Compelled Cooperation and the New Corporate Criminal Procedure

Abstract

In response to the broad scope of the Enron-era frauds, the federal government has adopted novel strategies to manage the complexity of corporate criminal investigations. Chief among these innovations are the cooperation requirements set forth in the Department of Justice's (DOJ) Thompson Memorandum (along with its successor, the McNulty Memorandum) and the increased use of deferred prosecution agreements (DPAs) between prosecutors and corporations. Under these current practices, the federal government has declined or deferred charges against firms themselves and has shifted liability to the employee level, indicting and convicting over one thousand individuals since the July 2002 creation of the Corporate Fraud Task Force. This Article explores a gap in the constitutional protections afforded those individual defendants. Prosecutors' dependence on compelled cooperation is expedient but has unexamined consequences: a bypass around corporate employees' Fifth Amendment privilege against self-incrimination and the potential to degrade self-regulation. These costs arise, in part, from the merger of public governmental investigations and private corporate compliance efforts.

Part I details the policies and practices of the war on corporate crime, with a particular focus on the factors set forth in the Thompson and McNulty Memoranda and the terms of current DPAs. Part II discusses how the convergence of cooperation doctrine with the shift to individual targets results in significant unfairness for the individual employees compelled to incriminate themselves in the context of internal investigations directed by the government. That normative burden may not be offset by enforcement benefits. Although effective corporate crime prevention often requires the cooperation of insiders, the means used to obtain it may actually increase the difficulty of detecting fraud by discouraging oversight and minimizing recordkeeping. Part III argues that the government's pursuit of DPAs and application of a civil regulatory model to criminal enforcement creates distortions because individual liberty rather than a financial sanction is at stake, prosecutors do not engage in negotiated governance, and judicial oversight at the investigative stage is minimal.

Part IV addresses the constitutional implications of outsourcing corporate criminal investigations. Employees interviewed by internal investigators pursuant to the terms of a pending deferred prosecution agreement should enjoy immunity analogous to the Garrity shield that protects public employees. Several strands of Fifth Amendment theory are consistent with the argument that economic pressure such as the threat of job loss can rise to the level of constitutionally significant coercion. That pressure, although delegated to corporations to apply, may be attributed to the government as state action when a DPA is pending. As a practical matter, extending immunity may also enhance compliance investigations by privileging truthful information and the interests of good-faith employees.

Keywords: corporate crime, corporate criminal investigations, Department of Justice's (DOJ) Thompson Memorandum, the McNulty Memorandum, deferred prosecution agreements