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What would you say about a federal policy that not only discouraged corporations from meeting their ethical obligations, but prevented them from adopting the most effective measures for reducing violations of law by their employees? This is precisely the policy the government is pursuing in its war against white-collar crime. This situation arises from the government’s decision to prosecute this war by means of a draft. In this case, it is corporations that are drafted rather than individuals. But as Vietnam should have taught us, drafts can have perverse consequences. The draft arises from the aspects of federal law and U.S. Department of Justice (DOJ) policy that conscript corporations into becoming deputy law enforcement agents. Consider first the standard for corporate criminal liability. A corporation is guilty of a crime whenever its employees commit an offense within the scope of their employment. It makes no difference whether the corporation did everything in its power to prevent it. Corporate managers know that no set of internal controls can guarantee there will be no intentional wrongdoing by rogue employees. And in the current highly regulated business environment, they certainly cannot guarantee that no employees will inadvertently commit an offense. Responsible managers must therefore guard against the possibility that their employees will violate the law. How can they do so? Under the Thompson Memorandum, which spells out DOJ policy on corporate indictment, and the Organizational Sentencing Guidelines, which determines a corporation’s punishment, managers can protect their firms only by helping the government prosecute their employees. Both whether a corporation is indicted and the size of its fine if convicted are determined by how thoroughly the corporation monitors the behavior of its employees and whether the corporation is willing to cooperate fully with the government. Although the guidelines no longer require waiver of the attorney-client privilege, under the Thompson Memorandum, full cooperation still includes such waiver as well as agreeing not to mount a defense, disclosing the results of all internal investigations, pressuring employees into cooperating with the government with threats of firing, and refusing to advance employees’ attorney fees. This places ethical businesspeople in an impossible situation. Confidentiality is compromised Most corporations solicit sensitive information from their employees by promising confidentiality, either through employee “hotlines” or pursuant to the firm’s attorney-client privilege. But what can a principled manager do if a confidential communication suggests possible criminal activity within the firm? Refusing to waive attorney-client privilege or otherwise breach confidentiality can subject the corporation to indictment and greatly increased fines. But disclosing the incriminating information to the government reduces the firm’s promise of confidentiality to a fraud. Worse, managers cannot escape this dilemma by refusing to promise confidentiality in the first place. Doing so would forgo one of the most effective means of monitoring employee conduct, which itself would increase the risk of indictment and increased penalties. Justice seems to require that employees who are suspected of wrongdoing not be sanctioned without adequate evidence of guilt. But the government requires that a corporation accept responsibility for criminal conduct to be regarded as cooperating. Since corporations act only through their employees, accepting responsibility means that the corporation is declaring that its employees violated the law. How can responsible managers give their employees a presumption of innocence while simultaneously declaring them guilty? How can they ensure that their employees receive due process while firing them if they chose to mount a defense, refusing to advance their attorney fees and becoming part of the prosecution team? When employees view the corporate environment as one in which trustworthy behavior is rewarded and management follows through on its ethical commitments, they adhere to rules more strongly and are more willing to inform management about those who do not. As a result, firms that honor their promises, respect employees’ privacy and rigorously adhere to programs of procedural justice have a measurably lower incidence of rule breaking than those that do not. Yet this is precisely the type of corporate behavior that current federal law and law enforcement policy punish. Surely there is a way for the government to wage war on white-collar crime without preventing businesspeople from meeting their ethical obligations or undermining the corporate culture most effective at reducing illegal behavior. I propose a simple solution. End the draft. John Hasnas teaches ethics and law at Georgetown University’s McDonough School of Business and is the author of Trapped: When Acting Ethically is Against the Law (Cato Institute 2006).

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