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Corporate Crime Time

In signing corporate reform legislation on July 30, President Bush said that the new law “says to every American: there will not be a different ethical standard for corporate America than the standard that applies to everyone else.”

The corporatists apparently took this as a challenge from their fearless leader.

Since the signing, they are working overtime to prove him wrong.

Let’s start with the editorial page of the Wall Street Journal.

In an editorial on August 8 titled “Corporate Crime Blotter,” the Journal justifiably ripped into Adelphia’s Rigas family, ImClone’s Samuel Waksal, Martha Stewart, and former Tyco boss Dennis Kozlowski for inflicting “enormous harm” on “the markets and the cause of liberty.”

But then get the conclusion: “The faster individual law-breakers can be punished, the sooner any public taint over honest business will be lifted.”

Note the focus on individual law-breakers.

What about the corporate criminals?

Leave it to the Journal editors to write a column about “corporate crime” and then leave out any discussion of corporate crime.

Bob Bennett, brother of the ethicist and better known Bill, is a leading inside-the-beltway corporate criminal defense attorney.

He’s Enron’s lead attorney.

Bennett’s job: makes sure Enron, the corporation, doesn’t get indicted.

If he has to offer up to prosecutors Enron executives in lieu of the corporation, so be it.

At the National Press Club this week, Bob floated the idea that we should seriously question the whole idea of corporate criminal liability.

“The concept of corporate criminal liability has not gotten enough attention,” Bennett said. “When you indict a company, you are doing enormous damage to its stock. You are doing enormous damage to innocent people. When a company gets indicted, it has a real impact on them. I really question the value of that. Why you would hobble a company trying to come out of bankruptcy? What do you get from that? Is it just this macho — we indicted so and so? Why do that harm?”

Bennett made clear that, as Enron’s attorney, he was cooperating with federal prosecutors to make sure that responsible Enron executives were brought to justice.

“We are fully cooperating with the Justice Department, we have waived the attorney/client privilege,” he said. “And some damaging memos have come out that have impacted individuals.”

In June 1999, when he was with the Justice Department prosecuting crime, Eric Holder wrote a memo (known as “the Holder memo”) to give guidance to prosecutors on when and when not to indict a corporation.

Citing that memo, Holder, now in private practice defending corporations, last month argued that “on balance, and based on what is at least publicly known, it is difficult to see the case for WorldCom being charged.” (“Don’t Indict WorldCom,” by Eric Holder, Wall Street Journal, July 30, 2002).

As Holder knows better than most, what is publicly known of a criminal investigation of this magnitude before a decision is made on whether or not to charge a company is virtually nothing.

According to the Holder memo, in deciding whether or not to criminal indict a corporation, prosecutors must consider the pervasiveness of the wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management. They must also consider whether the corporation cooperated with prosecutors, the adequacy of a corporation’s compliance programs, and the corporation’s remedial actions.

There is virtually no public information on any of these factors, and yet Holder finds it difficult to see a case for criminal prosecution of WorldCom.

Holder argues today that if the Justice Department indicts the culpable individuals at WorldCom ? which it did just days after Holder’s article appeared in the Journal, the case for bringing charges against the company is greatly weakened.

Why?

“Because under the guidelines, the degree to which current management has cooperated with the government and dealt with those who engaged in wrongdoing must be factored in,” Holder writes.

But in his own June 1999 memo, Holder writes that: “a corporation should not be able to escape liability merely by offering up its directors, officers, employees, or agents in lieu of its own prosecution.”

This is a practice that is common among corporate defense counsel ? offer up the executives to save the company’s hide. Is this the strategy we are now seeing put into place by Bennett for Enron, and by defense attorneys for WorldCom and Adelphia? (In the Adelphia case, the executives were charged with crimes and arrested at their homes before a media mob ? and with the arrests announced at a White House press briefing — while the corporation was only charged by the SEC with civil fraud.)

In making his case against a criminal charge against WorldCom, Holder says that he focused on collateral consequences ? the workers who will be thrown out of work and the innocent shareholders who will lose money ? if as a result of an indictment, the company is put out of business.

First of all, whether the shareholders are innocent in these cases is an open question. After all, they are the owners of the company and they have nominal control. Second, it is not clear that a criminal conviction would put WorldCom out of business.

But if it might, the question about workers is a good one. Perhaps where companies face extinction as a result of a corporate criminal prosecution, the companies should be thrown into public receivership–as happens with criminal unions–or assigned a corporate appointed monitor — as was the case when Consolidated Edison was convicted of environmental crimes in November 1994.

Corporations, their defense attorneys and lobbyists are swarming all over Washington seeking to save their collective hides.

They wish to preserve the double standard that President Bush says the new law will eliminate.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and co-director of Essential Action. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999.)

 

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Russell Mokhiber is the editor of the Corporate Crime Reporter..

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