Last week, the Department of Justice (DOJ) issued a department-wide memorandum outlining a new strategy to combat corporate crime. The guidelines advise DOJ attorneys to focus on the specific people within those corporations who commit the misdeeds.
“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” Deputy Attorney General Sally Yates wrote in the memo. Yates suggests ways the DOJ can “fully leverage its resources to identify culpable individuals at all levels in corporate cases” while achieving the twin goals of deterrence and recovering as much taxpayer money as possible.
The Yates memo was a reaction to longstanding criticism that the DOJ has been too easy on corporate crime, particularly in the financial sector, and unwilling to punish corporate executives. This got us thinking about how the DOJ and other federal agencies have handled misconduct committed by the government’s largest contractors and what impact the new guidelines will have in this regard.
A sizable portion of the 2,100-plus instances in our newly redesigned Federal Contractor Misconduct Database are federal cases. The overwhelming majority of these instances, which date back to 1995, are non-criminal matters resolved through settlements in which the contractor company paid a fine and admitted no wrongdoing. Only a small fraction of the instances—less than one-tenth—are criminal cases, which typically resulted in low-level employees taking the fall for the company by pleading guilty and, on occasion, receiving jail time.
Instances involving the most drastic administrative remedy for contractor misconduct—exclusion from contracting through suspension or debarment—show a similar pattern. Contracting exclusions imposed on the companies were usually lifted within a few days or weeks, or were imposed only on a particular office or sub-unit of the company. By contrast, suspensions and debarments of some of those aforementioned low-level employees, which typically followed a criminal conviction, lasted much longer.
In short, the “too big to jail” phenomenon—or “too big to debar”, if you will—is clearly in evidence in our database. Like the big banks, then, the new DOJ corporate crime policy will also target the big contractors and hopefully change their behavior.
This hope is bolstered by the memo guideline that calls for greater coordination and communication between DOJ criminal and civil attorneys during investigations. This is extremely important from a contracting standpoint. As Yates explains, “consultation between the Department’s civil and criminal attorneys…permits consideration of the full range of the government’s potential remedies (including incarceration, fines, penalties, damages, restitution to victims, asset seizure, civil and criminal forfeiture, and exclusion, suspension and debarment)” (emphasis added).
One of our persistent criticisms of the federal suspension and debarment system is the delay in acting on suspension and debarment referrals because agencies are waiting for the DOJ to complete its investigation. This has been an issue of great concern to Congress, as indeed it should be to the rest of the country, because referral backlogs mean taxpayer money may be going to disreputable contractors, including contractors tied to terrorist groups.
The Yates memo is the latest in a series of DOJ guidelines going back to the 1990s that have attempted to strike a satisfactory balance in the crackdown on corporate crime. Until very recently, the balance tilted too far in favor of corporations and corporate executives, with an emphasis on deferred-prosecution and non-prosecution agreements instead of indictments, guilty pleas, and prison sentences. We will have to wait and see if this new policy nudges the balance back toward greater deterrence and accountability.