Corporate Crime Reporter
19 Corporate Crime Reporter 48(11), December 12, 2005
INTERVIEW WITH MARY JO WHITE, PARTNER, DEBEVOISE & PLIMPTON LLP, NEW YORK, NEW YORK
Mary Jo White has spent most of her public career prosecuting or defending corporate criminals.
She now heads the 222 lawyer litigation group at Debevoise & Plimpton in New York City.
Her practice is primarily the “big mess” practice for big corporations.
They create the mess, and then hire White to clean it up.
White was present at the creation of deferred prosecution agreements.
As U.S. Attorney, she negotiated one of the first in 1994 with Prudential Securities.
It took a while – ten years – but now DPAs are all the rage.
We interviewed White on December 1, 2005.
CCR: You graduated from Columbia Law School in 1974. What have you been doing since?
WHITE: I spent my career – except for one year clerking for a federal judge – either in the U.S. Attorney's offices of the Southern District of New York, Eastern District of New York or at the law firm of Debevoise & Plimpton.
After clerking, I came to Debevoise & Plimpton as a litigation associate. I went to the U.S. Attorney's office in February 1978. I tried a number of criminal cases – white collar, terrorism, drug cases. I became the chief of appeals and then returned to Debevoise in June 1981. I was made a partner in 1983. My practice was about 60 percent criminal, 40 percent civil, primarily representing companies on the criminal white collar side and in SEC enforcement matters.
I returned to the government in March 1990, first as the chief assistant U.S. Attorney and then acting U.S. Attorney in the Eastern District of New York. Two highlights there – the trial of John Gotti and the indictment of Eastern Airlines.
I then became the U.S. Attorney in the Southern District of New York June 1, 1993 and stepped down in January 2002. I returned to Debevoise in April 2002 as the chair of the litigation department here, which includes about 220 lawyers.
My practice today is predominately a "big mess" practice for companies – on the SEC side, on the criminal side, and on the civil side. I do a lot of internal investigations, but also some serious civil litigation.
CCR: What percentage of your practice now is criminal?
WHITE: Now, it is about 85 percent to 90 percent criminal and/or SEC enforcement. In this particular climate, the demand for this particular expertise is huge.
CCR: We are preparing a report on deferred and non prosecution agreements. Here are a couple that I wanted to ask you about. One is Sequa Corporation.
WHITE: That was a non prosecution agreement.
CCR: Would you happen to have that agreement?
WHITE: We certainly have the press release announcing it.
CCR: Why are we seeing the up ticks in these agreements?
WHITE: First, let me say that the other agreement that I did involved Prudential Securities. That was the first deferred prosecution agreement involving a major company. That was in 1994. I don't think you saw very many after that until the current climate.
Why the up tick? First, there is more activity in the arena in corporate crime by U.S. Attorneys across the country. That is something that in the post-Sarbanes-Oxley, post-Enron era is something that caught fire in offices that didn't do much of that kind of work before. You have more people out there on the criminal side. It is not just a matter of the SEC working on matters, and then referring a few of those with criminal potential.
But a lot more matters today start with the U.S. Attorney's office and the SEC working together from the get-go.
And again, all over the country a lot more people doing it.
The Justice Department came under a lot of criticism for indicting Arthur Andersen and putting it out of business.
That was justified criticism.
What has happened is that since Arthur Andersen, the Justice Department, to its credit, has focused on the awesome collateral consequences of moving against an entire entity criminally. The stigma of that, the reputational hit of that is too severe for most companies to survive. And so, they have turned to what they consider to be a lesser sanction with lesser collateral consequences. And that is the deferred prosecution agreement, which can take many forms.
CCR: Although, when you were U.S. Attorney, you didn't hesitate to put companies out of business – Daiwa Bank, Republic Securities.
WHITE: Those companies didn't go out of business because of the criminal charges.
Daiwa Bank couldn't do business in the United States, but they continued to do business in Japan. Any prosecutor hesitates before bringing an action against a company because of the fear that that company will go out of business. Now, it is not impossible that you come to a situation as a prosecutor where because you have a company that has a horrible regulatory history, horrible regulatory reputation, that it could be in your judgment in the public interest that the company shouldn't be in business any longer because it is likely to continue to victimize the public.
But every prosecutor, certainly if they are doing their job right, is very concerned about the impact on the innocent employees or shareholders, if you bring a corporate charge. And certainly, I went through that analysis. I did indict a number of companies when I was U.S. Attorney.
But I think if you look – none of them went out of business. It doesn't mean they couldn't have. There were a couple of merger situations.
CCR: You mentioned the Andersen case. Columbia Law School professor John Coffee says "Arthur Andersen committed suicide – it was not murdered by prosecutors. . .It was a case of a company that was much too eagerly in pursuit of consulting income to focus on its central job of auditing. I believe the company was already dead" before the prosecution, he said. "Remember, an auditor is in an exposed position. You are being brought in so that shareholders will trust the company's financial statements. If you bring in a company that has become notorious for Enron, that doesn't enhance the shareholder trust. It probably diminishes it. There was negative value to Arthur Andersen's name at that point. And that destroyed it. The brand was simply killed."
WHITE: I don't agree with that. Certainly, Andersen had some regulatory situations that had damaged its reputation –
CCR: Actually, Andersen had another deferred prosecution from Connecticut in 1996 –
WHITE: So, it's not the case that they had no problems when the indictment came. But that is a very different thing than saying – because of those problems, absent the indictment, they would have gone out of business or been significantly damaged – I don't think that would have happened, partly because of the marketplace. You had five of the Big Five. And that's not very many for all of the big public companies in the United States to choose from. And clearly Arthur Andersen had many, many able, high integrity auditors. They were doing a lot of business when the indictment came down.
So, I don't agree with that comment. They had some issues they needed to deal with on the reputational front and on the control front – no question about that – which is probably true of other firms as well. But the indictment is what killed them.
CCR: Were you involved with the KPMG case?
WHITE: No. But I can't comment on that case.
CCR: Some people believe that deferred and non prosecution agreements are replacing straight out declinations. Others say – no, they are replacing criminal charges. What's your take?
WHITE: For the most part, not exclusively, for the most part, I think there would not have been, or at least should not have been, any kind of criminal charge in most of the cases. In some of them, there might well have been.
Certainly, to the extent that you are substituting a deferred prosecution agreement for a case where you have decided to otherwise indict, then the prosecutors are appropriately limiting the use of deferred prosecution agreements. But it is almost becoming an automatic reaction in many cases beyond those where it should be used.
Prosecutors are thinking – before we close out this case that involves any kind of corporate crime, we should get something from the companies.
And the something these days is a deferred prosecution agreement. In most of the cases, the resolution should have been nothing on the criminal side, or perhaps a cooperation agreement. Obviously, the government has an interest in making sure that companies continue to cooperate in the investigation and prosecution of individuals.
The prosecutors tend to think that there is no cost to the companies of deferred prosecution agreements. It clearly doesn't carry the same stigma of an indictment. But it has a tremendous reputational as well as monetary cost. The focus needs to be narrowed somewhat to cases where you think it really is appropriate to do something as to that company. The law allows you to proceed against the company in virtually every case where you have a single employee who has committed a crime. But clearly your exercise of discretion in the vast majority of cases should involve nothing criminal vis-à-vis the company – assuming the company has responded appropriately to the government investigation and addressed the problem.
A settlement on the civil side should be a sufficient government response in the vast majority of cases. And the Thompson memo, which governs federal prosecutors in deciding what to do about a company, says – it will be the rare case where a company should be indicted.
And it should also be the rare case where the government seeks a deferred prosecution agreement from the company – you need to have a reason for doing that.
Is it an alternative to what you have already decided for sure would be an indictment so you need some sanction? That's a situation that could lead to a deferred prosecution agreement appropriately. Do you feel that this particular company needs to have bells and whistles and enhanced`compliance programs supervised by the criminal side of the government?
That situation could arise, but if you already have an SEC settlement that already has all of those bells and whistles and safeguards, then what are the criminal authorities really adding, other than to have something to show for their investigation as to the company?
CCR: You mentioned Larry Thompson's memo. So, let me read to you part of a speech he gave in 2002 to the American Bar Association:
"Large corporations develop their own methods and culture that guide employees thoughts and actions. That culture is a web of attitudes and practices that tends to replicate and perpetuate itself beyond the tenure of any individual manager. That culture may instill respect for the law or breed contempt and malfeasance. The organization itself must be held accountable for the culture and the conduct it promotes. Without this tool, the public would have no adequate deterrent to corporate criminal conduct because the culture that condoned, or at least acquiesced in, that behavior would be beyond the criminal law's power to correct. Only by prosecuting the corporation itself can we insure systemic reform."
WHITE: I don't think it is an accurate statement. If you are trying to affect future behavior, you are trying to go after a corporate culture that is leading to employees or officers breaking the law. But what it misses is that there are other more appropriate mechanisms to bring about those corporate cultural changes.
Exhibit A would be a resolution with the SEC for a public company. The SEC requires not just the payment of a fine or money, but also enhancements in controls, reports to the SEC for a period of time in order to assure that the corporate culture is attended to and altered as appropriate. For a prosecutor to get into the business of changing corporate culture is skating on fairly thin ice.
CCR: You seem to be getting close to the line of saying – for large publicly held companies, there shouldn't be corporate criminal liability.
WHITE: I'm not saying that, although many countries don't have corporate criminal liability. It should be the very rare case where an entire entity is subject to a criminal charge.
CCR: For a large U.S. based publicly held company, can you name a case that you thought the corporate criminal charge was appropriate?
WHITE: Drexel Burnham Lambert.
CCR: Since then?
WHITE: You have to think of what the charges have been against U.S. based companies – other than in the health care and environmental area.
CCR: In health care, it's death penalty – unless you negotiate the debarment. Why not, instead of these deferred and non prosecution agreements, have guilty pleas and negotiate the collateral consequences?
WHITE: Well, a criminal charge carries with it a more serious negative stigma than anything else in our system. And it is a stigma that affects not just the four or five corporate managers who may have brought about the wrongdoing, but the entire entity. It hurts the entity. It costs a lot of money to right the ship. You certainly will not hear me advocating for indictments instead of deferred prosecution agreements.
My point is that the government should be more sparing in its use of deferred prosecution agreements and limit those to situations where they certainly would have indicted otherwise for all the right reasons on their part. Or limit use to where the SEC or other civil regulators failed to act against the corporate culture that the government feels needs to be fixed.
Prosecutors are at their best when they decide to charge or not and not get into managing corporate America.
CCR: I was looking for the non-prosecution agreement in the Salomon Brothers case. And apparently there isn't one. I wrote to Otto Obermaier, who was the prosecutor in that case. And he wrote back saying: "In Salomon, I viewed my function as prosecuting or declining-period. I did not view myself as a quasi probation officer to see that persons/entities were obeying the law. In Salomon's case that was the function of the SEC – who was better equip to do so."
WHITE: As a general rule, I agree with him. You need to retain the authority to be able to charge a corporate entity, but in virtually every case, it is not the prosecutor's job to anything but charge or not.
CCR: Of any of these major deferred non prosecution agreement cases, are there any that you think that the government should have charged when they didn't?
WHITE: I'm not privy to the cases, other than the ones I'm involved in – and in my cases of course, I don't think the government should have charged. It is one of the most serious and awesome decisions a prosecutor makes because of the collateral consequences. And they very carefully weigh the competing interests there. Do you really need the cannon of criminal indictments? So, I'm really not in a position to criticize any decisions where the government didn't indict a company. My concern is that the automatic alternative is becoming a deferred prosecution agreement much too often. The alternative instead should be a decision not to proceed against the company.
CCR: If the government chooses to enter into one of these agreements, should the agreement be made public?
WHITE: It ordinarily is. And it should be, sure.
CCR: Two of your clients – Shell and Hilfiger – got non prosecution agreements. And both of those agreements are not public. Why was that the case?
WHITE: I have to check into the particulars of those situations. In Shell, there was no agreement and in Hilfiger, the terms of the agreement were publicized in the government's press release. But it wouldn't be appropriate for me to comment further.
CCR: Would you agree that it's a little strange for the government to put out a press release saying – we today entered into a non-prosecution agreement that accomplishes the following – and then not make the agreement public?
WHITE: I'm not disagreeing with what the norm is. But usually it's the government that dictates whether it is public or not. Sometimes you proceed in a way – as in Salomon Brothers – where you don't have an agreement. You just decide not to prosecute. But ordinarily, you do publicize one way or another.
CCR: One of the criticisms from Professor Coffee is that deferred prosecutions shift power to the prosecutor. The prosecutor has incredible power to make determinations as to what they want in exchange for the deferred prosecution. You represented Bristol Myers Squibb in the negotiations with the U.S. Attorney in Newark for a deferred prosecution. And as a condition of that agreement, your client agreed to fund a chair in business ethics at Seton Hall Law School – the law school where the U.S. Attorney graduated from. Professor Coffee sees that as the prosecutor crossing the line.
WHITE: It wouldn't be appropriate for me to talk about the Bristol Myers case or any cases in which I have been personally involved.
But speaking generically, prosecutors have tremendous power period. They have life and death powers over people and companies. They have tremendous leverage to secure what they want to secure, particularly if what they are offering is not to charge criminally.
Most people, most companies would like to avoid criminal charges and will agree with the government as to various terms that in a objective world with a level playing field they should not be asking for.
But prosecutors have tremendous leverage. As in any other kind of charging decision, prosecutors need to exercise their discretion wisely and with restraint and not have their power go to their head. Prosecutors have to take a step back and decide what does the public interest dictate here? Do I need a deferred prosecution agreement at all? Is it justified at all? If it is justified, you need to think long and hard about what the appropriate terms are.
Company counsel also need to say – we don't think an agreement under these circumstances is appropriate at all.
It needs to be a two way dialogue where the public interest is best served.
But there is no question that prosecutors have tremendous leverage. And by and large, Otto Obermaier is right – prosecutors are at their best when it comes to corporate criminal prosecutions when they decide either to indict or not indict and not get into the management of a company.
CCR: While you were U.S. Attorney you said that obstruction of justice can change a decision not to prosecute into a decision to prosecute.
CCR: And many of these deferred prosecution agreements involve obstruction of justice – KPMG, Computer Associates – just go down the list. And in these cases, the evidence of obstruction didn't convert into a decision to criminally prosecute.
WHITE: In many of the deferred prosecution agreements, there was no element of obstruction. If there is an element of obstruction dictated by corporate management in any way, that clearly makes your decision-making more difficult. No company is ever going to have no crime in it. It is impossible no matter how good your compliance is to ever achieve that. So, what you as a prosecutor are looking at is – when the company found out about the problem, what did it do about the problem? Did it self report? Did it cooperate? Did it houseclean? You are looking at – how the company as company at its highest levels behaves. And if there is an element of obstruction in how a company responds to a problem or a government investigation, you can't get much more serious than that. It very often can convert a decision to do a deferred prosecution agreement or nothing in most situations into a situation where you will end up charging.
Obstruction by an individual has the same kind of effect. If there is an element of obstruction or lying to the government, most prosecutors take that very seriously, because it ends up undermining the whole system.
CCR: If you could put your prosecutor's hat back on. Apparently, there hasn't been a conviction of a major company in an accounting or securities fraud case since Arthur Andersen because of what happened in Andersen.
Some people believe that accounting fraud cases are best suited to these kind of alternative agreements. But you are seeing now other kinds of cases like bribery cases, hospital fraud cases – where these alternative agreements are being applied. Do you agree that deferred prosecutions are best suited for accounting and securities fraud cases and not bribery and hospital fraud, for example?
WHITE: You are always assessing the seriousness of the crime. How serious is the crime? How pervasive is the crime? And you are looking at the real collateral consequences, if you think otherwise the right decision is to indict the company. And so there are some kinds of offenses – environmental for example – where companies have been convicted and pled guilty for many years, where the collateral consequences have not been as severe as in a situation of an Arthur Andersen or a Drexel Burnham. So, there is a little bit of a sliding scale.
CCR: When you cut the Prudential Securities deal, did you see that as a groundbreaking case?
WHITE: No. I thought it was the right result for that case. It may have been the first deferred prosecution. It was certainly not something I thought I was likely to do again. It was a very special situation. And in fact, other prosecutors didn't jump on the bandwagon. And nor did I when I was U.S. Attorney. We decided to indict or not. You may have a non-prosecution agreement, but not a deferred. I did not think it would catch on.
CCR: But it did.
WHITE: Ten years later. It is a tool that prosecutors have. They clearly reassessed themselves after Arthur Andersen. You saw the collateral consequences coming to roost in Andersen. The Justice Department realized in very concrete stark terms – do I really want these kinds of consequences. Are we really serving the public interest? And so, the tool is available to them to go down several notches. You combine that with the number of cases they are involved in – and you get the results we have been seeing. And prosecutors are like anybody else – when they devote a lot of time and effort to a case, they want something to show for it.
And so I fear the deferred prosecution is becoming a vehicle to show results.
CCR: An alternative model would be the indictment your brought in Consolidated Edison. It was one of the few cases of corporate probation – the company was convicted, and there was a probation officer – a monitor – reporting to a federal judge. In corporate probation, you get the deterrent impact of the guilty plea. And you get the cultural change, through the monitor.
WHITE: If it is a case deserving of indictment, and the prosecutors have assessed that the collateral consequences are survivable, then yes – you do send a stronger deterrent message by indicting a company. You have a convicted company. A judge sentences the company. The judge can impose a fine, or impose probation with all of the bells and whistles we have been talking about through a deferred.
If the only choice is between a deferred prosecution agreement and an indictment, the company is going to choose the deferred because it doesn't have the same stigma and same collateral consequences.
CCR: Today, Con Ed would have gotten a deferred prosecution right?
WHITE: Not necessarily, no. It depends on who the U.S. Attorney is.
CCR: If you were the U.S. Attorney?
WHITE: That wouldn't be appropriate for me to comment on.
CCR: It puts a lie to – if you indict and convict a major American company, you put it out of business. Con Ed is not out of business, as I recall.
WHITE: They are thriving.
CCR: Probation saved the company.
WHITE: It did help it. Assume the SEC doesn't have a role in a particular case. Nobody else is in the arena but the prosecutor. And you feel that you want to do something that insures that this corporate culture rights itself.
You don't have to either indict or get a term of probation, or file a deferred prosecution agreement. You can just as easily do a cooperation agreement – the terms are negotiated. And without the stigma of filing a criminal charge, you can by a non-prosecution cooperation agreement bring about exactly the same thing.
And a deferred by the way doesn't have to involve filing a criminal charge. You can just agree that you are going to withhold the filing of charges assuming the company complies with whatever the terms of your agreement are. So, there are lesser alternatives to achieve the same thing as a deferred prosecution agreement, without the stigma and inappropriateness of filing, even filing – a criminal charge against an entire entity. It is not without cost to do that. And it is certainly not without stigma to do that. And in the vast majority of cases, it is certainly not appropriate to level that kind of stigma against most companies in these situations.
CCR: You say that, but then you as U.S. Attorney decided to level those charges against the corporate entity.
WHITE: For the most part, except for Prudential, I decided either to charge or not. I did not instead file a charge, which carries stigma, even though you are deferring it.
CCR: There were two non-prosecution cooperation agreements – Sequa and Aurora Foods. For the vast majority of cases, bringing a criminal charge against a major American corporation where there is evidence of serious corporate wrongdoing is inappropriate?
WHITE: In the vast majority of cases, yes, because it is not the entity that you should be aiming at – it is the guilty parties.
CCR: Many people say – a corporation is a legal fiction. If you want to have an impact, throw the executives in prison.
WHITE: There is no question that the primary focus of prosecutors is and remains guilty individuals. The entity is a corporate fiction. But it is obviously an important entity to those who work in it and those who invest in it.
Prosecutors should think – why is it that I need to do anything to this company? Why is this such a rare case of wrongdoing that it demands something on the criminal side?
But it is an arena where prosecutors are beginning to think much more routinely – we need to do something. It is not an indictment. And our preference is not to indict. We therefore need a deferred prosecution agreement. We need something. And that is where they are going astray sometimes, in my view. In the vast majority of cases, they should not be seeking anything from the company itself except its cooperation.
[Contact: Mary Jo White, Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022. Phone: (212) 909-6260. E-mail: [email protected]]
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