. 2958
(2006) (amending I.R.C. 7623); IRS, 2008 Report to Congress on the Whistleblower Pro-
gram (June 24, 2008).
27. Statement of Facts p. *13, U.S. v. Bradley Birkenfeld, No. 08-cr- 60099-ZLOCH (S.D.Fla
fi led June 18, 2008).
28. Ibid., 23.
29. Ibid., 4.
30. Transcript of Sentencing, *30, U.S. v. Birkenfeld, No. 0860099-cr-ZLOCH (S.D.Fla.
fi led Aug. 26, 2009).
31. Ibid., 31.

32. I.R.C. 7623(b)(1).
33. Sentencing Memo, 7 (Aug. 18, 2009).
34. Ibid., 47.
35. Plea Colloquy, 1213.
36. Trial Transcript, 123, U.S. v. Ionia Management, S.A, No. 07CR134 (JBA) (D.Ct. August
22, 2007).
37. Ibid., 28.
38. The Act to Prevent Pollution from Ships, 33 U.S.C. 190115 (2006); International
Convention for the Prevention of Pollution from Ships, Nov. 2, 1973, 12 I.L.M. 1319,
amended by Protocol, Feb. 17, 1978, 17 I.L.M. 546 (also known as MARPOL); see also
H.R. Rep. No. 961224, at 12 (1980).
39. Oil Record Book, 33 C.F.R. 151.25(a) (2009); id. 151.23(a).
40. United States v. Jho, 534 F.3d 398, 401 (5th Cir. 2008); United States v. Ionia Mgmt. S.A.,
555 F.3d 303, 309 (2d Cir. 2009). Many such cases also involve charges of false statements.
U.S. authorities may refer a matter to the home country if it is a treaty signatory. 33 U.S.C.
1908(f) (2006).
41. Ionia Trial Transcript, 29.
42. 33 U.S.C. 51908(b) (2006) (An amount equal to not more than 1/2 of such penalties
may be paid by the Secretary, or the Administrator as provided for in this chapter, to the
person giving information leading to the assessment of such penalties.).
43. John Christoffersen, Workers Rewarded for Cooperation in Oil Dump Case, Huffington
Post, May 11, 2011.
44. Ionia Trial Transcript, 145.
45. Ibid., 36.
46. Ibid., 41.
47. Ibid., 18381839 (September 5, 1733).
48. Ibid., 1836.
49. Ibid., 1850.
50. Ibid., 1868.
51. Ibid., 1875.
52. U.S. v. Ionia Management S.A., 555 F.3d 303, 305 (2d Cir. 2009).
53. U.S. Envtl. Prot. Agency, Cruise Ship Discharge Assessment Report, E.P.A. Doc. No.
842-R-07-005, 1.4 (2008).
54. Jeanne M. Grasso and Allison L. Barlotta, Presentation at the 2005 International Oil
Spill Conference: Criminal Prosecutions and the Maritime Industry: A Worldwide Trend
(May 15, 2005).
55. Nicholas H. Berg, Bringing It All Back Home: The Fifth and Second Circuits Allow Do-
mestic Prosecutions for Oil Record Book Violations on Foreign-Flagged Vessels, Tulane
Maritime Law Journal 34 (2009): 277.
56. Richard A. Udell, Senior Trial Attorney, Environmental Crimes Section, U.S. Depart-
ment of Justice, Presentation before INTERTANKO: Criminal Vessel Enforcement,
March 21, 2005.
57. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408
(2004).
58. Kurt Eichenwald, The Informant: A True Story (New York: Broadway Books, 2000).
59. U.S. Department of Justice, Division Update Spring 2012: Criminal Program, www.jus
tice.gov/atr/public/division-update/2012/criminal-program.html.
60. FBI, LCD Price Fixing Conspiracy: Taiwanese Company, Execs Sentenced, press release,
November 16, 2012.
61. Transcript of Proceedings, *15, U.S. v. Lin et al., No. 3:09-cr-00110-SI (N.D.C.A., fi led
September 20, 2012).
62. Ibid., 1416.
63. Ibid., 21.
64. Ibid., 23.
65. Ibid., 27.
66. Karen Freifeld, LCD Makers Settle Price-Fixing Case for $553 Million, Reuters,
December 7, 2011.
67. Transcript of Proceedings, 18.
68. Ibid., 3738.
69. U.S. Department of Justice, Antitrust Division Corporate Leniency Policy, August 10,
1993, www.justice.gov/atr/public/guidelines/0091.pdf.
70. Ibid.; D. Daniel Sokol, Cartels, Corporate Compliance and What Practitioners Really
Think about Enforcement, Antitrust Law Journal 77 (2011): 201.
71. Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement, An-
titrust Division, U.S. Department of Justice, Address at the 54th Annual American Bar
Association Section of Antitrust Law Spring Meeting: Measuring the Value of Second In
Cooperation in Corporate Plea Negotiations, March 29, 2006, 5.
72. Thomas O. Barnett, Assistant Attorney General, Antitrust Division, U.S. Department of
Justice, Presentation at the Georgetown Law Global Antitrust Enforcement Symposium:
Global Antitrust Enforcement, September 26, 2007, 2.
73. Antitrust Division, U.S. Department of Justice, Sherman Act Violations Yielding a Cor-
porate Fine of $10 Million or More, December 5, 2013.
74. Barnett, Presentation, 2; Gary R. Spratling and D. Jarrett Arp, American Bar Associa-
tion Section of Antitrust Law 2003 Annual Meeting, The International Leniency Revolution
(2003), 89. On endemic delays in European Union antitrust investigations and prosecu-
tions, see James Kanter, An Old Chip Cartel Case Is Brought to a Swift End, New York
Times, May 20, 2010.
75. Antitrust Division, U.S. Department of Justice, Individual Leniency Policy, August 10,
1994.
76. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95213, 91 Stat. 1494 (1977) (codified
as amended at 15 U.S.C. 78m, et. Seq. (2006)).
77. Dow Jones State of Anti-Corruption Survey (2011).
78. Yan Leung Cheung, P. Raghavendra Rau, and Aris Stouraitis, How Much Do Firms Pay
as Bribes and What Benefits Do They Get? Evidence from Corruption Cases Worldwide,
National Bureau of Economic Research working paper, 2012.
79. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95213, 91 Stat. 1494 (1977) (codified
as amended at 15 U.S.C. 78a, 78m, 78dd-1 to dd-3, 78ff (2006)).
80. OECD Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions: Ratification Status as of March 2009 (2009).
81. Convention on Combating Bribery of Foreign Public Officials in International Business

Transactions, December 17, 1997, S. Treaty Doc. No. 105143 (1998), 37 I.L.M. 1.
82. International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105366, 112
Stat. 3302 (1998) (codified at 15 U.S.C. 78dd-1 to 78dd-3, 78ff (2006)). Earlier 1988
amendments added an affirmative defense permitting a showing that the payment was
lawful under the written laws and regulations of the foreign county or a reasonable and
bona fide expenditure incurred by the foreign official. 15 U.S.C. 78dd-1(c) (2006).
83. 15 U.S.C. 78dd-1(a), dd-2(i), dd-3(a) (2006) (alternative jurisdiction over domestic
person[s] irrespective of whether such United States person makes use of the mails or
any means or instrumentality of interstate commerce).
84. Robert Khuzami, Director, Division of Enforcement, U.S. Securities and Exchange
Commission, Remarks before the New York City Bar: My First 100 Days as Director of
Enforcement, August 5, 2009.
85. Mike Koehler, An Examination of Foreign Corrupt Practices Act Issues, Richmond Jour-
nal of Global Law and Business 12 (2013): 317 (noting majority of 2012 FCPA prosecution
agreements cited voluntary disclosure).
86. Dionne Searcey, U.S. Cracks Down on Corporate Bribes, Wall Street Journal, May 26,
2009.
87. See 28 C.F.R. 80.180.2 (1994); 15 U.S.C. 78dd-1(e), 78dd-2(f) (2006).
88. Department of Justice and the Securities Exchange Commission, A Resource Guide to the
U.S. Foreign Corrupt Practices Act, November 14, 2012, 11.
89. 15 U.S.C. 78u-2.
90. 8 U.S.C. 1189(c), 1189(a)(2)(A)(i) (2006); National Council of Resistance v. Department of
State, 251 F.3d 192, 208 (D.C. Cir. 2001).
91. Kiobel v. Royal Dutch Petroleum, 133 S.Ct. 1659 (2013).
92. Morrison v. National Australia Bank, 130 S. Ct. 2869, 288485 (2010).
93. Barry E. Carter et al., International Law 649 654 (4th ed. 2003).
94. Chicago & S. Air Lines, Inc. v. Waterman Steamship Corp., 333 U.S. 103, 111 (1948).
95. 509 U.S. 764, 798799 (1993); Restatement (Third) of the Foreign Relations Law of the
United States 403 (1987).
96. Press Release, Department of Justice, Akzo Nobel Acknowledges Payments Made by Its
Subsidiaries to Iraqi Government under the U.N. Oil for Food Program, Enters Agree-
ment with the Department of Justice, December, 20, 2007.
97. Prepared Remarks of U.S. Asst. Attorney General Alice S. Fisher, ABA Institute on the
FCPA, October 16, 2006, 4.
98. Jens Dammann and Henry Hansmann, Globalizing Commercial Litigation, Cornell Law
Review 94 (2008): 3.
99. Independent Inquiry Committee, Report on the Manipulation of the Oil-for-Food Pro-
gramme by the Iraqi Regime, October 27, 2005.
100. Lynnley Browning, Swiss Approve Deal for UBS to Reveal U.S. Clients Suspected of Tax
Evasion, New York Times, June 17, 2010.
101. Ibid.
102. Memorandum from Preet Bharara, U.S. Attorney, S.D.N.Y., U.S. Department of Justice,
to Mark F. Pomerantz, Paul, Weiss, Rifkind, Wharton & Garrison LLP, December 21,
2010, 3.
103. Editor, Liechtenstein Bank Gets Non Prosecution Agreement, to Pay $23.8 Million,
Corporate Crime Reporter, July 30, 2013.
104. Joint Statement between the U.S. Department of Justice and the Swiss Federal Depart-
ment of Finance, August 29, 2013.
105. Lynnley Browning and Julia Wedigier, Switzerland to Allow Its Banks to Disclose Hid-
den Client Accounts, New York Times, May 29, 2013.
106. Reuters, Greece Says to Settle Siemens Bribery Row, March 9, 2012.
107. Stan Abrams, What the Siemens Bribery Case Says about the Future of Corruption in
China, Business Insider, June 30, 2011.
108. Bryan Gibel and Matheus Leitao, Whistleblower, Politicians Drive Siemens Corruption
Probes in Brazil, Main Justice, January 9, 2012.
109. Daniel Schfer, Siemens Uncovers Bribery Case at Kuwait unit, FT.com, June 10,
2011.
110. Letter from Paul E. Pelletier, Acting Chief, and Mark F. Mendelsohn, Deputy Chief,
Criminal Division, Fraud Section, U.S. Department of Justice, to Lawrence Byrne, Lin-
klaters LLP, February 4, 2010, 2, 9.
111. John Collins Rudolf, Nigeria Drops Bribery Charges against Cheney, New York Times
Green Blog, December 4, 2010.
112. US v. Alcatel-Lucent, Case No. 1:10-cr-20907-MGC (S.D.Fla. fi led June 10, 2011), Tran-
script of Change of Plea and Sentencing Hearing, *43 44.
113. Margaret Ryznar and Samer Korkor, Anti-Bribery Legislation in the United States and
United Kingdom: A Comparative Analysis of Scope and Sentencing, Missouri Law Re-
view 76 (2010): 415.
114. Bribery Act, 2010, c. 23, 6 (Eng.); Bribery: Draft Legislation, U.K. Ministry of Justice 4
(March 25, 2009).
10. The Future of Corporate Prosecutions

1. Barclays Prosecution Agreement, Statement of Facts, 13.
2. Barclays CFTC Agreement, 5, www.cftc.gov/ucm/groups/public/@lrenforcementactions
/documents/legalpleading/enfbarclaysorder062712 .pdf.
3. LIBOR: The Worlds Most Important Number, Moneyweek, October 10, 2008.
4. Barclays Prosecution Agreement, Statement of Facts, 3 4.
5. Ibid., 26; CFTC Agreement, 10.
6. Barclays Prosecution Agreement, 40, 46.
7. CFTC Agreement, 2223.
8. Andrew Ross Sorkin, Realities Behind Prosecuting Big Banks, New York Times, March
11, 2013.
9. See, e.g., Matt Taibbi, Gangster Bankers: Too Big to Jail, Rolling Stone, February 14, 2013;
Victoria Finkle, Are Some Banks Too Big to Jail, American Banker, January 22, 2013;
Jason S. Breslow, Senators Bash DOJ for Evasive Response on Too Big to Jail, PBS.com,
March 5, 2013; Frontline, The Untouchables, PBS, January 22, 2013; Susan Will, Stephen
Handelman, and David C. Brotherton, eds., How They Got Away with It: White Collar Crim-
inals and the Financial Meltdown (New York: Columbia University Press, 2013).
10. Government Accountability Institute, Justice Inaction: The Department of Justices

Unprecedented Failure to Prosecute Big Finance, 2012, 16.
11. The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States, 2011, 160. A dissenting statement asked
whether fraud was quantitatively significant enough to be an essential cause of the crisis.
Ibid., 425.
12. Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prose-
cuted? New York Review of Books, January 9, 2014.
13. Ibid., 1213.
14. Henry N. Pontell, William K. Black, and Gilbert Geis, Too Big to Fail, Too Powerful to
Jail? On the Absence of Criminal Prosecutions after the 2008 Financial Meltdown, Crime
Law Social Change, 2013.
15. Jonathan Weil, There is Still Such a Thing as Too Big to Jail, BloombergView, May 6,
2014.
16. Credit Lyonnais, Delta National Bank & Trust Co., Pamrapo Savings Bank, and Riggs
Bank were the bank convictions located from 20012012. Among the over 2,000 organiza-
tional convictions in the dataset, only a dozen additional small financial ser vices or other
financial firms were convicted. In January 2014, JPMorgan entered a deferred prosecution
agreement for Bank Secrecy Act violations.
17. CFTC Agreement, 34.
18. Nate Raymond, U.S. Judge Asks if Barclays Libor Deal Affects 2010 Settlement,
Thompson Reuters, June 29, 2012; Aruna Viswanatha, Judge Dismisses Sanctions Case
against Barclays, Thompson Reuters, December 4, 2012.
19. House of Commons Oral Evidence Taken before the Treasury Committee Evidence from
Bob Diamond, HC 481-I, 20, 23 (July 4, 2012).
20. Ibid., 35.
21. Ibid., 42.
22. Ben Protess and Mark Scott, Barclays C.E.O. Resigns as Bank Frames a Defense, New
York Times, July 3, 2012.
23. Ben Protess and Mark Scott, Guilty Plea and Big Fine for Bank in Rate Case, New York
Times, February 6, 2013.
24. Ben Protess, Leniency Denied, UBS Unit Admits Guilt in Rate Case, New York Times,
December 19, 2012.
25. Jim Puzzanghera, U.S. Says UBS Was Motivated by Sheer Greed in LIBOR Rigging,
Los Angeles Times, December 19, 2012.
26. Ben Protess and Jessica Silver-Greenberg, Giant Banks, Seen as Immune, Become Tar-
gets, New York Times, April 29, 2014.
27. Gabriel Rauterberg and Andrew Verstein, Index Theory: The Law, Promise and Failure of
Financial Indices, Yale Journal on Regulation 30 (2013): 1; Nathaniel Popper, NYSE Eu-
ronext to Take over LIBOR, New York Times, July 9, 2013.
28. Matt Taibbi, Everything Is Rigged: The Biggest Price-Fixing Scandal Ever, Rolling Stone,
April 25, 2013.
29. Ben Protess and Mark Scott, Barclays Settles Regulators Claims over Manipulation of
Key Rates, New York Times, June 27, 2012.
30. SEC Plaintiff v. Goldman Sachs and Co. and Fabrice Tourre, Defendants, 2010 WL 1508202
(S.D.N.Y. 2010).
31. US Senate Permanent Subcommittee on Investigations, Wall Street and the Financial
Crisis, April 13, 2011; Pete Yost, Government Wont Prosecute Goldman Sachs in
Probe, AP Financial Wire, August 10, 2012.
32. SEC, Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Sub-
prime Mortgage CDO, July 15, 2010; Consent of Defendant Goldman, Sachs & Co., SEC
v. Goldman, Sachs, & Co., No. 10-CV-3229, 2010 WL 2779309 3 (S.D.N.Y. 2010).
33. Peter Lattman, U.S. Goldman Disclosure a Rare Break in Secrecy, New York Times,
August 11, 2012.
34. James B. Stewart, Few Avenues for Justice in the Case against Citi, New York Times,
December 3, 2011.
35. U.S. v. McGraw-Hill Companies Inc., and Standard & Poors Financial Services LLC,
CV13 00779 (C.D.C.A. 2013), Complaint, 7275.
36. 12 U.S.C. 1833a.
37. Landon Thomas Jr., Jury Finds Bank of America Liable in Mortgage Fraud Case, New
York Times, October 23, 2013.
38. U.S. Department of Justice, Federal and State Partners Secure Record $13 Billion Global
Settlement with JPMorgan for Misleading Investors about Securities Containing Toxic
Mortgages, press release, November 17, 2013.
39. Report to the Permanent Subcommittee on Investigations, Committee on Homeland Se-
curity and Government Affairs, U.S. Senate, Yvonne Jones, Director, Financial Markets
and Community Investment, U.S. Government Accountability Office, Company Forma-
tions: Minimal Information Is Collected and Available, November 14, 2006, 10.
40. Jeff rey W. Bullock, Delaware Secretary of State, 2011 Annual Report, Delaware Division
of Corporations (2011); Mark Roe, Delawares Shrinking Half-Life, Stanford Law Re-
view 62 (2009): 137.
41. Internal Revenue Ser vice, Data Book, Table 2 (2011) (reporting 2,313,000 corporations,
4,545,000 S corporations, 3,574,000 partnerships, and 1,385 tax-exempt organizations);
see also Annual Jurisdictional Reports, International Association of Commerical Admin-
istrators, www.iaca.org/node/80; Daniel M. Husermann, For a Few Dollars Less: Ex-
plaining State to State Variation in Limited Liability Company Popularity, University of
Miami Business Law Review 20 (2011): 1. The Census Bureau reports over 27 million busi-
nesses, but only about 6 million have employees. U.S. Census Bureau, Statistics about
Business Size (Including Small Businesses), 2007.
42. Jones, Company Formations, 3 (concluding that in 2004, 869,693 corporations were created
and 1,068,989 LLCs were formed).
43. Centers for Disease Control and Prevention, FastStats: Births and Natality, www.cdc
.gov/nchs/fastats/births.htm.
44. These include firms that trade American Depository Receipts (ADRs) and subsidiaries of
public companies.
45. The total payments made averaged just 0.09 percent of the market capitalization of these
public companies.
46. Alexander Dyck, Adair Morse, and Luigi Zingales, How Pervasive Is Corporate Fraud?
February 2013.
47. Adam Liptak, U.S. Prison Population Dwarfs That of Other Nations, New York Times,
April 23, 2008.
48. 18 U.S.C. 3553(a).
49. Gall v. United States, 552 U.S. 38 (2007).
50. U.S. Department of Justice, Deputy Attorney General James M. Cole Speaks on Alterna-
tives to Incarceration Program: the Use of Drug Courts in the Federal and State Systems,
May 21, 2012 (Any given federal drug court graduation may involve only 1015 offenders
annuallywhich is clearly small-scale when considering our current prosecution and im-
prisonment statistics.).
51. See Statistics Div., Admin. Office of the U.S. Courts, Federal Judicial Caseload Statistics
(2011) (Table D-2, Cases Commenced in Federal Court in a 12-Month Period); 8 U.S.C.
13251326 (illegal entry and reentry); see generally Ingrid V. Eagly, Prosecuting Immigra-
tion, Northwestern University Law Review 104 (2010): 1281; Jennifer M. Chacn, Managing
Migration through Crime, Columbia Law Review Sidebar 109 (2009): 135; Juliet Stumpf,
The Crimmigration Crisis: Immigrants, Crime, and Sovereign Power, American University
Law Review 56 (2006): 367.
52. 8 U.S.C. 1324(a)(1)(A)(iii); United States v. De Jesus-Batres, 410 F.3d 154, 160 (5th
Cir.2005). It may be hard to show the employer was concealing the illegal status of employ-
ees from the government and acting to facilitate the person remaining in the United
States illegally; there are lesser penalties for failing to verify employee identification docu-
ments. 8 U.S.C. 1324a.
53. Conspiracy Charges against IFCO Systems, www.visalaw.com/print/13may106.html
(last visited April 9, 2013).
54. IFCO Systems Deferred Prosecution Agreement at 23 (N.D.N.Y. 2008).
55. The Sentencing Commission reports seventy firms convicted of immigration violations
from fiscal 2001 through 2012. U.S. Sentencing Commission, 20012012 Sourcebooks of
Federal Sentencing Statistics, Table 52.
56. TRAC Immigration, Syracuse University, Illegal Reentry Becomes Top Criminal Charge,
June 10, 2011; Memorandum from Marcy M. Forman, Director, Office of Investigations,
U.S. Department of Homeland Security, to Assistant Director, Deputy Assistant Directors,
and Special Agents in Charge, U.S. Immigration Customs and Enforcement, April 30, 2009.
57. Federal Bureau of Prisons, Quick Facts About the Bureau of Prisons, 2013, www.bop.gov
/news/quick.jsp (50 percent of federal prisoners were convicted of drug offenses); Source-
book of Criminal Justice Statistics Online, Table 6.0023.2011 (2011) (50.7 percent of fed-
eral prisoners were convicted of drug offenses); U.S. Department of Justice, Bureau of Jus-
tice Statistics, Prisoners in 2011 (2012), Table 12.
58. U.S. Sentencing Commission, 2012 Sourcebook of Federal Sentencing Statistics (2013),
Tables 37, 39 (in fiscal 2012, about 85 percent of federal drug convicts had no weapon in-
volved in offense, and 53 percent had minor or no criminal history). A 2004 study found
37.5 percent of drug offenders had no criminal history, and of those who did, about 16 percent
were violent recidivists. U.S. Department of Justice, Bureau of Justice Statistics, Drug Use
and Dependence, State and Federal Prisoners, 2004 (2006), 4.
59. U.S. v. Leitch, No. 11-CR-00609 JG, 2013 WL 753445 (E.D.N.Y., February 28, 2013).
60. U.S. Sentencing Commission, Special Report to the Congress: Cocaine and Federal Sen-
tencing Policy, B-7 (May 2007).
61. U.S.A.M. 9101.200 (1997); U.S.A.M. 9100 (the current section does not contain
charging guidelines).
62. Attorney General Eric Holder Delivers Remarks at the Annual Meeting of the American
Bar Associations House of Delegates, press release, August 12, 2013.
63. Environmental Protection Agency, Fiscal Year 2011: Enforcement and Compliance As-
surance Accomplishments, 2010; U.S. Sentencing Commission, 2010 Annual Sourcebook
(2011), Table 13.
64. Environmental Protection Agency, Fiscal Year 2011. The DOJ ENRD reports its results
separately; in 2010, it reported $1.3 billion in civil enforcement and $104 million in crimi-
nal fines, restitution, community ser vice funds, and special assessments. Department of
Justice, ENRD Accomplishments Reports: Fiscal Year 2010, April 28, 2011.
65. Securities and Exchange Commission, Select SEC and Market Data, Fiscal Year 2012
(2013), Table 2, www.sec.gov/about/secstats2012 .pdf. Similarly, in 2010, of 681 total ac-
tions brought by the SEC, only 126 had to do with issuer reporting or disclosure and less
than 40 of those involved corporations. Securities and Exchange Commission, Select SEC
and Market Data, Fiscal 2010 (2011), Table 2, www.sec.gov/about/secstats2010.pdf.
66. 15 U.S.C. 78u-2.
67. U.S. Securities and Exchange Commission, Chair Mary Jo White, Deploying the Full
Enforcement Arsenal, Sept. 26, 2013. The Stronger Enforcement of Civil Penalties Act of
2012 would have permitted the SEC to obtain up to triple the ill-gotten gains or amount of
investor losses. Such penalties are currently available in insider trading cases. 15 U.S.C.
78u-1(a)(2).
68. Gretchen Morgenson, Quick, Call Tech Support for the S.E.C., New York Times, De-
cember 16, 2007.
69. William Donaldson et al., Muzzling the Watchdog, New York Times, April 29, 2008.
70. E.g., UBS Sec. LLC, Exchange Act Release No. 65,733, 2011 WL 5444407, *5 (Nov.10,
2011).
71. The Restoring American Financial Stability Act of 2010, 111 S. Rept. 176 (April 30, 2010).
72. Charles Riley, SEC Starved for Reform Funds, CNNMoney.com, January 11, 2011.
73. Peter Lattman, Judge Approves SAC Settlement in Insider Trading Case, with Reserva-
tion, New York Times, April 16, 2013.
74. United States Senate, Permanent Subcommittee on Investigations, Committee on Home-
land Security and Governmental Affairs, U.S. Vulnerabilities to Money Laundering,
Drugs, and Terrorist Financing: HSBC Case History, July 17, 2012, 2223.
75. Ibid., 327.
76. Albert W. Alschuler, Two Ways to Think about Punishment of Corporations, American
Criminal Law Review 46 (2009): 1336.
77. Vikramaditya Khanna, Corporate Criminal Liability: What Purpose Does It Serve?
Harvard Law Review 109 (1996): 1477; Pamela H. Bucy, Organizational Sentencing
Guidelines: The Cart before the Horse, Washington University Law Quarterly 71 (1993):
339340; Gerhard Muller, Mens Rea and the Corporation, University of Pittsburgh Law
Review 19 (1957): 21; but see, e.g., Lawrence Friedman, In Defense of Corporate Criminal
Liability, Harvard Journal Law and Public Policy 23 (2000): 833.
78. Brief for the Association of Corporate Counsel et al., as Amici Curiae in Support of Appel-
lant Urging Reversal, United States v. Ionia, 07-5081- CR, June 6, 2008; see also James
R. Copland, Regulation by Prosecution: The Problems with Treating Corporations as

Criminals, Manhattan Institute Civil Justice Report, December 2010, 13.
79. Peter J. Henning, Be Careful What You Wish For: Thoughts on a Compliance Defense
under the Foreign Corrupt Practices Act, Ohio State Law Journal 73 (2012): 883.
80. Ellen S. Podgor, A New Corporate World Mandates a Good Faith Affirmative Defense,
44 American Criminal Law Review 1537 (2007).
81. William S. Laufer, Corporate Bodies and Guilty Minds, Emory Law Journal 43 (1994):
677; Pamela H. Bucy, Corporate Ethos: A Standard for Imposing Corporate Criminal
Liability, Minnesota Law Review 75 (1991): 1103.
82. MPC 2.07.
83. U.S. v. Ionia Management S.A., 555 F.3d 303 (2d Cir. 2009).
84. United States v. Bank of New England, 821 F.2d 844, 855 (1st Cir. 1987). For a court adopt-
ing such a theory in a civil case, see In re WorldCom, Inc. Sec. Litig., 352 F. Supp.2d 472,
497 (S.D.N.Y. 2005); but see Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d
353, 366 (5th Cir. 2004).
85. Robert Jackson, The Federal Prosecutor, Journal of Criminal Law amd Criminology 31
(1940): 3 6.
86. Charles D. Weisselberg and Su Li, Big Laws Sixth Amendment: The Rise of Corporate
White-Collar Practices in Large U.S. Law Firms, Arizona Law Review 53 (2011): 1221.
87. Office of the Inspector General, Department of Justice, The Internal Effects of the Federal
Bureau of Investigations Reprioritization, September 2004; FBI, Financial Crimes Re-
port to the Public, Fiscal Years 20102011.
88. E.g., North Carolina Division of Aging and Adult Ser vices, Senior Consumer Fraud Task
Force, www.ncdhhs.gov/aging/fraud/alert.htm.
89. Financial Fraud Enforcement Task Force, About the Task Force, www.stopfraud.gov/about
.html (describing work with state and local partners); National Association of Attorneys
General, Combating Financial Fraud, 2013, www.naag.org/combating-financial-fraud.php.
90. Bruce A. Green, After the Fall: The Criminal Law Enforcement Response to the S&L
Crisis, Fordham Law Review 59 (1991): 155.
91. Anton R. Valukas, White-Collar Crime and Economic Recession, University of Chicago
Legal Forum, 2010, 14 n. 27.
92. William K. Black, The Best Way to Rob a Bank Is to Own One (Austin: University of Texas
Press, 2005), xiiixv.
93. Senator Jeff Merkley, Merkley Blasts Too Big to Jail Policy for Lawbreaking Banks,
press release, December 13, 2012.
94. Chris Good, Elizabeth Warren Wants HSBC Bankers Jailed for Money Laundering,
ABC News, May 7, 2013.
95. Rakoff, The Financial Crisis, 17.
96. Henry M. Hart Jr., The Aims of the Criminal Law, Law and Contemporary Problems 23
(1958): 404.
97. Federal Acquisitions Regulations (FAR) 9.4062 and 9.4072 (listing causes for
debarment).
98. U.S. Government Accountability Office, Suspension and Debarment: Some Agency Pro-
grams Need Greater Attention, and Governmentwide Oversight Could Be Improved,
August 2011, 1, 9, 18.
99. Ibid., 9, 18.

100. Kyle Noonan, The Case for a Federal Corporate Charter Revocation Penalty, George
Washington Law Review 80 (2012): 602.
101. Congress Expands Incentives for Whistleblowers to Report Suspected Violations to the
SEC, Harvard Law Review 124 (2011): 1829 (quoting Bruce Carton).
102. 17 C.F.R. 240.21F-5 (2011) (providing whistle-blowers may obtain 1030 percent of award).
103. Sensible criticisms of such efforts have been made by scholars, including myself. See, e.g.,
Rachel E. Barkow, The Prosecutor as Regulatory Agency, in Prosecutors in the Boardroom,
ed. Anthony S. Barkow and Rachel E. Barkow, 181 (New York: New York University
Press, 2011); Brandon L. Garrett, Collaborative Organization Prosecution, in Prosecutors
in the Boardroom, ed. Barkow and Barkow, 170171.
104. David Weisburd et al., Crimes of the Middle Classes: White-Collar Offenders in the Federal
Courts (New Haven, CT: Yale University Press, 1991), 40 43, 85.
105. Jennifer Arlen, Removing Prosecutors from the Boardroom, in Prosecutors in the Boardroom,
ed. Barkow and Barkow, 7879.
106. Remarks of the Honorable Edward M. Kennedy, U.S. Sentencing Commission, Sympo-
sium Proceedings: Corporate Crime in America: Strengthening the Good Citizen Cor-
poration, 1995, 120.
107. Report of the Ethics Resource Centers Independent Advisory Group, The Federal Sen-
tencing Guidelines for Organizations at Twenty Years, a Call to Action for More Effective
Promotion and Recognition of Effective Compliance and Ethics Programs, 2012, 4.
108. Tony Chapelle, Boards Beef Up Compliance Expenditures, Agenda, December 16, 2013
(reporting results of Association of Corporate Counsel survey).
109. U.S. Government Accountability Office, DOJ Has Taken Steps to Better Track Its Use of
Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness, Decem-
ber 2009, 20.
110. I served as a reporter on an American Bar Association Task Force subcommittee making
initial recommendations regarding practices for corporate monitors.
111. 12 C.F.R. 21.21; 31 U.S.C. 5318(h)(1)(D).
112. Criminal Division of the U.S. Department of Justice and Enforcement Division of the U.S.
Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Prac-
tices Act 58, 62 (2012).
113. Financial Crisis Inquiry Report, xviixix.
114. Lucian Bebchuk et al., The Wages of Failure: Executive Compensation at Bear Stearns
and Lehman 20002008, Yale Journal on Regulation 27 (2010): 259.
115. Dodd-Frank Wall Street Reform and Consumer Protection Act 954, 124 Stat. at 1904;
Sarbanes-Oxley Act of 2002 304, 15 U.S.C. 7243 (2006); 15 U.S.C. 78u-3(c)(3)
(2006); Terrance Gallogly, Enforcing the Clawback Provision: Preventing the Evasion of
Liability under Section 954 of the Dodd-Frank Act, Seton Hall Law Review 42 (2012):
1245.
116. 17 CFR 240.13a-14(a); 17 CFR 240.15d-14(a); Securities Exchange Act of 1934, 15
U.S.C. 78u.
117. Alison Frankel, Sarbanes-Oxleys Lost Promise: Why CEOs Havent Been Prosecuted,
Thompson Reuters, July 27, 2012; Robert J.A. Zito, SOX 302 Certifications: What Are
They Good For? New York Law Journal, November 19, 2007.
118. SEC v. Goldman, Sachs, & Co., No. 10-CV-3229, 2010 WL 2779309 3 (S.D.N.Y. 2010).
119. U.S. Department of Justice, Amgen Inc. Pleads Guilty to Federal Charge in Brooklyn;
Pays $762 Million to Resolve Criminal Liability and False Claims Act Allegations,
December 19, 2012.
120. Anne Blythe and Joseph Neff, Judge Refuses to Accept WakeMed Settlement with Fed-
eral Prosecutors, News and Observer, January 17, 2013.
121. Order, U.S. v. WakeMed, No. 5:12-CR-398-BO (E.D.N.C. February 8, 2013).
122. Jessica Silver-Greenberg and Ben Protess, Doubt Is Cast on Firms Hired to Help Banks,
New York Times, January 31, 2013.
123. Hearing at 5 6, U.S. v. Barclays, No. CR 10218 (D.D.C. August 18, 2010).
124. Ibid., 24, 36, 39; Status Hearing, U.S. v. Barclays, No. CR 10218 (D.D.C. November 23,
2010).
125. Memorandum and Order, U.S. v. HSBC Bank USA, N.A., 12-CR-763 (E.D.N.Y. July 1,
2003).
126. Memorandum and Order 28, 45, U.S. v. APTx Vehicle Systems Ltd., No. 12-10374-WGY
(D.Ma. July 26, 2013).
127. Gerard E. Lynch, Panel Discussion: The Expanding Prosecutorial Role from Trial Coun-
sel to Investigator and Administrator, Fordham Urban Law Journal 26 (1999): 682.
128. John C. Coffee, No Soul to Damn: No Body to Kick: An Unscandalized Inquiry into the
Problem of Corporate Punishment, Michigan Law Review 79 (1981): 386.
129. E.g., Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (New York:
Free Press, 2004), 79.
130. John Dewey, The Historic Background of Corporate Legal Personality, Yale Law Journal
35 (1926): 666 667.
131. Henry Pontell, A Capacity to Punish: The Ecology of Crime and Punishment (Bloomington:
Indiana University Press, 1982), 3336.
132. On the need for further white-collar research generally, see Sally S. Simpson, White-
Collar Crime: A Review of Recent Developments and Promising Directions for Future
Research, Annual Review of Sociology 39 (2013): 309.
Appendix
_agreements/home.suphp.
2. Brandon L. Garrett and Jon Ashley, Federal Organizational Plea Agreements, University of
Virginia School of Law, http://lib.law.virginia.edu/Garrett/plea _agreements/home.php.
3. Letter from L. Ralph Mecham, Director, Administrative Office of the U.S. Courts, to the
Honorable William W. Wilkins Jr., Chairman, United States Sentencing Commission,
June 22, 1988, 2. The commission collects data on firms sentenced under the Organiza-
tional Sentencing Guidelines, but some firms are sentenced under other provisions, such as
the alternative fines statute. Cindy R. Alexander, Jennifer Arlen, and Mark A. Cohen,
Regulating Corporate Criminal Sanctions: Federal Guidelines and the Sentencing of
Public Firms, Journal of Law and Economics 42 (1999): 416, 419 420; Cindy R. Alexander,
Jennifer Arlen, and Mark A Cohen, Evaluating Trends in Corporate Sentencing: How
356 Notes to Page 298
Reliable Are the U.S. Sentencing Commissions Data? Federal Sentencing Reporter 13
(2000): 109110.
4. The commission did not respond to several requests asking them to make available data for
research purposes. I also asked the Office of Probation and Pretrial Services to share data
with me, and in early 2013 it denied the request, suggesting that I contact the commission.
ac know ledg ments
This book benefited from invaluable comments on the manuscript by Kerry

Abrams, Richard Abrams, Jennifer Arlen, Richard Bonnie, Andrew Boutros,
Stephen Braga, Sam Buell, Joshua Fischman, Trevor Garmey, Bonnie Garrett,
Amy Halliday, Mark Johnson, Ed Kitch, Lee Kovarsky, John McGlothlin,
JJ Prescott, Brian Sawers, David Uhlmann, Urska Velikonja, Ethan Yale, and
David Zaring. I thank Elizabeth Knoll, my editor at Harvard University Press,
for her expert guidance in helping to shape this project from beginning to end.
I am grateful for the useful comments from the anonymous reviewers, and to
all of those at Harvard University Press whose work improved the manuscript.
I thank my agent, Chris Calhoun, for his assistance and encouragement.
The research grew out of two law review articles studying aspects of cor-
porate prosecutions: Globalized Corporate Prosecutions, Virginia Law Re-
view 97 (2011), and Structural Reform Prosecution, Virginia Law Review
93 (2007). Shorter works exploring corporation prosecutions include: Cor-
porate Confessions, Cardozo Law Review 30 (2009), and Collaborative Or-
ganizational Prosecution, a chapter in Prosecutors in the Boardroom, ed. Ra-
chel Barkow and Anthony Barkow (New York: New York University Press,
2011). I thank for their helpful comments on that earlier research, Kenneth
Abraham, Jennifer Arlen, Miriam Baer, Rachel Barkow, Tony Barkow, Josh
Beaton, Richard Bierschbach, Darryl Brown, Albert Choi, George Cohen,
Anne Coughlin, Quinn Curtis, Viet Dihn, Chris Elmendorf, Lisa Griffin,
Paul Halliday, Toby Heytens, Richard Hynes, Jim Jacobs, Mike Koehler,
Jody Kraus, Paul Mahoney, Greg Mitchell, John Monahan, Jed Purdy, Dan
Richman, Jonathan Rusch, George Rutherglen, Richard Schragger, Molly
Shadell, David Sklansky, Daniel Sokol, Paul Stephan, Susan Sturm, Mila
Versteeg, and George Yin. The book benefited from several presentations at
UVA law school, as well as at the University of Maryland School of Law and
358 Acknowledg ments
the University of Mnster, Germany. The earlier work also benefited from
presentations at Georgetown, George Washington University, New York
University, Washington and Lee University, and Washington University law
schools. I thank students in my corporate crime seminars and federal crimi-
nal law courses for their comments over the years. I also thank Tim Heaphy,
Andy Mao, Jonathan Rusch, Dr. Theo Waigel, Joseph Warin, and many others
who have been involved in these fascinating corporate prosecutions for taking
the time to speak to me about their work.
Assembling the database of federal corporate prosecution agreements
was possible only with invaluable help over the years from Jon Ashley and
the University of Virginia Law Library. Jon Ashley has helped not only to
collect that material but also to collect data from these prosecution agree-
ments, organize these materials so that they could be made available on-
line as a resource, and collect U.S. Sentencing Commission data, and he
has helped throughout with the process of considering what new types of
data we could examine. Jon has simply been invaluable to this research
since it began in 2006, when I first started to collect federal corporate de-
ferred and non-prosecution agreements. I also thank John Roper and Mi-
chelle Morris of the University of Virginia Law Library for their help over
the years with this work, and the many prosecutors, defense lawyers, and
other practitioners who have brought corporate prosecution agreements to
our attention and provided useful feedback over the years on the online
resource pages.
Once these materials were collected and scanned, a team of superlative
research assistants helped to review and code all of the documents, as well as
provide research assistance regarding legal issues raised by such prosecu-
tions: James Cass, Christine Chang, Caitlin Connolley, Amanda Gill, Emily
Green, Audrey Golden, Daniel Guarnera, Yaqiong Huang, Mark Johnson,
Bryan Jones, Benjamin Lubarsky, Kyle Mathews, Walker McCusik, Tim
McLaughlin, Erin Montgomery, Brian Rho, Richard Rothblatt, Georgina
Shepard, Louis Shernisky, Melina Shoppa, Elaine Singerman, Elizabeth
Studdard, and Stephen Sun. Vahid Gholampour provided invaluable help
discussing and conducting the regression analysis presented in the Appendix.
This book would not have been possible without the intellectual contribu-
tions of my generous and thoughtful colleagues at the University of Virginia
Acknowledg ments 359
School of Law. This research was also financially supported by summer re-
search grants from UVA Law.
My most heartfelt appreciation is reserved for my family, who supported
this work over many years. My greatest thanks are to my wife, Kerry Abrams,
who is a lovely and brilliant partner in all things.
Index
ABA. See American Bar Association prosecutions for Bank Secrecy Act violations,
ABB Ltd., 166168, 315n81, 335nn99102, 100104, 279; prosecutions of employees, 84;
104 05, 341n26 Swiss Banks, 228229, 244245; too big to
Abbott Laboratories, 170, 293 jail concerns with non-prosecutions, 2, 254255,
Acceptance of responsibility, 60 62, 85, 148, 259261
159, 160162, 236, 256, 283, 315n74, Bank Secrecy Act, 100104, 259, 279, 349n16
333n60 Barclays, 61, 103, 157, 250252, 256257
Acquittals, 79, 98, 111, 113, 115, 127, 131, 206, Bharara, Preet, 219
214217, 262, 280, 325n170, 341n39, Bibas, Stephanos, 143
343nn78,79 Bierschbach, Richard, 143
Act to Prevent Pollution from Ships (APPS), Big Pharma, 104106; settlements, 277
230233, 345n38 Birkenfeld, Bradley, 225227
AIG, 187 Black, William K., 82, 253, 272
Alschuler, Albert, 268, 269, 352n76 BP, 14, 117122, 127, 128146, 181183
American Bar Association (ABA), 66, 179180, Brady v. Maryland, 204, 206207
279, 320n46 Braithwaite, John, 57
Antitrust, 234239; Antitrust Division of DOJ, Breach of prosecution agreement, 7576, 78,
66, 84, 237238, 321n69; Bank of America case, 166, 193
66; BMS, 182183; corporate leniency program, Breyer, Justice Stephen, 155, 199
76, 84, 237238; fines, 150, 158, 199, 235; Bribery Act, 15, 248
immunity deals, 9697; price fi xing, 234; Bristol-Myers Squibb, 77, 173174
prosecutions of foreign firms, 215216, Brooklyn Plan, 5456
234238, 243 Buell, Samuel, 168, 321, 325, 334, 335
Arlen, Jennifer, 56, 155, 160, 278
Arthur Andersen, 1213, 19 44, 8487;
conviction reversed on appeal, 41 42; CEO, 23, 61, 72, 180; acknowledgements of
sentencing, 147148 responsibility by, 151; acquittals of, 98, 214,
Ashcroft, John, 189190, 339n66 280; apology by, 256257; convictions of,
Attorney-client privilege, 91, 180 14, 99, 115; denial of knowledge by, 108;
AU Optronics, 199, 235237 failure to prosecute, 255; firing, 15, 73, 173,
183; knowledge of crimes, 21; prosecutions
of, 97, 99, 107, 115; resignations by, 11, 21,
BAE, 15, 218219, 221225, 246, 293 27, 111; sentencing of, 87; walk of shame,
Banks, 2, 16, 65, 254255; convictions of, 254255, 8485, 169
258259; LIBOR prosecutions, 250252, Certification, 280281
256258; non-prosecution agreements, 254; CFO, 107, 108, 280
362 Index
Chamber of Commerce, 41, 92, 269 Debarment, 42, 67, 150; corporate death sentence,
Christie, Chris, 189 150, 275; from Medicare or Medicaid, 105
CITGO, 136137 Deepwater Horizon, 143146, 266
Citizens United v. F.E.C., 4, 200202 Deferred prosecution agreements, 6, 13, 143, 165,
Class actions, 137140 255; compliance terms, 7475; criticism, 67,
Clawbacks, 72, 103, 280 103; judicial review, 75, 282; origins, 5556;
Clean Air Act, 99, 121 U.K. adoption, 248; unrelated terms, 7677, 83
Cohen, Mark, 98 Department of Health and Human Ser vices Office
Collateral consequences, 16, 42, 150, 170, 275, of Inspector General, 105, 106, 110
285; as concern of prosecutors, 59, 286; as factor Department of Justice (DOJ): Asset Forfeiture and
in leniency, 63, 255; prosecuting subsidiaries Money Laundering Section, 124; Corporate
instead of parent to avoid, 170, 258, 274. Fraud Task Force, 5455, 107; Financial Fraud
See also Debarment Enforcement Task Force, 55; Office of
Collective knowledge theory, 270 International Affairs, 229; policy on monitors,
Commodities Futures Trading Commission 174175; policy on privilege waivers, 114; policy
(CFTC), 256 on prosecution, 5556; policy on victims, 128;
Community Ser vice, 14, 141142 violations of Brady v. Maryland, 206207
Compliance, 55, 7180, 191195, 237, 276278; Deterrence, 83, 99100, 149, 155, 275
affirmative defense, 155, 269; assessing Deutsche Bank, 50, 79, 245
compliance, 159, 278279; credit for Dodd-Frank Act, 37, 43, 226, 267, 275, 280
compliance, 159160; in DPAs or NPAs, 48; DOJ. See Department of Justice
as factor in decision to prosecute, 56, 148149, Double jeopardy, 214, 243, 342n75
156; lack of, 190191; plea agreement terms, 11, Drug prosecutions, 264265
70, 72; supervision by monitors, 11, 13, 70, 145,
163, 175176, 182190; terms in deferred
prosecution agreements, 7475, 181 Ebbers, Bernard, 108109
Conspiracy, 111; to commit securities fraud, 174; Employee prosecutions, 12, 8284; crimes of
to defraud the United States, 227; to fi le false prosecution, 83; lack of, 13, 96, 115; numbers of
tax returns, 113; to fi x prices, 199, 235236; officers and employees prosecuted accompanying
to violate the FCPA, 107 organizational deferred and non-prosecution
Cooperation, 3132, 5859, 160161; and agreements, 8384, 9697; numbers prosecuted
amnesty, 66 67, 237; among prosecutors, 272, accompanying organizational plea agreements,
298; coerced, 231; factor in decision whether to 84
prosecute, 56, 316n104; factor in fine-reduction, ENRD. See Environment and Natural Resources
159, 328n83; global, 223, 225, 229, 238, 244, Division
246247; of informants, 8893; and leniency, 3, Enron, 1933
1112, 19, 62, 63, 103, 113, 148149, 156, 171, Environmental crimes, 128129, 178
215, 256, 274, 286; money reward for, 233; Environmental Protection Agency (EPA), 129,
non-cooperation, 225, 236, 321n69; terms in 191, 266267; and BP, 122, 135136, 145;
agreements requiring, 182 and Dow Chemical Company, 209
Corporate crime rate, 261263 Environment and Natural Resources Division
Corporate criminal liability, 270; foreign standards (ENRD), 65 66, 129, 178
for corporate criminal liability, 183, 223224; Epstein, Richard, 66 67
and hom icide, 130131; legal establishment
of, 4, 3336; proposals to alter standards,
268269; purpose of, 217; questioning of False Claims Act, 355n119
concept, 167; undermining of, 171. See also FBI. See Federal Bureau of Investigation
Respondeat superior (Master-Servant rule) FCPA. See Foreign Corrupt Practices Act
Index 363
Federal Bureau of Investigation (FBI), 205207, Goldman Sachs, 259260

271172 Google, 45
Fifth Amendment rights, 9294, 201, 211212 Government Accountability Office (GAO), 278,
Filip, Mark F., 56 299
Financial Fraud Enforcement Task Force, 6, Guidant, 153154, 293
5455
Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA), 260 Hale v. Henkel, 208, 211
Fines, 68 68, 157158; Alternative Fines Act, 133; HealthSouth, 9798, 214
antitrust fines, 235; average corporate fines, 292; HHS-OIG. See Department of Health and
cases involving no fine, 149; civil fines, 241; Human Ser vices Office of Inspector General
corporate criminal fines, 5; and DPAs or NPAs, Holder, Eric, 252, 253, 265
294; fines against foreign corporations, 220221; HSBC, 101104, 273, 283
largest corporate criminal fines, 149150, 293;
payment, 295; and restitution paid, 125; total
criminal fines for organizations, 5 Immigration prosecutions, 264
FIRREA. See Financial Institutions Reform, Informants, 12, 84, 89, 234
Recovery, and Enforcement Act Internal Revenue Ser vice (IRS), 51, 5254, 67, 79,
Fisse, Brent, 57 226, 228229
Food, Drug, and Cosmetics Act (FDCA), 104, 110 Ionia Management, S.A., 229234
Food and Drug Administration (FDA), 104, IRS. See Internal Revenue Ser vice
110, 154
Foreign companies, 219222
Foreign Corrupt Practices Act (FCPA): enactment Jacobs, James, 176
of the FCPA, 910, 36, 239240; fines, 304; Jaros, David, 140
guidance from DOJ and SEC, 241; numbers of Jenkins & Gilchrist, 79
FCPA corporate prosecutions, 240; prosecutions JPMorgan, 124, 260
of foreign companies, 239; prosecutions of Judicial review, 285; lack of requirement for, 190
individual employees, 9596; SEC enforcement, Jurisdiction, 242244; over foreign companies,
241242; types of resolutions, 241 219, 221222, 230
Forfeiture, 124125, 139 Jury instructions, 37
Fortune 500, 62
Fortune Global 500, 62
Fourth Amendment rights, 202, 207210 Kahan, Dan, 168
Fraud: definition of, 64 65; health care fraud, 65, Kaplan, Judge Lewis, 58, 94, 112
104105; legislation against, 43; mail fraud, 65; Kennedy, Justice Anthony, 41, 201
mortgage fraud, 271; number of federal fraud Khanna, Vikramaditya, 43
convictions, 115; psychology of, 88; securities KPMG, 4853, 54; coercion of, 9495; confession,
fraud, 65, 138, 177178, 267; sentencing, 162; 60; as cooperator, 89; deferred prosecution
tax fraud, 136, 227; wire fraud, 65 agreement, 1314; employee prosecutions,
8890, 93; end of DOJ agreement with, 78;
negotiations with prosecutors, 58 60; outcome
GAO. See Government Accountability Office of cases, 112114; punishment of, 67 68; senate
Garrity v. New Jersey, 93 testimony, 45 46; waiver of privilege, 92
Germany, 3, 10, 183, 224, 240
GlaxoSmithKline (GSK), 106, 293
Gleeson, Judge John, 265, 283 Lacey, Frederick B., 174, 181, 182
Global financial crisis, 127, 250, 251 Levin, Sen. Carl, 46, 52, 53, 102, 260
364 Index
LIBOR, 250252, 257, 259 Organizational Sentencing Guidelines: 147148,

Lynch, Judge Gerard, 285 278, 286; adoption of the guidelines, 155156;
corporate death penalty, 156157; factors
increasing punishment, 158159; factors
Madoff, Bernard, 43, 124, 161162 reducing fines, 159161; fines, 157158
Magic pipe, 230234, 269 Orga nization for Economic Cooperation and
Market capitalization, 70, 133, 262n45 Development (OECD), 71; OECD convention,
Marshall, Chief Justice John, 200 239240
Mass incarceration, 263266 Ostrich instruction: 82; trial of Bernard Ebbers,
McNulty, Paul J., 56 108109
Mendelsohn, Mark, 240
Money laundering: Asset Forfeiture and Money
Laundering Section at DOJ, 124; average fines, Panalpina, 95, 160
295; Bank Secrecy Act and related laws and Pfi zer: 6, 70, 104105; Pharmacia & Upjohn: 166,
regulations, 37, 97, 100, 279; charges in deferred 169170, 293
prosecution agreements, 64; FBIs Financial Pinto, 130131
Intelligence Center, 272; fines, 150; HSBC case, Plea agreements, 162163
101104, 265, 268; individual prosecution, 84 Posner, Judge Richard, 81
Monitors, 15; data on use in deferred and Privilege waiver, 92, 114
non-prosecution agreements, 175; cost of, 187, Probation, 163165, 169
189190; definition of, 174175; foreign Public corporations, 13, 2223, 42, 262263;
corporate, 247; improving effectiveness, 191192, FCPA prosecutions, 239; fines for those
278279, 228284, 286; lack of, 190191; prosecuted, 70, 150, 301303; numbers
monitor appointment, 177178; revolving-door prosecuted, 262263; prosecutions of
concern, 271; SEC monitors, 267; selection of, employees, 84, 96, 107
178179, 284; work of, 184186
Morgan Stanley, 9899
Rakoff, Judge Jed, 253, 273
Recidivism, 165168
Nader, Ralph, 67 Respondeat superior (Master-Servant rule), 4,
New York Attorney Generals Office, 272, 298 3536, 81; comparison with corporate liability
New York Central & Hudson River Railroad v. standards in other countries, 223224
United States, 4, 3336 Restitution, 69, 122, 123124, 125126
Non-prosecution agreements, 8, 76, 291; compared Revolving door concern, 271
to declinations, 78, 254; criticism, 274, 283;
numbers of non-prosecution agreements, 76;
terms of agreements, 7475; undisclosed SAC Capital, 258, 285
agreements, 64; victims rights, 140; Wall Street Sarbanes-Oxley, 43, 137, 180, 280
banks, 255 Saudi Arabia: HSBC, 102; Al Yamamah, 218
SEC. See Securities and Exchange Commission
Securities and Exchange Commission (SEC),
Obstruction of justice, 2527, 43, 86, 209 22, 137, 267268; civil enforcement against
OCC. See Office of the Comptroller of the corporations, 267268; civil settlements
Currency and admissions, 60 61, 267268; FCPA
Occupational Safety and Health Administration enforcement, 240242, 267; Office of the
(OSHA): 120121, 132135 Whistleblower, 225226
Office of the Comptroller of the Currency Sentencing Guidelines. See Organizational
(OCC), 268 Sentencing Guidelines
Index 365
Serious Fraud Office, 218, 222223, 224225, UBS, 226228, 244245, 258
248 Uhlmann, David, 73
Seton Hall Law School, 77n131, 182 U.N. Iraq Oil for Food Program, 244
Shareholders, 21, 23, 138139 United Kingdom, 218, 223, 225, 248
Siemens, 13, 812, 151153, 173, 183184, United States v. Booker, 155
184186, 193195, 246, 293 Upjohn v. United States, 91
Sixth Amendment rights, 212213 U.S. Attorneys Manual, 56, 163
Skeel, David, 43 U.S. Coast Guard, 229233
Skilling, Jeff rey, 87, 115 U.S. Postal Inspection Ser vice, 68
Sotomayor, Justice Sonia, 198199, 201 U.S. Sentencing Commission: 6, 26; data
Southern Union v. United States, 196200, 217 collection, 63; data, 125
Specter, Sen. Arlen, 9596 U.S. State Department, 225
Standard & Poors, 260 UVA Law Library, 7, 291
Stevens, Justice John Paul, 201
Stora Enso Oyj, 214216
Structural reform, 176177, 276277 Victims: role in corporate prosecution, 14,
Stuntz, William, 43, 207 145146; Crime Victims Rights Act, 127, 136;
Subpoena, 53, 202, 207209, 211 victims and deferred prosecution, 140141;
Subsidiaries: convicted rather than the parent, victims rights, 122124; victims statements,
169170; corporate culture, 104107; foreign 131132, 134
subsidiaries, 258; recidivist corporations, Volcker, Paul, 244
166167
Sutherland, Edwin, 87
Switzerland, 2, 48, 222, 226227, 228, Waigel, Theo, 11, 173, 183186
244245 Wegelin & Company, 245
Whistle-blowers, 104105, 225228; Dodd-Frank
Wall Street Reform and Consumer Protection
Tax shelters, 46, 4952, 7980 Act, 275
Thompson, Larry, 56 White-collar crime: concept of, 8788; evolving
Thompson Memorandum, 56, 91; factors, 59, 65; federal law, 3637; individuals prosecuted,
revisions in Filip Memo, 56 8283; recidivism, 165; sentencing, 43
Too big to fail, 1, 252253, 258 Worldcom, 108109
Too big to jail: criticism of bank prosecutions, 2,
253; criticisms of corporate prosecutions
generally, 12, 254255 Zimmerman, Adam, 140

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TOO BIG TO JA IL

The Belknap Press of

Library of Congress Cataloging-in-Publication Data

1. United States vs. Goliath 1

ABA American Bar Association

I know what this is about. I have been expecting you.1

briefcase is enough200,000 euros isnt so much that you couldnt carry it

No Soul to Be Damned, No Body to Kick

How exactly are corporations convicted of a crime? The word corporation

nies, including partnerships not formally incorporated by a state. Prosecu-

Data on Corporate Prosecutions

Sentencing Commission Data Data from Dockets

Figure 1.1 Total Criminal Fines for Organizations, 19942012

to pursue charges against corporationsthey do not usually make those de-

The case of Siemens (and three of its subsidiaries in Argentina, Venezuela,

off as useful expenditures, which were understood to be bribes. The SEC

How do prosecutors negotiate with corporations? Prosecutors compromise. Re-

What role do victims play in corporate prosecutions? Victims cannot easily

How is a corporation punished? Not by relying on strict and narrow sentenc-

Who oversees corporate prosecution agreements? A new kind of personthe

What criminal procedure rights do corporations have? Corporations have many

How are foreign corporations prosecuted? Foreign corporations are increas-

Are corporate prosecutions effectively preventing crime? Corporate prosecu-

Corporate prosecutions upend our assumptions about a criminal justice sys-

Sentencing guidelines and judicial practices could be reconsidered, but pros-

I obstructed justice, admitted David Duncan, a former senior managing

Andersen and Enron

lawyers in the main Chicago office, Nancy Temple, wrote an email to an

A criminal prosecution may affect different types of companies quite differ-

major customers if disbarred and would likely die by going bankrupt or

Andersens Crisis Response Team

it a crime to knowingly, intentionally and corruptly persuade[] others to

a gross abuse of governmental power. So on March 7, in the Southern Dis-

The Trial Begins

Once selected, the judge reminded the jurors, No Newsweek, no Time, no

The Prosecution and the Defense

The prosecution began by emphasizing that Andersen employees had

It might be useful to consider reminding the engagement team

The Old and Exploded Doctrine

After the Founding, states increasingly granted charters to corporations

The Sweep of Federal Criminal Law

in response to each, including the Money Laundering Prosecution Improve-

The Andersen Case Concludes

In order for a partnership agent to be acting within the scope of

judge gave the jury an instruction colloquially called a dynamite instruction

employees were allowed to go to a special pre-sale, perhaps to buy their own

Reversal and Aftermath

stated their earnings.124 Federal Reserve chairman Alan Greenspan spoke of

Although officials were talking about a new get-tough corporate prosecu-

To this day, a shell of Arthur Andersen remains. It never declared bank-

According to Google, Dont be evil, its famous unofficial motto, is about

for marketing tax shelters to wealthy individuals resulting in billions of dol-

The Fourth One Left Standing

KPMG employees. The taxpayer would pay a percentage of the taxes he or

We know you made a lot of income. Do you want to pay less

KPMG created an entire telemarketing center to try to sell tax shelters to

Enter the IRS

The Brooklyn Plan

Fraud Task Force, consisting of prosecutors to coordinate investigation and