Structural Reform Prosecution

In what I call a structural reform prosecution, prosecutors secure the cooperation of an organization in adopting internal reforms. No scholars have considered the problem of prosecutors seeking structural reform remedies, perhaps because until recently organizational prosecutions were themselves infrequent. In the past few years, however, federal prosecutors have adopted a bold new prosecutorial strategy under which dozens of leading corporations have entered into demanding settlements, including AIG, American Online, Bristol-Myers Squibb Co., Computer Associates, HealthSouth, KPMG, MCI, Merrill Lynch & Co., and Monsanto. To situate the DOJ’s latest strategy, I frame alternatives to the pursuit of structural reform remedies as well as five alternative ways prosecutors can pursue structural reform. To better understand what the DOJ accomplished by choosing to pursue structural reform and then doing so at the charging stage, I conducted an empirical study of the terms in all agreements the DOJ has negotiated to date. My study reveals imposition of deep governance reforms, consistent with the purposes of the Sentencing Guidelines, but also perceived prosecutorial abuses and some indications of overreaching. I conclude that given the breadth of prosecutorial discretion and the deferential, limited nature of judicial review, the guidance that the DOJ provides will chiefly define the future development of its emerging structural regime for deterring organizational crime.

United States v. Goliath

Criminal prosecutions of large organizations exhibit a unique power dynamic. The target organizations include goliaths—some of the largest corporations in the United States, including AIG, America Online, Bristol-Myers Squibb Co., Computer Associates, HealthSouth, KPMG, MCI, Merrill Lynch & Co., and Monsanto. A U.S. Attorney’s office with its limited resources may look like a tiny David by comparison. But prosecutors have their slingshot: they wield the threat of an indictment, which results in potentially catastrophic collateral and reputational consequences to a corporation. Yet it is a threat that prosecutors can ill afford to carry out due to those consequences. The détente resulting from the collision of those oversized forces has taken a surprising turn, perhaps because there was nowhere else to turn—from criminal prosecution towards structural reform. By that I mean that prosecutors adopted a strategy to avoid an indictment and a conviction by entering into detailed compliance agreements with organizations. In one example of a demanding structural reform agreement, KPMG International, charged with marketing illegal private tax shelters, agreed to shut down its private tax practice, to cooperate fully in criminal investigations of former employees, and to hire an independent monitor for three years to implement an elaborate compliance program.

In my piece, “Structural Reform Prosecution,” I present a picture of why and how federal prosecutors now enter into such agreements supervising the rehabilitation of these goliath organizations. The Article examines the agreements’ origins, goals, terms, and the broader legal and institutional setting, including through empirical analysis of the agreements entered after the Department of Justice (“DOJ”) announced its new approach in January 2003. While hue and cry over organizational prosecutions have focused on privilege waiver and employer payment of attorney fees, those two issues just scratch the surface of the complex problems that these massive efforts raise. I hope here to draw attention first to a series of problems raised by how these agreements define compliance and second to the multi-polar context in which these agreements are entered. “Structural Reform Prosecution” concludes by posing questions for future work. I expand on that discussion here by proposing reforms that, from different perspectives, address some of the difficult issues that these agreements raise.