Legal Review: Justice Department at a Crossroads on White Collar Crime Reform

Kush Arora is a criminal defense attorney in Maryland. Mr. Arora handles cases at the state and federal level, and his practice ranges from sensitive misdemeanor cases to DUI defense to serious felony allegations. He is also part of Price Benowitz LLP’s White Collar Defense Practice Group.

Last year, the US Department of Justice announced a strategic change in how it will prosecute corporate crime in the Yates Memo. Instead of focusing mainly on corporate entities, it is aggressively pursuing individual executives as well – the specific people directly responsible for corporate malfeasance. And the DOJ isn’t alone. The Financial Crimes Enforcement Network (FinCEN) also recently stated an increased focus on personal liability.

Many believe the change came about primarily after the 2008 financial and housing crisis, which led to widespread public criticism of the Justice Department for being too soft on corporate executives.

Critics claimed even though federal prosecutors collected billions of dollars in fines from Wall Street banks and other corporations, they were much too easy on the executives themselves, whose very actions led to the financial system collapse and subsequent recession.

The policy states that if companies want credit for cooperating with investigators, they will need to turn over evidence of individual misconduct – i.e., name names – to help prosecutors collect evidence and build strong cases.

It was one of US Attorney General Loretta Lynch’s first major policy announcements when she took office in 2015 and was intended to show corporate boards there’s no protective shield against culpability for white collar crime.

In practice, however, prosecutors may find it’s harder than ever to convict individuals of financial fraud and other white collar crimes – particularly in light of a bill Congress introduced in November 2015 called the Criminal Code Improvement Act of 2015.

One of the bill’s provisions delves into the gray areas of intent and knowledge of the law, which are difficult to prove. It says that if the statutory language of the offense does not specify a mens rea requirement, then the prosecutors must show the crime was committed knowingly. In addition, if a reasonable person would not know or have reason to know the underlying conduct was unlawful, then prosecutors need to prove that the defendants knew or had reason to know of the unlawfulness of the conduct.

This is important because the “knowingly” standard is not easy to prove. In light of the Yates Memo and the DOJ’s focus on personal liability in criminal cases, this new bill would compound the major difficulties involved with seeking individual culpability in large corporate cases.

Demonstrating state of mind is always challenging, but it is especially so in complex financial and securities litigation where countless regulations, multi-layered financial scenarios, and corporate divisions play off each other.

C-level executives have a tendency to operate above mainstream business operations. They defend themselves by saying they were too far removed from day-to-day processes and procedures to know what was going on. Mid-level managers involved in day-to-day operations argue their actions were simply one small part of a boundless mechanism with unknown interdependencies and reactions.

And although the ignorance defense doesn’t normally work in court, in cases involving large companies it can make it very difficult for the government to find evidence of criminal intent. Put differently, it is hard to find criminal intent in individuals when the actions of a company are so heavily dispersed. Most often, there is no one person who has enough information to have criminal intent to commit a crime. Instead, the prosecutors are often left with evidence of recklessness and negligence.

The Justice Department opposes this bill because it will likely impede their goal of convicting more guilty individuals, as opposed to mainly corporate entities.

The DOJ has spent years investigating complex financial crimes with the sole intention of reaching settlements to impact corporate bottom lines, rather than building cases against executives to send them to jail. To obtain more individual convictions, federal prosecutors must work harder than ever to prove intent and knowledge.

If the proposed legislation passes, DOJ must fine-tune its investigative tactics and sharpen its prosecutorial skills to build successful cases.

Borderstan contributor and law firm sponsor Price Benowitz LLP. The views and opinions expressed in the column are those of the author — our contributor and law firm sponsor Price Benowitz LLP — and do not necessarily reflect the views of Borderstan.