Prosecuting Corporate Crime When Firms Are Too Big to Jail: Investigation, Deterrence, and Judicial Review

Abstract

Some corporations have become so large or so systemically important that when they violate the law, the government cannot credibly threaten “efficient” criminal sanctions. By introducing political economy constraints into a standard microeconomic model of corporate liability, this Note shows how this Too Big to Jail (TBTJ) problem reduces prosecutors’ ability to deter corporate crime by simply fining a defendant corporation without the accompanying prosecution of culpable individuals and mandatory structural reforms. This Note further illustrates how the risk of corporate criminal liability alone cannot incentivize a TBTJ firm to invest in internal controls or cooperate with government investigations. To deter criminality by TBTJ firms, prosecutorial strategy should credibly threaten culpable managers with monetary and nonmonetary penalties, and not unduly rely on corporate defendants’ cooperation.

The Note also advances a structural explanation for the dearth of individual prosecutions relative to negotiated criminal settlements with TBTJ companies: prosecutors currently rely on an intrafirm apparatus for investigation that may produce information necessary for corporate settlements but will not reliably produce evidence to charge culpable individuals. In response, this Note proposes enlisting the courts as a bulwark against these structural incentives for prosecutors to agree to large corporate settlements without insisting on comprehensive investigation of underlying individual culpability. Thus, I present a legislative reform that authorizes judicial review of deferred prosecution agreements to ensure prosecutors have collected sufficient evidence prior to finalizing corporate settlements.

Keywords: corporate crime, law and economics, criminal procedure, deferred prosecution agreements, law and political economy