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A growing number of corporate executives are being prosecuted for financial crimes. Martha Stewart, Dennis Kozlowski and Andrew Fastow are just a few examples. While the increased prosecution of individuals is widely discussed, a parallel escalation in the prosecution of corporations seems, at times, to be slipping by unnoticed. The Bush administration’s Department of Justice (DOJ) has expanded Clinton-era initiatives to regulate corporations through threats of federal prosecution. The DOJ now does more than simply enforce congressionally enacted criminal laws. It essentially requires that corporations behave as prosecutors think “good citizens” should-or face the threat of indictment. Corporations should challenge this overreaching stance. Prosecutors must enforce the criminal law, but they lack authority to dictate other matters of corporate governance. The expanded DOJ guidelines should be repealed. Criminal law proscribes and punishes public wrongs. While criminal prohibitions may assume underlying moral norms, they do not require affirmative acts of virtuous conduct. After all, reasonable people in a free society may disagree about what is required to be a good person or citizen. Moreover, only human beings, not artificial entities such as corporations, have the mind and will necessary to perform morally good or virtuous acts. Corporate offenses are usually regulatory in nature and have been largely resolved through civil, rather than criminal, enforcement. In 1991, this situation changed. The U.S. Sentencing Commission issued sentencing guidelines for corporations (both public and private) and other organizations. The guidelines introduced a good- citizen model as a method of shaping corporate culture, supposedly employing a carrot-and-stick approach. The guidelines encouraged companies to draft codes of conduct, train their employees in these codes and perform audits for compliance. Companies that complied and also reported any wrongdoing might obtain a shorter sentence in the event of an indictment. Failure to take these steps, however, would certainly result in a longer sentence. Building upon these sentencing guidelines, the Clinton DOJ issued new prosecutorial guidelines aimed at regulating entire industries. These guidelines expanded on the factors that prosecutors consider in determining whether to pursue criminal or civil action against corporations. The Clinton-era guidelines directed prosecutors to judge various aspects of corporate governance in deciding how to proceed against a corporation. Unfortunately, recent corporate scandals have caused the Bush administration to accelerate, rather than reverse, this trend. Post-Enron In the aftermath of Enron, President Bush created the Corporate Fraud Task Force within the DOJ. Larry Thompson, then the deputy attorney general-once a critic of aggressive DOJ corporate prosecutions-responded to the presidential directive by issuing revised prosecutorial guidelines that reaffirmed and extended the Clinton-era guidelines. These guidelines expect corporations to act in certain ways in order to avoid criminal indictment- even when this good behavior is not mandated by criminal law. The guidelines direct prosecutors to consider whether a corporation, while purporting to cooperate, engaged in conduct impeding an investigation, regardless of whether the lack of cooperation rose to the level of criminal obstruction. As a practical matter, although the DOJ vehemently denies it, its guidelines coerce corporations into waiving their privilege against self-incrimination. Adoption of a code of conduct and of a compliance plan is not sufficient; prosecutors will also consider the adequacy of companies’ programs to determine if they are good enough. Worse, prosecutors take into account any refusal to waive attorney-client and work-product privileges-even though such waivers cannot be required legally. Further, DOJ recommends an additional two-level enhancement for failure to self-report a crime, an enhancement equal to that for obstruction of justice. For all intents and purposes, the DOJ’s prosecutorial guidelines favor criminal indictment and seek more severe punishment for corporations exercising their constitutional right to defend themselves. These guidelines mock the rule of law. Though companies may reasonably fear the DOJ, they should challenge the rules for two reasons: Corporations are extremely vulnerable to criminal indictment-a violation by only one employee may put the whole company at risk. And, before an indictment occurs, companies have the credibility to challenge this overly aggressive policy. Afterward, they may not. Prosecutorial guidelines should have only one goal: indictment of those violating the criminal law. They should not enable prosecutors to act as corporate directors, overseeing the adequacy of codes of conduct and compliance plans implemented by public and private companies. The DOJ’s attempts to reform corporate culture through actual and threatened prosecutions are an abuse of prosecutorial power; Congress has not legislated this authority. Civil law provides adequate recourse for breaches that fall short of a criminal violation. State laws and the private markets, not the DOJ, are responsible for matters of corporate governance. Corporations ought to promote ethical conduct by their employees and crimes should be vigorously prosecuted-but federal prosecutors also have an ethical responsibility not to abuse their powers. Corporations should object loudly until the Bush administration repeals these abusive prosecutorial guidelines. John S. Baker Jr. is the Dale E. Bennett Professor at Louisiana State University Paul M. Hebert Law Center and the author of Reforming Corporations Through Threats of Federal Prosecution, which will appear in Volume 89 of the Cornell Law Review. Tara Ross is an attorney and writer residing in Dallas.

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